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Facts
The assessee, a cooperative society, claimed a deduction of Rs. 1,36,01,527/- under Section 80P(2)(d) for interest income earned from investments in cooperative banks. The Assessing Officer (AO) disallowed this, treating it as income from other sources and stating the assessee was not entitled to the deduction for interest from cooperative banks, a disallowance upheld by the CIT(A). The AO relied on The Totgar's Cooperative Sale Society Ltd. case.
Held
The Tribunal, distinguishing The Totgar's Cooperative Sale Society Ltd. decision, held that cooperative banks are covered under the definition of 'cooperative society' as per Section 2(19) of the Income Tax Act, 1961. Therefore, interest income derived by the assessee from deposits with cooperative banks is eligible for deduction under Section 80P(2)(d) of the Act, relying on various High Court and ITAT judgments including Thorapadi Urban Co-operative Credit Society Ltd.
Key Issues
Whether interest income earned by a cooperative society from deposits in cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
Sections Cited
80P, 80P(2)(a)(i), 80P(2)(d), 250, 143(1), 143(3), 148, 142(1), 143(2), 147, 144B, 2(19), 194A
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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT, AM
2017, 2020 & 2022. As the facts are identical, we hereby pass a consolidated order by taking as a lead case.
& ors. M/s. Brihanmumbai Police Karmachari Sahakari Patsanstha Maryadit
The assessee has raised the following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law learned AO erred in rejecting partial deduction under section 80P(2)(a)(i) for a sum of Rs.1,36,01,527/- of appellant society without appreciating the fact that earning of interest is an integral part of society’s business and appellant prays for allowing such deduction.
2. On the facts and in the circumstances of the case and in law the learned Assessing Officer erred in treating a sum of Rs.1,36,01,527/- being interest received on investment with banks as ineligible amount for calming deduction under section 80P (2)(a)(i) without appreciating the fact that earning of interest is an integral part of societies business and appeal and prays for allowing such deduction.
On the facts and in the circumstances of the case and in law the learned Assessing Officer erred in treating the interest received from investment as income from other sources by rejecting appellant’s contention that said interest income is integral part of business activity and your appellant prays for cancellation of Assessing officer’s action.
Without prejudice to above ground on the facts and circumstances of the case and in the law Learned Assessing Officer erred in not allowing the deduction under section 80P(2)(d) on interest income received from other co-operative society. Your appellants pray for allowing of the same.
Without prejudice to above ground, On the facts and circumstances of the case and in the law Learned Assessing Officer erred in treating entire interest income as interest income received from other co-operative society or bank without allowing deduction on account of interest expenses.
Your appellant prays for such deduction Your appellant prays for deletion of entire addition. Your appellant craves for to add, alter amend, modify, delete any or all grounds of appeal before or during the course of hearing in the interest of principle of natural justice.”
3. The brief facts of the case are that the assessee is a cooperative society engaged in the activities of providing credit facility to its members and had filed its return of income for the year under consideration dated 14.11.2014 declaring total income at Rs.11,38,500/- after claiming deduction of Rs.1,36,01,527/- u/s. 80P(2)(d) of the Act and the same was processed u/s. 143(1) of the Act. The assessee’s case was selected for scrutiny and assessment order u/s. 143(3) of the Act was passed determining total income at & ors. M/s. Brihanmumbai Police Karmachari Sahakari Patsanstha Maryadit Rs.11,88,500/- vide assessment order dated 15.11.2016. Subsequently, the assessee’s case was reopened vide notice u/s. 148 of the Act dated 20.12.2019 and notices u/s. 142(1) & 143(2) were duly issued and served upon the assessee. The Learned Assessing Officer (“Ld. AO” for short) observed that the assessee has earned interest income amounting to Rs.1,36,01,527/- on investments made in co-operative banks/urban banks/scheduled banks and was credited in the P&L account for which the assessee had claimed deduction u/s. 80P of the Act. The Ld. AO disallowed the same on the ground that the assessee was not entitled to claim deduction u/s. 80P(2)(d) of the Act on interest received from cooperative banks, thereby passing the assessment order dated 24.09.2021 u/s. 147 r.w.s. 144B of the Act determining the total income at Rs.1,47,90,030/- after making a disallowance of Rs.1,36,01,527/-.
4. Aggrieved, the assessee was in appeal before the first appellate authority, who vide order dated 30.08.2025 upheld the disallowance made by the Ld. AO on the ground that only interest out of investment from cooperative societies are entitled for deduction under chapter VIA of the Act.
5. The assessee, aggrieved by the same, is in appeal before us challenging the order of the Ld. CIT(A).
The Learned Authorized Representative (“Ld. A.R.” for short) for the assessee commenced the argument stating that the assessee, being a cooperative society registered under the Maharashtra Cooperative Societies Act, 1960, is duty bound to maintain a & ors. M/s. Brihanmumbai Police Karmachari Sahakari Patsanstha Maryadit statutory deposit of 20% of the total deposit of society in liquid funds, as fixed deposits in banks for which the assessee receives interest income which is entitled to claim deduction on the same u/s. 80P of the Act. The Ld. A.R. further stated that the interests are received from Mumbai District Central Cooperative Banks which are akin to cooperative societies registered under the Cooperative Societies Act, 1912 and not from any rural banks which would fall under the Banking Regulation Act. The Ld. A.R. further contended that this issue has been decided in favour of the assessee and relied on a catena of decisions in support of his claim.
On the other hand, the Learned Departmental Representative (“Ld. D.R.” for short) for the Revenue, controverted the said fact and stated that cooperative banks are different from cooperative societies and only interest from cooperative societies are eligible for deduction u/s. 80P of the Act. The Ld. D.R. further argued that section 194A of the Act excludes cooperative banks from cooperative societies and relied on the decision of Hon’ble Apex Court in the case of The Totgar’s Cooperative Sale Society Ltd. Vs. Income Tax Officer , Karnataka (2010) 118 TAXMAN 282 (SC) wherein the Hon’ble Apex Court has decided this issue against the assessee. Further, the Ld. D.R. relied on the order of the lower authorities.
We have heard the rival submissions and perused the materials available on record.
The only moot issue that requires adjudication is “whether the assessee is entitled to claim deduction u/s. 80P of the Act towards the interest income received from deposits made in cooperative banks?” It is undisputed that the assessee has earned interest income out of & ors. M/s. Brihanmumbai Police Karmachari Sahakari Patsanstha Maryadit investment made in cooperative banks which is a statutory requirement of cooperative credit society. Here, in this case the assessee is registered under the Maharashtra Cooperative Societies Act, 1960. Out of the deposits made with Mumbai District Central Cooperative Bank the assessee has earned interest income of Rs.1,36,01,527/- during the year under consideration and had claimed the same as deduction u/s. 80P of the Act. The Revenue disallowed the same on the premise that cooperative banks are not cooperative societies and only interest income earned from investments made in cooperative societies is eligible for deduction u/s. 80P(2)(d) of the Act. For this, the lower authorities have relied on the decision of the Hon’ble Apex Court in the case of The Totgar’s Cooperative Sale Society Ltd. Vs. Income Tax Officer , Karnataka (supra). Per contra, the assessee has relied on a catena of decisions cited hereunder wherein it has been held that even interest income received out of deposits from cooperative banks are entitled for claiming deduction u/s. 80P of the Act:-
Sai Prerana Co-op Cr. Society Ltd. vs. ITO {217/Mum/2023} 2. Sangram Sahakari Patpedhi Vs. ITO 3. The Jawala Co-op Urban Thrift and Cr. Society Ltd. ITA No. 2900/Del./2015 4. ITO vs. Rustomjee Regency 1 Co-op Housing Society (MA No. 642/Mum/2023} 5. Principal CIT vs. Peroorkada Service Co-operative Bank Ltd. [2022] 134 taxmann.com 380 (Kerala) 6. Shivsahyadri Sahakari Patpedhi Maryadit vs. ITO {ITA No. 3829/Mum/2023} 7. Thorapadi Urban Co-operative Credit Society Ltd. vs. ITO [2023] 156 taxmann.com 419 (Madras)
9. On perusal of the above decisions, it is evident that a cooperative society is “defined under section 2(19) of the Income Tax Act, 1961 as a cooperative society registered under the Cooperative Societies Act, 1912”. Section 2(19) of Cooperative Society is defined as under:
& ors. M/s. Brihanmumbai Police Karmachari Sahakari Patsanstha Maryadit
“(19)(a)"member" means a person joining in an application for the registration of a co- operative society which is subsequently registered, or a person duly admitted to membership of a society after registration and includes a nominal, [or associate] [These words were substituted for the words 'associate or sympathiser' by Maharashtra Act No. 16 of 2013 dated 13-8-2013, Section 2(f)(i), (w.e,f. 14-2-2013).] member [and any depositor or financial service user of primary agricultural co-operative credit society] [These words were added by Maharashtra Act 11 of 2008, Section 2(c), (w.e.f. 29.10.2007).], [(a-l) "active member" means a member who participates in the affairs of the society and utilises the minimum level of services or products of that society as may be specified in the by-laws;] [Sub-clause (a-1) was inserted by Maharashtra Act No. 16 of 2013 dated 13-8-2013, Section 2(f)(ii), (w.e.f. 14-2-2013).]
(b)"associate member" means a member who holds jointly a share of a society with others, but whose name does not stand first in the share certificate;
(c)"nominal member" means a person admitted to membership as such after registration in accordance with the by-laws;
(d)[***] [Sub-clause (d) was deleted by Maharashtra Act No. 16 of 2013 dated 13-8-2013, Section 2(f)(iii), (w.e.f. 14-2-2013).];”
10. This definition, according to us, is evident that a cooperative society has to be registered under the Cooperative Societies Act, 1912 for the purpose of carrying on banking business or other business or a cooperative bank as held by the Hon’ble High Court of Madras in the case of Thorapadi Urban Co-operative Credit Society Ltd. (supra). This has also been reiterated by the co-ordinate Bench of the Tribunal in the case of Shivsahyadri Sahakari Patpedhi Maryadit (supra) in which the relevant extract of the decision of Hon’ble High Court of Madras cited hereinabove is reproduced hereunder for ready reference:
“8. We have considered the submissions made. As noticed earlier, the issue stands concluded by the decisions of this Tribunal as referred to above. Even the Hon’ble Madras High Court in the case of Thorapadi Urban Co-op. Credit Society Ltd. (supra) has held thus in paras 8 to 10 of its order :-
& ors. M/s. Brihanmumbai Police Karmachari Sahakari Patsanstha Maryadit
“8. The main issue is to decide in the present case is as to whether the petitioner Co-operative Society is entitled for a deduction for the interest income received from the Co-operative Bank?
9. It would be appropriate to extract hereunder the relevant portion of section 80P(2)(d).
"80 P. Deduction in respect of income of co-operative societies:
(1) ** ** ** (2) The sums referred to in sub-section (1) shall be the following, namely:—
(a) to (c) ** ** ** (d) "in respect of any income by way of interest or dividends derived by the co-operative society from its investment with any other cooperative society, the whole of such income"
9.1 A reading of the above said provision makes it clear that in the event if any Co- operative Society derived income by way of interest from investment made in any other Co-operative Society the whole such interest is eligible for deduction. Now the issue is as to whether the Co-operative Bank would fall within the purview of the term 'Co-operative Society'. In the present case, the petitioner produced a document to show that the Co-operative Bank, where they have made investments was registered under the Tamil Nadu Cooperative Societies Act, 1983 on 20-5- 2003. In this regard, he also produced a copy of the Certificate of Incorporation of the said Co-operative Bank. Therefore, it is clear that the investment made by the petitioner is a Cooperative Bank registered under the Co-operative Societies Act. The Income Tax Act, 1961 has also defined 'Co-operative Society' under section 2(19) as follows:
'2(19). "Co-operative society" means a co-operative society registered under the Co- operative Societies Act, 1912 (2 of 1912 ), or under any other law for the time being in force in any State for the registration of co- operative societies.'
10. A reading of the above definition would make it clear that 'Co-operative Society' means a Co-operative Society registered under Co-operative Societies Act, 1912. Thus, a Co-operative Society referred therein is only a cooperative society as defined under the Act, be it a Co-operative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Co-operative bank.”
In that view of the matter, we find that the appeal has to succeed.
& ors. M/s. Brihanmumbai Police Karmachari Sahakari Patsanstha Maryadit
In the result, appeal of the assessee is allowed. The AO is directed to allow the deduction as claimed.”
Upon perusal of the above findings it is observed that a cooperative society, which is defined u/s. 2(19) of the Act, which is carrying on banking business or other businesses or a cooperative bank which is registered under the Cooperative Societies Act, 1912 would come under the purview of cooperative society and any interest received from such cooperative banks are also eligible for claiming deduction u/s. 80P(2)(d) of the Act akin to interest received from cooperative societies. Pertinently, various decisions relied upon by the assessee has also distinguished the decision of the Hon’ble Apex Court in the case of Totgar Cooperative Sale Society Ltd. (supra) which was on interpretation of claim of deduction u/s. 80P(2)(a)(i) of the Act where interest income received from its own members by providing credit facility by cooperative banks was dealt with. Though the assessee has raised the grounds on deduction claimed u/s. 80P(2)(a)(i) of the Act the assessee without prejudice has claimed deduction u/s. 80P(2)(d) of the Act as well. The disallowance made by the Ld. AO and upheld the Ld. CIT(A) was also u/s. 80P(2)(d) of the Act and not u/s. 80P(2)(a)(i) of the Act. Therefore, by respectfully following the findings in the abovementioned decision, we deem it fit to allow ground No.4 & 5 raised by the assessee and rendering ground No.1 & 2 as academic in nature.
In the result, the appeal i.e. filed by the assessee is hereby allowed.
& ors. M/s. Brihanmumbai Police Karmachari Sahakari Patsanstha Maryadit
The findings given in the will mutatis mutandis apply to the 6897, 6898, 6899 & 6900 /Mum/2025 as well. Accordingly, all the appeals filed by the assessee are hereby allowed.
Order pronounced in the open court on 24.12.2025