Karnataka High Court: Souharda Cooperative Societies Qualify Under Section 2(19) and Are Entitled to Section 80P Deduction

Background and Context

A significant ruling has emerged from the Karnataka High Court, Dharwad Bench, affirming that societies registered under the Karnataka Souharda Sahakari Act, 1997 fall squarely within the definition of a "co-operative society" as provided under Section 2(19) of the Income Tax Act, 1961. As a direct consequence, such entities are entitled to claim the deduction available under Section 80P of the Act, subject to the applicable statutory conditions and exceptions.

The case — Vitthalray Souharda Pattin Sahakari Niyamit Vs Union of India (Karnataka High Court) — arose from an assessment order passed against the petitioner society, which was denied co-operative society status by the Income Tax Department, resulting in the denial of Section 80P benefits and the freezing of its bank accounts.

Who Is the Petitioner?

Shri Vitthalray Souharda Pattin Sahakari Niyamit is a society registered under the Karnataka Souharda Sahakari Act, 1997. Its primary activities involve conducting banking operations and extending credit facilities to its members — functions that are characteristically associated with co-operative credit institutions.

The petitioner approached the Karnataka High Court by way of a Writ Petition under Articles 226 and 227 of the Constitution of India, seeking the following reliefs:

  1. Quashing of assessment order No. ITBA/AST/S/144/2019-20/1021747062(1) dated 05.12.2019
  2. A declaration that the petitioner, being a Souharda society, is on par with co-operative societies registered under the Karnataka Cooperative Societies Act, 1959 and is therefore entitled to the benefit of Section 80P of the Income Tax Act, 1961
  3. A writ of mandamus directing the Assessing Officer to de-freeze the petitioner's bank accounts held with Syndicate Bank, Harugeri Branch, Raibag Taluka, Belagavi District (Account Nos. 0560/303/148 and 560/214/27)

The central issue before the Court was:

"Whether an entity registered under the Karnataka Souharda Sahakari Act, 1997 fits into the definition of 'co-operative society' as enacted by Section 2(19) of the Income Tax Act, 1961 for the purpose of Section 80P thereof."

This question had already been examined and resolved by the Principal Bench of the Karnataka High Court, Bengaluru, in W.P. No. 48414 of 2018 (T-IT) — the case of M/s Swabhimani Souharda Credit Cooperative Ltd vs. Government of India and others — disposed of by an order dated 16.01.2020.

Key Precedent: The Swabhimani Judgment

In W.P. No. 48414 of 2018 (along with connected petitions), the Principal Bench of the Karnataka High Court examined the relevant provisions of the following legislations in detail: