YEDAPADAV VYAVASAYA SEVA SAHAKARA SANGHA NIYAMITHA vs. INCOME TAX OFFICER

Parties Involved

Facts Summary

The assessee, a members' credit co-operative society, filed its return of income on 29 October 2017, declaring nil income after claiming a deduction of ₹ 3,281,743 under section 80P(2)(a)(i) of the Act. The return was selected for scrutiny to verify this substantial deduction. The assessee is registered under the Karnataka Co-operative Societies Act, 1959 and provides credit facilities to its members, operates fair-price shops, and earns rental income from let-out shops; it is not a bank. The learned Assessing Officer held that the society violated the principle of mutuality because nominal members could neither share in its surplus nor participate in its governance and, therefore, denied the deduction under section 80P. The assessee contended that nominal members were also members of the society, that it had not dealt with any non-member, and that it was consequently entitled to the deduction. The learned AO nevertheless maintained the disallowance. He further found that the assessee had earned bank interest of ₹ 3,423,162 from the SDCC Bank. Rejecting its treatment as business income, he assessed the interest as “income from other sources” and denied a deduction under section 80P(2)(a), relying on the Hon’ble Karnataka High Court’s decision in Totagars Co-operative Sale Society dated 16 June 2017. The learned AO also disallowed an excess provision of ₹ 1,732,427 for interest payable on deposits and a provision of ₹ 9,330 for non-performing assets. Accordingly, by an assessm…

Legal Issues

• 1. Whether the assessee is entitled to a deduction under section 80P(2)(a)(i) of the Act as it is dealing with the nominal members and further it is earning on bank interest.
• 2. Whether the interest income earned by the assessee is taxable under the head “Income from other sources”.

Judgment Outcome

Decided in favour of Assessee.

Precedents Relied Upon

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