The High Court of Karnataka held that Section 80P(4) of the Income Tax Act,1961 barred deduction under Section 80P(2)(d) for interest earned from investments in Co-operative Banks.

Judicial Employees House Building,appellant-assessee, filed its income tax return for the assessment year 2017-18 claiming a deduction of Rs. 25,19,453 as interest earned from investment in the Mysore and Chamarajanagar District Co-operative Central Bank Ltd. under Section 80P(2)(d) of the Act.

The Assessing Officer(AO) disallowed the claim, observing that the investment was made in a Co-operative Bank. The assessee appealed to the Commissioner of Income Tax (Appeals)[CIT(A)], who upheld the disallowance on 26.11.2021.

The assessee further appealed to the tribunal, which, relying on the Karnataka High Court ruling in ACIT vs. Totagars Co-operative Sale Society (2017), confirmed that Section 80P(4) barred the deduction under Section 80P(2)(d).

The assessee counsel,argued that the Mysore and Chamarajanagar District Co-operative Central Bank Ltd. was a Co-operative Society engaged in banking, so the investment should qualify for deduction under Section 80P(2)(d).

He referred to an earlier Karnataka High Court ruling in PCIT vs. Totagars Co-operative Sale Society (2017) which allowed such deduction, and submitted that the tribunal wrongly followed a later judgment denying it. He also noted that the later judgment was pending before the Apex Court.

The respondent counsel submitted that the Bank was registered as a Co-operative Society but carried on banking with an RBI license, making it a Co-operative Bank under Section 80P. He stated that Section 80P(4) barred the deduction in such cases.

The tribunal correctly applied the later Totagars decision, which considered Section 80P(4) and held that investment in a Co-operative Bank was not eligible for deduction under Section 80P(2)(d).

Justice S.G Pandit and Justice K.V.Aravind noted that the assessee had invested and earned interest from the Mysore and Chamarajanagar District Co-operative Central Bank Ltd. It observed that a Co-operative Bank is a Co-operative Society registered under the Co-operative Societies Act, but whether it qualifies as a Co-operative Bank depends on its activities.

The High Court found that the Bank held a license from the Reserve Bank of India and carried on banking operations. It held that, even though a Co-operative Bank is also a Co-operative Society, investments in such banks were not eligible for deduction under Section 80P(2)(d) because Section 80P(4) barred such claims.

Following the second Totagars Co-operative Sale Society judgment, the Court agreed with the Tribunal’s conclusion that the assessee could not claim the deduction.

The bench found no facts or legal arguments to warrant a different view and held that no substantial question of law arose. The appeal was therefore dismissed.

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