Judicial Employees House Building Cooperative Society Limited Vs ITO (Karnataka High Court)
The case involves an appeal by the Judicial Employees House Building Cooperative Society Limited (the assessee) challenging the order of the Income Tax Appellate Tribunal (ITAT), Bengaluru, concerning the assessment year 2017-18. The appeal was filed under Section 260A of the Income Tax Act, 1961 (“the Act”), raising substantial questions of law regarding the eligibility of interest income from investments in a co-operative bank for deduction under Section 80P(2)(d) of the Act.
The assessee had claimed a deduction of ₹25,19,453 earned as interest from investments with the Mysore and Chamarajanagar District Co-operative Central Bank Ltd. under Section 80P(2)(d). The Assessing Officer (AO) rejected the claim, reasoning that the investment was in a co-operative bank rather than another co-operative society. On appeal, the Commissioner of Income Tax (Appeals) also denied the claim, and the assessee subsequently appealed before the ITAT. The ITAT, following the Karnataka High Court’s earlier decision in ACIT vs. Totagars Co-operative Sale Society ((2017) 83 COM 140), held that under Section 80P(4), investments in a co-operative bank do not qualify for deduction under Section 80P(2)(d).
The assessee argued that the Mysore and Chamarajanagar District Co-operative Central Bank Ltd., though engaged in banking, is a co-operative society by registration and therefore eligible for deduction under Section 80P(2)(d). The assessee cited an earlier Karnataka High Court decision in PCIT vs. Totagars Co-operative Sale Society ((2017) 78 Taxmann 169), which had allowed such investments. The appellant contended that the ITAT wrongly relied on a subsequent judgment of the same court dated 16 June 2017, which denied the deduction.
The Revenue argued that while the bank is a co-operative society by registration, it is also a licensed co-operative bank under the Reserve Bank of India, carrying on banking activities. Section 80P(4) of the Act specifically bars deduction for income earned from a co-operative bank under Section 80P(2)(d). The second Totagars judgment, considered by the ITAT, had clarified that Section 80P(4) overrides Section 80P(2)(d) for such cases, and this interpretation was correctly applied by the Tribunal.
The Karnataka High Court examined the legal position, emphasizing that the character of a co-operative bank depends on its functional activities. Merely being registered as a co-operative society does not make income from a co-operative bank eligible for Section 80P(2)(d) deduction. Since the Mysore and Chamarajanagar District Co-operative Central Bank Ltd. held a banking license and carried out banking activities, it qualified as a co-operative bank, invoking the bar under Section 80P(4).
The Court held that the ITAT rightly followed the 16 June 2017 Totagars judgment and correctly denied the deduction claimed by the assessee. The Court noted that no new facts or legal distinctions justified a departure from the ITAT’s view. Consequently, the appeal was dismissed, and no substantial questions of law arose.
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