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HC-KAR NC: 2026:KHC:3588-DB ITA No. 55 of 2025
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 22ND DAY OF JANUARY, 2026 PRESENT THE HON'BLE MR. JUSTICE S.G.PANDIT AND THE HON'BLE MR. JUSTICE K. V. ARAVIND INCOME TAX APPEAL No. 55 OF 2025 BETWEEN:
BANNANJE GRAHAKARA VIVIDHODDESHA SAHAKARA SANGHA LTD., (A SOCIETY REGISTERED UNDER KCS ACT, 1959) H.O.: ESHWARI SANKEERNA, BANNANJE, UDUPI TALUK, UDUPI DISTRICT - 576101. REP. BY ITS SECRETARY - MRS. MANASA. …APPELLANT (BY SRI MAHESH R UPPIN, ADVOCATE) AND:
THE COMMISSIONER OF INCOME TAX (APPEALS), NATIONAL FACELESS APPEAL CENTRE, DELHI - 110001.
THE INCOME TAX OFFICER WARD-1 & TPS, AAYAKAR BHAVAN, MALPE ROAD, ADI-UDUPI, UDUPI - 576103. …RESPONDENTS (BY SRI M. THIRUMALESH, SENIOR STANDING COUNSEL)
Digitally signed by VINUTHA B S Location: HIGH COURT OF KARNATAKA
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HC-KAR NC: 2026:KHC:3588-DB ITA No. 55 of 2025
THIS ITA IS FILED UNDER SECTION 260 A OF INCOME TAX ACT 1961, PRAYING TO SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA No.79/BANG/2024 DATED 06.05.2024 FOR THE ASSESSMENT YEAR 2016-17.
THIS APPEAL, COMING ON FOR ORDERS, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE S.G.PANDIT and HON'BLE MR. JUSTICE K. V. ARAVIND
ORAL JUDGMENT
(PER: HON'BLE MR. JUSTICE K.V. ARAVIND)
Heard Sri Mahesh R. Uppin, learned counsel for the appellant-Assessee and Sri Thirumalesh, learned Senior Standing Counsel for the respondents-Revenue.
This appeal is filed by the assessee challenging the order dated 06.05.2024 passed in ITA No.79/Bang/2024 by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short, “the ITAT”).
The Assessee has raised the following substantial questions of law;
"(i) In the facts and circumstances of the case, whether the Tribunal and the authorities below are right in treating Nominal members who are only 164 in
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HC-KAR NC: 2026:KHC:3588-DB ITA No. 55 of 2025
numbers as Nominal/Associate members and thereby erred in denying benefit of deduction under Section 80P(2)(a)(i) of the Act?
(ii) Whether on the facts and circumstances of the case and in law, was it correct in holding that the interest on investments derived by appellant from SCDCC Bank (a co-operative bank) and other Banks was chargeable u/s. 56 of the Act as 'Income from other Sources' contrary to the mandate contained in Proviso to Section 80P(2)(a)(i) of the Act?
(iii) In the facts and circumstances of the case and in law, whether the Tribunal and the authorities below are right in not considering the fact that the society is liable to maintain statutory deposits as part of its business and the interest income earned therefrom is eligible for deduction?"
The assessee filed its return of income claiming deduction under Section 80P(2) of the Income Tax Act, 1961 (for short, “the I.T. Act”). The Assessing Officer issued notice under Section 143 of the I.T. Act and called upon the assessee to furnish the list of members, details of loans and deposits, and particulars of interest paid and received from nominal members. Upon consideration of the details furnished, the Assessing Officer noticed that the assessee had earned interest
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HC-KAR NC: 2026:KHC:3588-DB ITA No. 55 of 2025
income from fixed deposits and investments made with a nationalized bank and the SCDCC Bank. Applying the provisions of Section 80P(2) of the I.T. Act, the Assessing Officer disallowed the claim for deduction. 4.1 The Assessing Officer further observed that the assessee has extended loans to persons other than its members by registering them as nominal members and held that the principle of mutuality would not apply in respect of such nominal members. On these grounds, the claim was disallowed. The assessment was accordingly concluded by order dated 25.12.2018. Aggrieved by the assessment order, the assessee preferred an appeal before the National Faceless Appeal Centre (NFAC). The Commissioner of Income Tax (Appeals) [CIT(A)] dismissed the appeal, concurring with the findings and conclusions of the Assessing Officer. 4.2 The assessee further aggrieved preferred an appeal before the Income Tax Appellate Tribunal (ITAT). By the impugned order dated 06.05.2024, the ITAT disallowed the claim insofar as it related to interest income earned from the SCDCC Bank and IDBI Bank, by following its earlier orders.
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HC-KAR NC: 2026:KHC:3588-DB ITA No. 55 of 2025
Insofar as the interest income from nominal or associate members is concerned, the matter was remitted to the Assessing Officer for fresh consideration in the light of the judgment of the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. and others v. Commissioner of Income Tax, Calicut and another [(2021) 7 SCC 90].
Sri Mahesh R. Uppin, learned counsel appearing for the assessee, fairly submits that insofar as substantial question of law No.2 is concerned, the issue stands covered by the judgment of the High Court of Kerala in ITA No.142/2019 in the case of Principal Commissioner of Income Tax, Thiruvananthapuram v. Vilappil Service Co-operative Bank Ltd.
5.1 Insofar as substantial question of law No.1 is concerned, learned counsel submits that although the matter has been remitted to the Assessing Officer for fresh consideration by the ITAT, the Tribunal has nevertheless recorded findings on merits, thereby leaving no real scope for the Assessing Officer to independently consider the issue. It is the submission of learned counsel for the assessee that a remand would be
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HC-KAR NC: 2026:KHC:3588-DB ITA No. 55 of 2025
justified only if no observations are made on merits, which are binding on the Assessing Officer. It is contended that, in view of the findings already recorded, the scope of remand stands circumscribed by such findings. On these grounds, learned counsel prays that the impugned order of the ITAT be set aside.
We have considered the submissions of made on either side and perused the appeal papers.
The ITAT has remitted the matter only for the limited purpose of examining the scope of nominal/associate members and to determine the eligibility of interest income earned from loans advanced to such members for deduction under Section 80P(2)(a) of the I.T. Act. The Tribunal has directed reconsideration of the issue in the light of the decision of the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. (supra).
In view of the order of remand, we find no reason to interfere. However, we find some substance in the submission of learned counsel for the assessee that certain observations made by the ITAT may prejudice the rights of the assessee in
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HC-KAR NC: 2026:KHC:3588-DB ITA No. 55 of 2025
the remand proceedings. It is therefore clarified that the remand proceedings shall be considered independently, uninfluenced by any observations or findings recorded by the ITAT on merits, and strictly in accordance with the law laid down by the Hon’ble Supreme Court in Mavilayi Service Co- operative Bank Ltd. (supra) and considering the relevant provisions of Karnataka Co-operative Societies Act.
Insofar as substantial question of law No.2 is concerned, the said question does not survive for consideration in view of the decision rendered in M/s. Judicial Employees House Building Co-operative Society Limited v. Income Tax Officer [ITA No.93/2024, dated 16.09.2025].
In light of the above, the appeal stands disposed of.
Sd/- (S.G.PANDIT) JUDGE
Sd/- (K. V. ARAVIND) JUDGE
MV/List No.: 2 Sl No.: 5