My society has nominal and associate members. Does that alone destroy the 80P deduction?
No. Where the State Co-operative Societies Act permits those classes of membership, their presence is not by itself a ground to disallow s.80P. The outcome was mixed, though: rental, commission and miscellaneous receipts were held ineligible.
Decided by the ITAT (ITAT Bangalore Bench 'B' — Waseem Ahmed (Accountant Member) and Soundararajan K. (Judicial Member) (IT Appeal No. 1733 (Bang) of 2024)) on 2025-05-29, reported as [2025] 175 taxmann.com 77 / 213 ITD 178 (Bangalore - Trib.) — IT Appeal No. 1733 (Bang) of 2024 (AY 2017-18). It bears on section 80P, section 80P(2)(a)(i), section 80P(2)(d), section 57, section 40(a)(ia) of the Income Tax Act 1961, in Co-operative Societies and Deductions & Disallowances matters.
It applies Mavilayi to the mutuality objection and moves the test to the relevant State Act rather than abstract mutuality, which is what you need when the officer leans on Citizen Co-operative Society. It also sorts the other receipts: interest on deposits the State law makes mandatory qualifies under s.80P(2)(d), interest on deposits beyond that limit does not, though the related expenditure may be claimed under s.57.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For AY 2017-18 the society, carrying on banking business and providing credit facilities, had 8,606 members in three classes: 2,197 Class A regular members with voting, profit-sharing and dividend rights; 2,522 Class B associate members with profit-sharing and dividend rights but no vote; and 3,663 Class C nominal members with none of those rights, all three classes being entitled to participate in the society's activities. It returned gross total income of Rs. 1,76,24,174 — business income of Rs. 1,75,65,121 and house property income of Rs. 59,053 — and claimed the whole of it under section 80P(2)(a)(i). The Assessing Officer held that catering to classes of members with different rights to profits and dividends destroyed mutuality, relying on the Supreme Court in Citizen Co-operative Society, and separately took out of the deduction interest of Rs. 79,28,908 on fixed deposits with a co-operative bank, e-stamp and other commissions and miscellaneous receipts of Rs. 1,51,295, and rent of Rs. 1,10,000, and disallowed Rs. 88,680 under section 40(a)(ia). The Commissioner (Appeals) allowed the section 80P claim on Mavilayi, held the fixed-deposit interest incidental to the credit business, and directed the officer to allow the remaining items after considering the society's submissions. The Revenue appealed.
The Revenue's appeal was partly allowed for statistical purposes, and two of the four limbs went back to the Assessing Officer. On membership, the Revenue's ground was dismissed: the society operates under the Karnataka Co-operative Societies Act, which expressly permits nominal and associate members, so their presence does not break mutuality, and Citizen Co-operative Society, decided on a State Act that made no provision for nominal members, was distinguished. On interest from fixed deposits with a co-operative bank, nothing was decided — the issue was set aside to the Assessing Officer to verify whether the deposits were required by the Karnataka Act; interest on deposits within the mandatory limit is to be allowed on the Supreme Court's decision in CIT v. Karnataka State Co-operative Apex Bank, and interest on any excess is to be excluded from eligible income after allowing the corresponding cost under section 57. On rental income, commissions and the small miscellaneous heads, the Bench held these do not arise from the business contemplated by section 80P and disallowed them, reversing the relief below. On the section 40(a)(ia) disallowance it directed that the society's explanation about timing differences be considered before any disallowance is finalised.
At para 26 the Bench framed the question as whether the society is entitled to section 80P(2)(a)(i) and recorded the Revenue's case that three classes of members with unequal rights break mutuality. At para 26.1 it held that reasoning does not hold because the society operates under the Karnataka Co-operative Societies Act, which expressly allows nominal and associate members: by law they may not vote or share profits but they are still valid members and dealings with them fall within the co-operative framework. It distinguished Citizen Co-operative Society as decided on a different State law that did not allow nominal members, so the facts and legal background were entirely different, and took the Supreme Court in Mavilayi as clarifying that eligibility under section 80P is to be assessed in the light of the relevant State co-operative law. At para 26.2 it set the interest issue aside for verification against the Karnataka Act's mandatory-deposit requirement, on the footing of CIT v. Karnataka State Co-operative Apex Bank, with any excess to be excluded after allowing the corresponding cost under section 57. At para 26.3 it held rental income, commissions and small other income do not arise from the business section 80P contemplates and disallowed them, and directed that the timing-difference explanation on section 40(a)(ia) be considered.
under KCSA, the presence of nominal and associate members is lawful and does not break the mutuality principle
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Handle my notice → Ask a CA on WhatsAppNo. Where the State Co-operative Societies Act permits those classes of membership, their presence is not by itself a ground to disallow s.80P. The outcome was mixed, though: rental, commission and miscellaneous receipts were held ineligible. This was decided by the ITAT (ITAT Bangalore Bench 'B' — Waseem Ahmed (Accountant Member) and Soundararajan K. (Judicial Member) (IT Appeal No. 1733 (Bang) of 2024)) and bears on section 80P, section 80P(2)(a)(i), section 80P(2)(d), section 57, section 40(a)(ia) of the Income Tax Act 1961. It is reported as [2025] 175 taxmann.com 77 / 213 ITD 178 (Bangalore - Trib.) — IT Appeal No. 1733 (Bang) of 2024 (AY 2017-18). It applies Mavilayi to the mutuality objection and moves the test to the relevant State Act rather than abstract mutuality, which is what you need when the officer leans on Citizen Co-operative Society. It also sorts the other receipts: interest on deposits the State law makes mandatory qualifies under s.80P(2)(d), interest on deposits beyond that limit does not, though the related expenditure may be claimed under s.57. If it applies to you, the first step is this: Cite the provision of your State Co-operative Societies Act that authorises nominal or associate membership.
For AY 2017-18 the society, carrying on banking business and providing credit facilities, had 8,606 members in three classes: 2,197 Class A regular members with voting, profit-sharing and dividend rights; 2,522 Class B associate members with profit-sharing and dividend rights but no vote; and 3,663 Class C nominal members with none of those rights, all three classes being entitled to participate in the society's activities. It returned gross total income of Rs. 1,76,24,174 — business income of Rs. 1,75,65,121 and house property income of Rs. 59,053 — and claimed the whole of it under section 80P(2)(a)(i). The Assessing Officer held that catering to classes of members with different rights to profits and dividends destroyed mutuality, relying on the Supreme Court in Citizen Co-operative Society, and separately took out of the deduction interest of Rs. 79,28,908 on fixed deposits with a co-operative bank, e-stamp and other commissions and miscellaneous receipts of Rs. 1,51,295, and rent of Rs. 1,10,000, and disallowed Rs. 88,680 under section 40(a)(ia). The Commissioner (Appeals) allowed the section 80P claim on Mavilayi, held the fixed-deposit interest incidental to the credit business, and directed the officer to allow the remaining items after considering the society's submissions. The Revenue appealed. The matter was decided on 2025-05-29 by the ITAT (ITAT Bangalore Bench 'B' — Waseem Ahmed (Accountant Member) and Soundararajan K. (Judicial Member) (IT Appeal No. 1733 (Bang) of 2024)). On those facts the ITAT held as follows. The Revenue's appeal was partly allowed for statistical purposes, and two of the four limbs went back to the Assessing Officer. On membership, the Revenue's ground was dismissed: the society operates under the Karnataka Co-operative Societies Act, which expressly permits nominal and associate members, so their presence does not break mutuality, and Citizen Co-operative Society, decided on a State Act that made no provision for nominal members, was distinguished. On interest from fixed deposits with a co-operative bank, nothing was decided — the issue was set aside to the Assessing Officer to verify whether the deposits were required by the Karnataka Act; interest on deposits within the mandatory limit is to be allowed on the Supreme Court's decision in CIT v. Karnataka State Co-operative Apex Bank, and interest on any excess is to be excluded from eligible income after allowing the corresponding cost under section 57. On rental income, commissions and the small miscellaneous heads, the Bench held these do not arise from the business contemplated by section 80P and disallowed them, reversing the relief below. On the section 40(a)(ia) disallowance it directed that the society's explanation about timing differences be considered before any disallowance is finalised.
At para 26 the Bench framed the question as whether the society is entitled to section 80P(2)(a)(i) and recorded the Revenue's case that three classes of members with unequal rights break mutuality. At para 26.1 it held that reasoning does not hold because the society operates under the Karnataka Co-operative Societies Act, which expressly allows nominal and associate members: by law they may not vote or share profits but they are still valid members and dealings with them fall within the co-operative framework. It distinguished Citizen Co-operative Society as decided on a different State law that did not allow nominal members, so the facts and legal background were entirely different, and took the Supreme Court in Mavilayi as clarifying that eligibility under section 80P is to be assessed in the light of the relevant State co-operative law. At para 26.2 it set the interest issue aside for verification against the Karnataka Act's mandatory-deposit requirement, on the footing of CIT v. Karnataka State Co-operative Apex Bank, with any excess to be excluded after allowing the corresponding cost under section 57. At para 26.3 it held rental income, commissions and small other income do not arise from the business section 80P contemplates and disallowed them, and directed that the timing-difference explanation on section 40(a)(ia) be considered. In the words reproduced by the source cited on this page: "under KCSA, the presence of nominal and associate members is lawful and does not break the mutuality principle" The decision followed or applied Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 123 taxmann.com 161 / 279 Taxman 75 / 431 ITR 1 (SC); CIT v. Karnataka State Co-operative Apex Bank [2001] 118 Taxman 321 / 251 ITR 194 (SC).
It was decided by the ITAT on 2025-05-29 and is reported as [2025] 175 taxmann.com 77 / 213 ITD 178 (Bangalore - Trib.) — IT Appeal No. 1733 (Bang) of 2024 (AY 2017-18). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 80P, section 80P(2)(a)(i), section 80P(2)(d), section 57, section 40(a)(ia), 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 Revenue's appeal was partly allowed for statistical purposes, and two of the four limbs went back to the Assessing Officer. On membership, the Revenue's ground was dismissed: the society operates under the Karnataka Co-operative Societies Act, which expressly permits nominal and associate members, so their presence does not break mutuality, and Citizen Co-operative Society, decided on a State Act that made no provision for nominal members, was distinguished. On interest from fixed deposits with a co-operative bank, nothing was decided — the issue was set aside to the Assessing Officer to verify whether the deposits were required by the Karnataka Act; interest on deposits within the mandatory limit is to be allowed on the Supreme Court's decision in CIT v. Karnataka State Co-operative Apex Bank, and interest on any excess is to be excluded from eligible income after allowing the corresponding cost under section 57. On rental income, commissions and the small miscellaneous heads, the Bench held these do not arise from the business contemplated by section 80P and disallowed them, reversing the relief below. On the section 40(a)(ia) disallowance it directed that the society's explanation about timing differences be considered before any disallowance is finalised. It arises in Co-operative Societies and Deductions & Disallowances matters, on section 80P, section 80P(2)(a)(i), section 80P(2)(d), section 57, section 40(a)(ia) of the Income Tax Act 1961, and was decided by ITAT Bangalore Bench 'B' — Waseem Ahmed (Accountant Member) and Soundararajan K. (Judicial Member) (IT Appeal No. 1733 (Bang) of 2024). 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. Split fixed-deposit interest between deposits made because State law requires them and deposits beyond that limit, and claim s.80P(2)(d) only on the former. Claim the related expenditure under s.57 against interest that falls outside s.80P instead of fighting for the whole amount. Do not claim rental, commission or miscellaneous receipts under s.80P — those were held outside the core co-operative business.
Searched for later treatment; none was found. That is not the same as a source affirming it. No later decision applying, following or affirming this order was found. The Nagpur Bench in Rajura Nagari Sahakari Pat Sanstha Maryadit v. ITO, ITA No. 483/Nag./2024, order dated 25 February 2025, takes the same view on Maharashtra law and likewise distinguishes Citizen Co-operative Society, but it precedes this order by three months and so cannot be treated as later treatment of it. Nothing contrary was found either. 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.
The sentence previously recorded as the key quote was the reporting portal's formulation and has been replaced with the Bench's own words from para 26.1. Read the outcome carefully: the Revenue lost on membership, but the fixed-deposit interest was restored to the Assessing Officer to check whether the deposits were required by the Karnataka Co-operative Societies Act, the rental, commission and miscellaneous heads were disallowed against the society, and the section 40(a)(ia) point was sent back for the timing-difference explanation to be considered. The order allows the Revenue's appeal partly, for statistical purposes. The reasoning ties eligibility to the State Act in question, so a society in another State must point to its own statute rather than relying on the Karnataka position. Two limbs were remanded, so what the Assessing Officer found on the mandatory-deposit question is not on this record. The Bench did not identify which clause of section 80P the mandatory-deposit interest falls under. No later treatment of the order was found and whether the society appealed the rental and commission disallowance was not traced. 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 Revenue's appeal was partly allowed for statistical purposes, and two of the four limbs went back to the Assessing Officer. On membership, the Revenue's ground was dismissed: the society operates under the Karnataka Co-operative Societies Act, which expressly permits nominal and associate members, so their presence does not break mutuality, and Citizen Co-operative Society, decided on a State Act that made no provision for nominal members, was distinguished. On interest from fixed deposits with a co-operative bank, nothing was decided — the issue was set aside to the Assessing Officer to verify whether the deposits were required by the Karnataka Act; interest on deposits within the mandatory limit is to be allowed on the Supreme Court's decision in CIT v. Karnataka State Co-operative Apex Bank, and interest on any excess is to be excluded from eligible income after allowing the corresponding cost under section 57. On rental income, commissions and the small miscellaneous heads, the Bench held these do not arise from the business contemplated by section 80P and disallowed them, reversing the relief below. On the section 40(a)(ia) disallowance it directed that the society's explanation about timing differences be considered before any disallowance is finalised.
TaxSphere, “ITO v Sahakara Nagar Credit Co-operative Society”, https://taxnotice.vittsphere.com/caselaw/case/ito-v-sahakara-nagar-credit-co-operative-society/ (validity last checked 2026-08-19)
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The Tribunal refused my society's s.80P(2)(a)(i) claim on bank fixed deposit interest saying it had already been given s.80P(2)(d). Can the two clauses be treated as interchangeable, and if the interest really is income from other sources, what happens to my cost of funds?
My society earns interest on deposits with a co-operative bank. Is it deductible under 80P(2)(d)?
My society earns interest on deposits placed with a co-operative bank. The Assessing Officer says s.80P(2)(d) covers only investments with a co-operative society and a co-operative bank is not one. Is there authority the other way?
My society invested surplus funds in short-term bank deposits. Is that interest covered by 80P?
