MAHALAKSHMI PURA SRI VASAVI CREDIT CO-OP LTD,BENGALURU vs. ITO WARD-6(2)(1), BENGALURU

The brief facts are that the assessee is a cooperative society engaged in accepting deposits from, and providing loans to, its members, thereby earning business income from credit facilities provided to them. It filed its return of

The assessee preferred an appeal before the learned CIT(A), but it was filed with a delay of 131 days. The learned CIT(A) noted that the assessment order was passed on 15 April 2021, whereas the appeal was filed on 23 September 2021. After considering the explanation furnished in Form No. 35and noting certain discrepancies, the learned CIT(A) held that sufficient cause for the delay had not been established. He further observed that the assessee was not interested in prosecuting the appeal and, accordingly, dismissed it.

We have heard Shri Madhukar Hegde, Chartered Accountant, learned Authorized Representative for the assessee, and shri Ganesh Ghale the learned Standing Counsel for the Revenue. The sole issue for consideration is whether the assessee, a members’ credit cooperative society, is entitled to deduction under section 80P(2)(a)(i) of the Act. The assessee contends that the issue is covered in its favour, whereas the Revenue relies on decisions of the Hon’ble Karnataka High Court.

The assessee is a cooperative society engaged mainly in accepting deposits from, and extending credit facilities to, its members. The dispute relates to the tax treatment of interest income earned from cooperative banks. The learned Assessing Officer treated the interest as income from other sources, while the assessee claims that it is business income attributable to its activity of providing credit facilities to members. The learned Authorized Representative submitted that the issue is covered in favour of the assessee by the decisions of the Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. v. Income Tax Officer, Ward-1, Tumkur [2015] 55 taxmann.com 447 (Karnataka), and Pr. Commissioner of Income Tax v. Totagars Co-operative Sale Society.

The learned Departmental Representative, on the other hand, submitted that the issue is covered in favour of the Revenue by the decision in Totagars Co-

Section 80P allows a deduction where the gross total income of a cooperative society includes income specified in sub-section (2). For a cooperative society carrying on the business of banking or providing credit facilities to its members, the entire profits and gains attributable to that activity are deductible. The issue, therefore, is whether interest received from cooperative banks qualifies for deduction under section 80P(2)(a)(i) of the Act. The assessee submits that such receipts are business income attributable to its activity of providing credit facilities to members. We find that the issue is covered in favour of the assessee by decisions of the Hon’ble Karnataka High Court.

We also note that the learned Assessing Officer relied on another decision of the Hon’ble Karnataka High Court, which held that interest income earned from cooperative banks is taxable as income from other sources and not as business income. It was further held that deduction under section 80P(2)(d) of the Act is not allowable in respect of such interest income.

Coordinate benches have consistently held that, where conflicting decisions of the Hon’ble Karnataka High Court exist, the decision whose facts are closer to the case before the Tribunal should be followed. In the present case, the facts are closer to the decisions relied upon by the assessee. Accordingly, the interest income is eligible for deduction under section 80P(2)(a)(i) of the Act, and the assessee’s claim is allowed.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 22nd June, 2026 Sd/- (PRASHANT MAHARISHI) VICE PRESIDENT Bangalore, Dated, the 22nd June, 2026. *VM*