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NC: 2025:KHC:3463-DB ITA No. 185 of 2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27TH DAY OF JANUARY, 2025 PRESENT THE HON'BLE MR JUSTICE KRISHNA S DIXIT AND THE HON'BLE MR JUSTICE G BASAVARAJA INCOME TAX APPEAL NO. 185 OF 2024 BETWEEN:
THE PR. COMMISSIONER OF INCOME TAX AAYAKAR BHAVAN, PLOT NO.5, EDC COMPLEX, PATTO PLAZA, PANAJI, GOA - 403 001.
THE INCOME TAX OFFICER, WARD 2(1), C R BUILDING ANNEXE, ATTAVARA ROAD, MANGALURU 575 001. …APPELLANTS (BY SRI. THIRUMALESH M.,ADVOCATE AND SRI. DILIP M., ADVOCATE)
AND:
M/S MOODBIDRI CO-OPERATIVE SERVICES BANK LTD., DOOR NO.192, MAIN ROAD, MOODBIDRI - 574 227. PAN AABAM7065K REPRESENTED BY ITS MANAGER. …RESPONDENT
THIS ITA / INCOME TAX APPEAL UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 11.01.2024 PASSED IN (IN ITA NO.930/BANG/2023, FOR THE ASSESSMENT YEAR 2018-2019, PRAYING TO I.FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ETC.,
THIS ITA, COMING ON FOR ADMISSION THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR JUSTICE KRISHNA S DIXIT AND HON'BLE MR JUSTICE G BASAVARAJA
Digitally signed by SHARADA VANI B Location: HIGH COURT OF KARNATAKA
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NC: 2025:KHC:3463-DB ITA No. 185 of 2024
ORAL JUDGEMENT
(PER: HON'BLE MR JUSTICE KRISHNA S DIXIT)
This Appeal by the Revenue filed under Section 260A of the Income Tax Act, 1961 calls in question the order dated 11.01.2024 entered by the Income Tax Appellate Tribunal, Bengaluru, whereby Assessee’s ITA No.930/BANG/2023 having been favoured, the Assessment Order dated 02.12.2022 for the Assessment Year 2018-19 granting a deduction of interest amount of Rs.3,53,68,999/- under Section 80P(2)(a)(i) of the 1961 Act has been revived by setting aside the revisional order made by the Principal Commissioner of Income Tax.
Learned Sr. panel Counsel appearing for the Revenue has framed the following substantial questions of law which read as under: “1. Whether the Hon’ble ITAT is correct in considering the interest received from the investments made in SCDCC Bank as operational income?
Whether the Hon’ble ITAT correct in not considering the fact that the interest income received from the Co-Op banks has to be disallowed in view of the bindings decisions of
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NC: 2025:KHC:3463-DB ITA No. 185 of 2024
the Karnataka High Court in the case of M/s. Totagars Co-operative Sale Society reported in 395 ITR 611?
Whether the Hon’ble ITAT correct is holding that assessment order is neither erroneous nor prejudicial to the interest of the revenue?
Whether the Hon’ble ITAT is right in quashing the revision order u/s 263 of the IT Act, 1961 passed by the PCIT, Panaji?”
Having heard the learned Sr. Panel Counsel for the Revenue and having perused the Appeal papers, we are of the considered view that the question as to the deductability of interest accruing on monies deposited by the credit cooperative societies as a matter of statutory compulsion, is no longer res integra in the light of Apex Court decision in INCOME TAX OFFICER, vs. ISHWSAR BHAVAN CO-OPERATIVE HOUSING SOCIETY, 395 ITR 611. 4. At Paragraph No.10, the Tribunal of the impugned order has been rightly observed as under: “10. The AO only disallowed a sum of Rs.14,03,072/- received as interest from savings bank account with SCDCC Bank Ltd. Therefore, there was a categorical finding by
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NC: 2025:KHC:3463-DB ITA No. 185 of 2024
the AO that a sum of Rs.3,53,68,999/- received by the assessee as interest on FDs with the SCDCC Bank Ltd., is out of statutory obligation and to fulfil the directions of the RBI. The investments made by assessee Society in Fixed Deposits and Shares with SCDCC Bank (District Central Co Operative Bank) is not the surplus funds available but are done only to be complaint of the statutory requirement as detailed below:
a) It is mandatory for a Co Operative Society registered under the KCS Act 1959 to liquidity by investing a minimum of 25 % of the Total Deposits accepted by it form Members as Fixed Deposit with District Central Co Operative Bank as SLR Investment and a min of 3% of the Total Deposits as Case Reserve Ration (CRR). Communication received in this regard from SCDCC Bank Limited, the jurisdictional nodal Bank for the Primary Agricultural Credit Co Operative Societies in the district of Dakshina Kannada was placed.
b) Under Sec 57(2) of the Karnataka Co Operative Societies Act 1959, It is mandatory for a Co Operative Society registered under the KCS Act 1959 to set aside a minimum of 25% of its Net Profit and credit it to Reserve Fund Account every year. Sec 57 of the KCS Act 1959 is re-produced here below:
Net Profits and their disposal:-
(1) The net profits of co-operative societies shall be determined in accordance with such rules as may be prescribed and different rules may be made for different classes of co-operative societies.
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NC: 2025:KHC:3463-DB ITA No. 185 of 2024
(2) A co-operative society shall, out of its net profit in any year transfer an amount not being less than twenty-five per cent of the profits to the reserve fund. (3) ************
c) Further, as per the directives issued by the Registrar of Co-operative Societies Karnataka and as per assessee’s Bye Law, the balance held in Reserve Fund shall not be utilized as working capital and shall be invested outside the business as stipulated in Sec 58 of the KCS Act 1959. By Law No.26.2 of the assessee also mandates that the Reserve Fund shall be invested as specified in the Act.
d) It is mandatory for a Co-operative Society registered under the KCS Act 1959 to maintain 3% of the Total Deposits accepted by it from Members as Cash Reserve Ratio.”
In the above circumstances, this Appeal being devoid of merits is liable to be and accordingly, rejected in limine. Registry to send a copy of this order to the Respondent –Assessee, forthwith.
Sd/- (KRISHNA S DIXIT) JUDGE
Sd/- (G BASAVARAJA) JUDGE Bsv/List No.: 1 Sl No.: 33