The Tribunal remanded the nominal member issue to the Assessing Officer but recorded findings on the merits while doing so, leaving the officer nothing to decide. Is there anything I can do about that in the High Court?
Yes. The Karnataka High Court declined to interfere with the order of remand itself, but accepted that the Tribunal's observations on the merits might prejudice the assessee and clarified that the remand proceedings are to be considered independently, uninfluenced by any observations or findings recorded by the Tribunal on merits, strictly in accordance with Mavilayi Service Co-operative Bank and having regard to the relevant provisions of the Karnataka Co-operative Societies Act.
Decided by the High Court (S. G. Pandit J and K. V. Aravind J) on 2026-01-22, reported as I.T.A. No. 55 of 2025; neutral citation 2026:KHC:3588-DB (Karnataka High Court, Bengaluru). It bears on section 80P, section 80P(2), section 80P(2)(a), section 80P(2)(a)(i), section 56, section 143, section 260A of the Income Tax Act 1961, in Co-operative Societies, Deductions & Disallowances and Appeals matters.
A remand that comes with merits findings attached is a defeat dressed as a second chance, and it is a common shape for orders on nominal and associate members after Mavilayi. This is the narrow, practical relief available: not a decision on membership, but a direction that strips the remand of the Tribunal's conclusions. The judgment also confirms the frame in which the nominal member question is now to be decided — Mavilayi plus the State co-operative societies enactment, because whether a nominal or associate member is a 'member' turns on the State law under which the society is registered.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The appellant is a society registered under the Karnataka Co-operative Societies Act, 1959. It claimed a deduction under s.80P(2). In assessment proceedings the Assessing Officer called for the list of members, details of loans and deposits, and particulars of interest paid to and received from nominal members, found that the society had earned interest on fixed deposits and investments with a nationalised bank and the SCDCC Bank, and disallowed the deduction. He also held that the society had lent to persons other than its members by registering them as nominal members, 164 in number, and that the principle of mutuality did not apply to them. The assessment was concluded on 25 December 2018. The Commissioner (Appeals) at the National Faceless Appeal Centre dismissed the appeal. By order dated 6 May 2024 in ITA No. 79/Bang/2024 the Tribunal disallowed the claim so far as it related to interest from the SCDCC Bank and IDBI Bank, and remitted the nominal or associate member question to the Assessing Officer for fresh consideration in the light of Mavilayi Service Co-operative Bank Ltd. v. CIT [(2021) 7 SCC 90], while nevertheless recording findings on merits. The assessee appealed under s.260A, contending that the findings circumscribed the scope of the remand.
The appeal was disposed of. The Court found no reason to interfere with the order of remand, but clarified that the remand proceedings shall be considered independently, uninfluenced by any observations or findings recorded by the Tribunal on merits, and strictly in accordance with the law laid down by the Supreme Court in Mavilayi Service Co-operative Bank Ltd. and considering the relevant provisions of the Karnataka Co-operative Societies Act (para 8). The second substantial question, on the characterisation of interest from the SCDCC Bank and other banks, was held not to survive for consideration in view of the Court's decision in I.T.A. No. 93 of 2024 dated 16 September 2025 (para 9).
The Court noted that the Tribunal had remitted the matter only for the limited purpose of examining the scope of nominal and associate members and determining the eligibility of interest income earned from loans advanced to them for deduction under s.80P(2)(a), with a direction to reconsider in the light of Mavilayi (para 7). Accepting the substance of the assessee's complaint that certain observations of the Tribunal might prejudice its rights in the remand proceedings, the Court issued the clarification rather than setting the remand aside (para 8).
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.
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Handle my notice → Ask a CA on WhatsAppYes. The Karnataka High Court declined to interfere with the order of remand itself, but accepted that the Tribunal's observations on the merits might prejudice the assessee and clarified that the remand proceedings are to be considered independently, uninfluenced by any observations or findings recorded by the Tribunal on merits, strictly in accordance with Mavilayi Service Co-operative Bank and having regard to the relevant provisions of the Karnataka Co-operative Societies Act. This was decided by the High Court (S. G. Pandit J and K. V. Aravind J) and bears on section 80P, section 80P(2), section 80P(2)(a), section 80P(2)(a)(i), section 56, section 143, section 260A of the Income Tax Act 1961. It is reported as I.T.A. No. 55 of 2025; neutral citation 2026:KHC:3588-DB (Karnataka High Court, Bengaluru). A remand that comes with merits findings attached is a defeat dressed as a second chance, and it is a common shape for orders on nominal and associate members after Mavilayi. This is the narrow, practical relief available: not a decision on membership, but a direction that strips the remand of the Tribunal's conclusions. The judgment also confirms the frame in which the nominal member question is now to be decided — Mavilayi plus the State co-operative societies enactment, because whether a nominal or associate member is a 'member' turns on the State law under which the society is registered. If it applies to you, the first step is this: If the Tribunal remands but records merits findings, do not treat the remand as a win. Appeal under s.260A asking, at minimum, for a direction that the remand be decided uninfluenced by those findings.
The appellant is a society registered under the Karnataka Co-operative Societies Act, 1959. It claimed a deduction under s.80P(2). In assessment proceedings the Assessing Officer called for the list of members, details of loans and deposits, and particulars of interest paid to and received from nominal members, found that the society had earned interest on fixed deposits and investments with a nationalised bank and the SCDCC Bank, and disallowed the deduction. He also held that the society had lent to persons other than its members by registering them as nominal members, 164 in number, and that the principle of mutuality did not apply to them. The assessment was concluded on 25 December 2018. The Commissioner (Appeals) at the National Faceless Appeal Centre dismissed the appeal. By order dated 6 May 2024 in ITA No. 79/Bang/2024 the Tribunal disallowed the claim so far as it related to interest from the SCDCC Bank and IDBI Bank, and remitted the nominal or associate member question to the Assessing Officer for fresh consideration in the light of Mavilayi Service Co-operative Bank Ltd. v. CIT [(2021) 7 SCC 90], while nevertheless recording findings on merits. The assessee appealed under s.260A, contending that the findings circumscribed the scope of the remand. The matter was decided on 2026-01-22 by the High Court (S. G. Pandit J and K. V. Aravind J). On those facts the High Court held as follows. The appeal was disposed of. The Court found no reason to interfere with the order of remand, but clarified that the remand proceedings shall be considered independently, uninfluenced by any observations or findings recorded by the Tribunal on merits, and strictly in accordance with the law laid down by the Supreme Court in Mavilayi Service Co-operative Bank Ltd. and considering the relevant provisions of the Karnataka Co-operative Societies Act (para 8). The second substantial question, on the characterisation of interest from the SCDCC Bank and other banks, was held not to survive for consideration in view of the Court's decision in I.T.A. No. 93 of 2024 dated 16 September 2025 (para 9).
The Court noted that the Tribunal had remitted the matter only for the limited purpose of examining the scope of nominal and associate members and determining the eligibility of interest income earned from loans advanced to them for deduction under s.80P(2)(a), with a direction to reconsider in the light of Mavilayi (para 7). Accepting the substance of the assessee's complaint that certain observations of the Tribunal might prejudice its rights in the remand proceedings, the Court issued the clarification rather than setting the remand aside (para 8). In the words reproduced by the source cited on this page: "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." The decision followed or applied Mavilayi Service Co-operative Bank Ltd. and others v. Commissioner of Income Tax, Calicut and another, (2021) 7 SCC 90 — the remand is to be decided in its light; M/s Judicial Employees House Building Co-operative Society Limited v. Income Tax Officer, I.T.A. No. 93 of 2024, decided 16 September 2025 (Karnataka) — applied to the investment interest question; not read for this entry.
It was decided by the High Court on 2026-01-22 and is reported as I.T.A. No. 55 of 2025; neutral citation 2026:KHC:3588-DB (Karnataka High Court, Bengaluru). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 80P, section 80P(2), section 80P(2)(a), section 80P(2)(a)(i), section 56, section 143, section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The appeal was disposed of. The Court found no reason to interfere with the order of remand, but clarified that the remand proceedings shall be considered independently, uninfluenced by any observations or findings recorded by the Tribunal on merits, and strictly in accordance with the law laid down by the Supreme Court in Mavilayi Service Co-operative Bank Ltd. and considering the relevant provisions of the Karnataka Co-operative Societies Act (para 8). The second substantial question, on the characterisation of interest from the SCDCC Bank and other banks, was held not to survive for consideration in view of the Court's decision in I.T.A. No. 93 of 2024 dated 16 September 2025 (para 9). It arises in Co-operative Societies, Deductions & Disallowances and Appeals matters, on section 80P, section 80P(2), section 80P(2)(a), section 80P(2)(a)(i), section 56, section 143, section 260A of the Income Tax Act 1961, and was decided by S. G. Pandit J and K. V. Aravind J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Frame the nominal member argument on the State enactment: produce the definition of 'member' and of 'nominal' or 'associate member' in the State co-operative societies Act, and the society's bye-laws admitting them. Segregate the interest earned from nominal or associate members from the rest, and be ready with the number of such members and the loans to them — here there were 164. Keep the investment interest issue separate. In this case the interest from a co-operative bank and from a nationalised bank was governed by a different decision of the same Court and did not survive as a question.
Validity check could not be completed. Decided 22 January 2026; followed by the same bench in Mudur Vyavasaya Seva Sahakari Sangha Ltd. v. CIT (Appeals), I.T.A. No. 56 of 2025, decided 31 January 2026, where identical questions were held not to survive independent consideration. No further treatment was checked. The judgment applies Mavilayi Service Co-operative Bank (SC, 2021) rather than departing from it, and nothing in Kerala State Co-operative Agricultural and Rural Development Bank (SC, 2023) bears on it — that decision concerned whether the assessee was a co-operative bank within s.80P(4), not membership. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is an oral judgment of ten paragraphs disposing of an appeal, not a decision on the substance of the nominal member question, and it should not be cited as one. The Court records at paragraph 9 that the second substantial question, on interest from the SCDCC Bank and other banks, did not survive in view of its decision in M/s Judicial Employees House Building Co-operative Society Limited v. ITO, I.T.A. No. 93 of 2024, dated 16 September 2025; that judgment could not be located on indiankanoon and has not been read, so nothing is said here about what it decides. The framing of the four substantial questions was taken from a rendering that may be compressed and is paraphrased in the facts rather than quoted. Paragraph 8, from which the quote is taken, was independently re-fetched in raw form; the raw text carries no quotation marks around the clarification, which the print rendering had added. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was disposed of. The Court found no reason to interfere with the order of remand, but clarified that the remand proceedings shall be considered independently, uninfluenced by any observations or findings recorded by the Tribunal on merits, and strictly in accordance with the law laid down by the Supreme Court in Mavilayi Service Co-operative Bank Ltd. and considering the relevant provisions of the Karnataka Co-operative Societies Act (para 8). The second substantial question, on the characterisation of interest from the SCDCC Bank and other banks, was held not to survive for consideration in view of the Court's decision in I.T.A. No. 93 of 2024 dated 16 September 2025 (para 9).
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