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?
No, they cannot. The Karnataka High Court held that s.80P(2)(a)(i) and s.80P(2)(d) are entirely different and distinct provisions, that a deduction given under (d) does not disentitle a society from claiming under (a)(i), and that the authorities cannot reject an (a)(i) claim by mixing up the two. It further held that even if the interest is assessable under s.56, the Tribunal, as the last fact finding authority, was obliged to examine the proportionate cost of funds and administrative expenses deductible under s.57, and it remanded the matter to the Assessing Officer.
Decided by the High Court (S. Sujatha J and John Michael Cunha J) on 2018-02-19, reported as I.T.A. No. 100004 of 2018 (Karnataka High Court, Dharwad Bench); assessment year 2012-13. It bears on section 80P, section 80P(1), section 80P(2)(a)(i), section 80P(2)(d), section 56, section 57, section 143(2), section 143(3), section 260A of the Income Tax Act 1961, in Co-operative Societies, Deductions & Disallowances and Appeals matters.
The confusion between the two clauses is the commonest single defect in s.80P orders. Clause (a)(i) is about profits and gains of business attributable to banking or providing credit facilities to members; clause (d) is about interest or dividend derived from investments with any other co-operative society. An order that refuses (a)(i) because (d) was allowed, or that decides (a)(i) by citing authority on (d), is decided on the wrong provision. The second holding is the fallback every co-operative society should have ready: if the interest is pushed into s.56, the cost of the funds that generated it must come off under s.57, and the Supreme Court's own question in Totgars was framed in exactly those terms. Note the ceiling on this decision — the Court did not answer the substantial questions; it set aside the orders and remanded.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The appellant is a co-operative society registered under the Karnataka Souharda Sahakari Act, 1997, engaged in accepting deposits from and providing credit facilities to its members, and also carrying on e-stamping business. For assessment year 2012-13 it returned income of Rs 65,590 after claiming a deduction of Rs 11,01,302 under s.80P(2)(a)(i). In an order under s.143(3) the Assessing Officer determined total income at Rs 25,08,170, denying the deduction in respect of interest earned on bank fixed deposits with Karnataka Bank (Rs 11,08,505), Corporation Bank (Rs 10,05,661) and Ratnakar Bank (Rs 3,38,647). The Commissioner (Appeals) upheld the denial of the s.80P(2)(a)(i) deduction but accepted the claim for cost of funds and administrative expenses referable to the invested funds. The Tribunal dismissed the assessee's further appeal, holding the interest to be income from other sources under s.56, and reasoning that a deduction already given under s.80P(2)(d) would not further entitle the assessee to claim under s.80P(2)(a)(i). The assessee also complained that the Assessing Officer had added Rs 24,52,813 of fixed deposit interest that was already included in the consolidated income and expenditure account.
The order of the Tribunal and of the authorities below was set aside and the matter remanded to the Assessing Officer for fresh consideration, with all rights and contentions left open and a direction to hear the assessee. The substantial questions of law were expressly not answered and the appeal was disposed of accordingly.
The Court noted its own coordinate bench decision in Tumkur Merchants Souharda Credit Co-operative Ltd., which had held, relying on Cambay Electric Supply Industrial Co. Ltd., that the expression 'attributable to' is of wider import than 'derived from' and that interest earned by a society on funds invested in banks is attributable to the activity of carrying on banking or providing credit facilities to members, and that Tumkur Merchants had reached finality. It held that the authorities had not considered the applicability of Tumkur Merchants in a right perspective. The Tribunal had proceeded on the footing that a deduction given under s.80P(2)(d) precluded a claim under s.80P(2)(a)(i); the Court held the two provisions to be entirely different and distinct and that the Tribunal ought to have examined the applicability of s.80P(2)(a)(i) on its own terms. It further held that even assuming Totgar's Co-operative Sale Society applied, the Tribunal, being the last fact finding authority, was obliged to examine the proportionate costs and administrative expenses referable to the interest assessed under s.56 and the availability of deduction under s.57, an exercise it had not performed, which rendered its order unsustainable. The Court also held that the judgment relied on by the Revenue dealt with s.80P(2)(d) and was therefore not squarely applicable to a claim under s.80P(2)(a)(i). Finally, on the facts, income could not be enhanced to about Rs 25,00,000 without considering the actual figures already returned.
These two provisions being entirely different and distinct, the Tribunal ought to have examined the applicability of Section 80P(2)(a)(i) of the Act in the facts and circumstances of the case. Deduction given under Section 80P(2)(d) of the Act would not disentitle the assessee to claim deduction under Section 80P(2)(a)(i) of the Act.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppNo, they cannot. The Karnataka High Court held that s.80P(2)(a)(i) and s.80P(2)(d) are entirely different and distinct provisions, that a deduction given under (d) does not disentitle a society from claiming under (a)(i), and that the authorities cannot reject an (a)(i) claim by mixing up the two. It further held that even if the interest is assessable under s.56, the Tribunal, as the last fact finding authority, was obliged to examine the proportionate cost of funds and administrative expenses deductible under s.57, and it remanded the matter to the Assessing Officer. This was decided by the High Court (S. Sujatha J and John Michael Cunha J) and bears on section 80P, section 80P(1), section 80P(2)(a)(i), section 80P(2)(d), section 56, section 57, section 143(2), section 143(3), section 260A of the Income Tax Act 1961. It is reported as I.T.A. No. 100004 of 2018 (Karnataka High Court, Dharwad Bench); assessment year 2012-13. The confusion between the two clauses is the commonest single defect in s.80P orders. Clause (a)(i) is about profits and gains of business attributable to banking or providing credit facilities to members; clause (d) is about interest or dividend derived from investments with any other co-operative society. An order that refuses (a)(i) because (d) was allowed, or that decides (a)(i) by citing authority on (d), is decided on the wrong provision. The second holding is the fallback every co-operative society should have ready: if the interest is pushed into s.56, the cost of the funds that generated it must come off under s.57, and the Supreme Court's own question in Totgars was framed in exactly those terms. Note the ceiling on this decision — the Court did not answer the substantial questions; it set aside the orders and remanded. If it applies to you, the first step is this: Say in terms, in the grounds of appeal, which clause you are on, and answer any authority the officer cites by asking which clause that authority was on.
The appellant is a co-operative society registered under the Karnataka Souharda Sahakari Act, 1997, engaged in accepting deposits from and providing credit facilities to its members, and also carrying on e-stamping business. For assessment year 2012-13 it returned income of Rs 65,590 after claiming a deduction of Rs 11,01,302 under s.80P(2)(a)(i). In an order under s.143(3) the Assessing Officer determined total income at Rs 25,08,170, denying the deduction in respect of interest earned on bank fixed deposits with Karnataka Bank (Rs 11,08,505), Corporation Bank (Rs 10,05,661) and Ratnakar Bank (Rs 3,38,647). The Commissioner (Appeals) upheld the denial of the s.80P(2)(a)(i) deduction but accepted the claim for cost of funds and administrative expenses referable to the invested funds. The Tribunal dismissed the assessee's further appeal, holding the interest to be income from other sources under s.56, and reasoning that a deduction already given under s.80P(2)(d) would not further entitle the assessee to claim under s.80P(2)(a)(i). The assessee also complained that the Assessing Officer had added Rs 24,52,813 of fixed deposit interest that was already included in the consolidated income and expenditure account. The matter was decided on 2018-02-19 by the High Court (S. Sujatha J and John Michael Cunha J). On those facts the High Court held as follows. The order of the Tribunal and of the authorities below was set aside and the matter remanded to the Assessing Officer for fresh consideration, with all rights and contentions left open and a direction to hear the assessee. The substantial questions of law were expressly not answered and the appeal was disposed of accordingly.
The Court noted its own coordinate bench decision in Tumkur Merchants Souharda Credit Co-operative Ltd., which had held, relying on Cambay Electric Supply Industrial Co. Ltd., that the expression 'attributable to' is of wider import than 'derived from' and that interest earned by a society on funds invested in banks is attributable to the activity of carrying on banking or providing credit facilities to members, and that Tumkur Merchants had reached finality. It held that the authorities had not considered the applicability of Tumkur Merchants in a right perspective. The Tribunal had proceeded on the footing that a deduction given under s.80P(2)(d) precluded a claim under s.80P(2)(a)(i); the Court held the two provisions to be entirely different and distinct and that the Tribunal ought to have examined the applicability of s.80P(2)(a)(i) on its own terms. It further held that even assuming Totgar's Co-operative Sale Society applied, the Tribunal, being the last fact finding authority, was obliged to examine the proportionate costs and administrative expenses referable to the interest assessed under s.56 and the availability of deduction under s.57, an exercise it had not performed, which rendered its order unsustainable. The Court also held that the judgment relied on by the Revenue dealt with s.80P(2)(d) and was therefore not squarely applicable to a claim under s.80P(2)(a)(i). Finally, on the facts, income could not be enhanced to about Rs 25,00,000 without considering the actual figures already returned. In the words reproduced by the source cited on this page: "These two provisions being entirely different and distinct, the Tribunal ought to have examined the applicability of Section 80P(2)(a)(i) of the Act in the facts and circumstances of the case. Deduction given under Section 80P(2)(d) of the Act would not disentitle the assessee to claim deduction under Section 80P(2)(a)(i) of the Act." The decision followed or applied Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO, Tumkur, I.T.A. No. 307 of 2014 (Karnataka) — coordinate bench, applied; Cambay Electric Supply Industrial Co. Ltd. v. CIT, Gujarat-II, (1978) 113 ITR 842 (SC) — relied on for 'attributable to'; Totgar's Co-operative Sale Society Ltd. v. ITO, Sirsi, (2010) 322 ITR 283 (SC) — considered and held not squarely applicable to a claim under s.80P(2)(a)(i); CIT-III, Hyderabad v. Andhra Pradesh State Co-operative Bank Ltd. — noted as considered in Tumkur Merchants.
It was decided by the High Court on 2018-02-19 and is reported as I.T.A. No. 100004 of 2018 (Karnataka High Court, Dharwad Bench); assessment year 2012-13. 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(1), section 80P(2)(a)(i), section 80P(2)(d), section 56, section 57, section 143(2), section 143(3), 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 helps the taxpayer. The order of the Tribunal and of the authorities below was set aside and the matter remanded to the Assessing Officer for fresh consideration, with all rights and contentions left open and a direction to hear the assessee. The substantial questions of law were expressly not answered and the appeal was disposed of accordingly. It arises in Co-operative Societies, Deductions & Disallowances and Appeals matters, on section 80P, section 80P(1), section 80P(2)(a)(i), section 80P(2)(d), section 56, section 57, section 143(2), section 143(3), section 260A of the Income Tax Act 1961, and was decided by S. Sujatha J and John Michael Cunha 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. If the Assessing Officer or the Tribunal has denied (a)(i) on the strength of a decision about (d), take that as a distinct ground — the Court treated the mixing up of the two as itself a reason to set the order aside. Plead the s.57 alternative expressly and quantify it: proportionate cost of funds and administrative expenses referable to the deposits. Do not leave it as a bare assertion, because a plea not argued before the Tribunal will not be entertained by the High Court. Where the same expenditure has already been claimed and allowed in the profit and loss account, expect the Revenue to say a s.57 remand gives you nothing — the Revenue said exactly that here. Reconcile the figures before you ask for the remand. Check the arithmetic of the addition. Here the Assessing Officer added interest that the society had already included in its consolidated income and expenditure account, and the Court held the computation had to be reconsidered on that ground alone.
Validity check could not be completed. Later treatment was not checked and no citator search was run. The decision is a remand, not an answer on the merits, and the Court said so. Its proposition that s.80P(2)(a)(i) and s.80P(2)(d) are distinct is not affected by Mavilayi Service Co-operative Bank (SC, 2021) or by Kerala State Co-operative Agricultural and Rural Development Bank (SC, 2023), neither of which decides anything under s.80P(2)(d). Whether interest on funds invested with banks is attributable to the society's business remains governed by Totgar's (SC, 2010), which Mavilayi did not overrule. 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 judgment runs to 18 numbered paragraphs: paragraphs 4 to 11 record the rival submissions, 12 is the Court taking up the arguments, 13 and 14 carry the holding, 15 the arithmetic point, 16 the remand, 17 records that the substantial question of law is not answered and 18 disposes of the appeal. The quote is from paragraph 13 and was independently re-fetched through /docfragment/, coming back word for word. The judgment records the Revenue's submission that the Karnataka High Court's Division Bench decision of 16 June 2017 in Pr. CIT, Hubballi v. Totgar's Co-operative Sale Society Ltd. (I.T.A. No. 100066 of 2016 and connected matters) held that interest earned by a co-operative society on investments made in a co-operative bank is not eligible under s.80P(2)(d) — that decision is already in the library and this entry does not restate it. This decision predates Mavilayi Service Co-operative Bank (SC, 12 January 2021); nothing in it is inconsistent with Mavilayi, but Mavilayi is not reflected in it. 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 order of the Tribunal and of the authorities below was set aside and the matter remanded to the Assessing Officer for fresh consideration, with all rights and contentions left open and a direction to hear the assessee. The substantial questions of law were expressly not answered and the appeal was disposed of accordingly.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
We charge fees for our public utility work. Does that cost us charitable status under s.2(15)?
Is a notice under s.143(2) a jurisdictional precondition, or merely a procedural step the Assessing Officer can skip?
My return was only processed under 143(1). Does that stop the department reopening it later?
No s.143(2) notice was issued at all. Does s.292BB save the assessment?