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2025 Supreme(Online)(ITAT) 7186
INCOME TAX APPELLATE TRIBUNAL (BANGALORE BENCH)
Shri Prashant Maharishi, VP, Shri Sandeep Singh Karhail, JM
Mahilanidhi Souharda Ltd. – Appellant
Versus
The Income Tax Officer, Ward – 2(1) – Respondent
Assessment Year: 2017-18, 2018-19 & 2020-21
For the Appellant: Shri Sandeep Chalapathy, CA
For the Respondent: Shri Subramanian, JCIT (DR)
Cooperative societies registered under local laws are entitled to tax deductions under section 80P for interest income attributable to their core business, ensuring compliance with mutuality principles.
Headnote:(A) Income Tax Act, 1961 - Section 80P - Deduction claimed under section 80P by agricultural credit cooperative society for interest earned on deposits - Court held that interest income earned is attributable to business of providing credit facilities as per provisions of Act, entitling association to claim deductions - Ruling follows previous cases regarding the definition of a 'member' and principles of mutuality. (Paras 12, 13, 14)
(B) Taxation - Appellate Responsibilities - The Income Tax Appellate Tribunal can adjudicate appeals based on provisions of the Income Tax Act, examining the core issues underlying mutuality and nature of income derived by cooperative societies. (Paras 6, 10)
Facts of the case:
The assessee was denied deductions on grounds of mutuality, due to the presence of nominal members not entitled to profit. The Tribunal examined the principles governing cooperative societies and appeals for multiple assessment years.
Findings of Court:
The interest income, if not a liability but rather profit, is deductible under section 80P, allowing appeals for 2017-18, 2018-19, and 2020-21 consistent with preceding case law.
Issues: The legal questions revolved around eligibility for deductions under section 80P and the definitions of membership categories within cooperative societies.
Ratio Decidendi: The Tribunal established that interest earnings from non-liability investments were attributable to cooperative business, thus defeating prior disallowances. The principle of mutuality was aligned with statutory definitions per applicable local cooperative legislation.
Result: Appeals allowed.
| Table of Content |
|---|
| 1. appeals against disallowance of deductions (Para 1 , 3 , 4) |
| 2. conclusive judgments across assessment years (Para 2 , 8 , 18) |
| 3. interest income claims under section 80p (Para 5 , 12 , 13) |
| 4. principles of mutuality and applicable case law (Para 6 , 10 , 14) |
ORDER
PER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER
1. The assessee has filed the present appeals against the separate impugned orders of even date 17/06/2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment years 2017-18, 2018-19 and 2020-21.
2. Since all the appeals pertain to the same assessee arising out of the similar factual matrix and raising similar grounds, these appeals were heard together as a matter of convenience and are being decided by way of this consolidated order. With the consent of the parties, the appeal of the assessee for the assessment year 2017-18 is considered as a lead case, and the decision rendered therein shall apply mutatis mutandis to the other appeals of the assessee before us.
3. As in all the appeals, the assessee has raised similar grounds, the grounds raised by the assessee in its appeal for the assessment year 2017-18 are reproduced hereunder for ready reference: –
“1. That the order of the Commissioner of Income Tax (Appeals) is in so far it is prejudicial to the interest of the appellant is had and erroneous in law and against the facts and circumstances of the case.
2. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in holding that if the nominal or associate members are not entitled to share of profit then the deduction u/s. 80P(2)(a)(i) has to be granted proportionate to the regular members and such direction is violation of provisions of the relevant State Co-operative Societies Act and decision of Hon'ble Supreme Court.
3. That the Commissioner of Income Tax (Appeals) erred in law and on facts in disallowing the deduction u/s 80P(2)(a)(i) of the Act in respect of interest earned on deposits with Nationalised and Co-operative banks as such interest is attributable to the profits of the business of the appellant.
4. That the Commissioner of Income "Tax (Appeals) erred in law and on facts in disallowing the deduction u/s 80P(2)(d) of the Act in respect of interest earned on deposits with Co- operative banks.
Each of the above grounds is without prejudice to one another and the appellant craves leave of the Hon'ble Income Tax Appellate Tribunal, Bangalore to add, delete, amend or otherwise modify one or more of the above grounds either before or at the time of hearing of this appeal.
4. The solitary grievance of the assessee is against the denial of deduction under section 80P of the Act.
5. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is the Sauharda Sahakari and is engaged in the activity of carrying on the business of providing credit facilities to its members. For the assessment year 2017-18, the assessee filed its return of income on 25/10/2017, declaring a total income of INR Nil, after claiming a deduction amounting to INR 1,24,78,536 under section 80P of the Act. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was noticed that the assessee has two categories of members, namely, Regular (A Class) Members and Nominal (B Class) Members. It was further noticed that out of the total membership of 10,848, 803 members are A Class Regular Members, and 10,045 are B Class Nominal Members. The difference in the entitlement of the aforesaid two classes of Members was also noticed. Accordingly, the assessee was asked to show cause as to why the claim of deduction under section 80P of the Act be not denied as there is a violation of prin
