Loading judgment…
Facts
The assessee claimed deduction under Section 80P(2)(d) for interest earned from co-operative banks. The Assessing Officer disallowed this claim, and the CIT(A) partially allowed the appeal, deleting the disallowance for Section 80P(2)(a)(i) but confirming it for Section 80P(2)(d).
Held
The Tribunal held that Section 80P(4) is a proviso that specifically excludes co-operative banks engaged in banking business from deduction. The assessee, not being a licensed bank lending to the public, is entitled to the deduction under Section 80P(2)(d).
Key Issues
Whether the assessee, a co-operative society, is eligible for deduction under Section 80P(2)(d) on interest income from co-operative banks, and if Section 80P(4) excludes such a deduction.
Sections Cited
80P, 80P(2)(a)(i), 80P(2)(d), 80P(4), 143(3), 2(19)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Appearance For the Appellant/Assessee : Shri Vijay Joshi For the Respondent/Department : Shri Leyaqat Ali Aafaqui Date Conclusion of hearing : 01.12.2025 Pronouncement of order : 09.12.2025
O R D E R [ Per Rahul Chaudhary, Judicial Member: 1. These are two appeals preferred by the same Assessee involving identical issues. The appeals were heard together and are being disposed off by way of common order.
ASSESSMENT YEAR 2013-2014 2. We would first take up appeal preferred by the Assessee directed against the Order, dated 11/08/2025, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the Assessment Year 2013-2014 & 2014-2015 CIT(A)’] whereby the Ld. CIT(A) had partly allowed the appeal against the Assessment Order, dated 22/03/2016, passed under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year 2013-2014. 3. The Assessee has raised following grounds of appeal :
1. The learned Commissioner of Income Tax (Appeals) has erred in making disallowance of claim of deduction under section 80P(2)(d) of Rs.24,08,874/- in respect of income earned by the Appellant from deposit kept with co-operative bank in the facts and circumstances of the Appellant’s case. The learned Commissioner of Income Tax (Appeals) ought to have allowed the various contentions of the appellant under the facts and circumstances of the case.
4. The relevant facts in brief are that Assessee filed return of income for the Assessment Year 2013-2014 claiming deduction under Section 80P of the Act for an amount of INR.1,12,94,196/-. The case of the Assessee was selected for regular scrutiny. The Assessing Officer completed the assessment under Section 143(3) of the Act vide Assessment Order, dated 22/03/2016. The Assessing Officer disallowed the deduction of INR.88,85,322/- claimed by the Assessing Officer under Section 80P(2)(a)(i) of the Act and INR.24,08,874/- claimed by the Assessee under Section 80P(2)(d) of the Act.
5. Being aggrieved the Assessee has preferred appeal before the Learned CIT(A), which was disposed off as partly allowed vide Order, dated 11/08/2025. The Learned CIT(A) accepted Assessee’s claim for deduction under Section 80P(2)(a)(i) of the Act and deleted the disallowance of INR.88,85,322/- made by the Assessing Officer. However, the disallowance of INR.24,08,874/- made by the Assessing Officer under Section 80P(2)(d) of the Act was confirmed by the Learned CIT(A). The Learned CIT(A) directed the Assessing Officer to allowed deduction for administrative and other expenses incurred by the Assessee for earning interest income of Assessment Year 2013-2014 & 2014-2015 INR.24,08,874/- from co-operative banks.
Therefore, being aggrieved, the Assessee has preferred the present appeal before the Tribunal on the grounds reproduced at Paragraph 2 above.
Learned Authorized Representative for the Assessee submitted that identical issue had come up before the Tribunal in the case of the Assessee for the Assessment Year 2010-2011 [ITA No.3583/Mum/2014, order dated 27/10/2020]. The Tribunal decided the issue in favour of the Assessee vide Order, dated 27/10/2020 and allowed identical claim of deduction made by the Assessee for deduction under Section 80P(2)(d) of the Act. Therefore, it was contended that the issue raised in the present appeal was squarely covered in favour of the Assessee by the aforesaid decision of the Tribunal. Reliance was also placed on the judgment of Hon’ble Supreme Court in the case of Mavilayi Services Co-operative Bank Limited Vs. CIT, Calicut: [2021] 431 ITR 1 (SC).
Per contra, the Learned Departmental Representative placed reliance upon the order passed by the Learned CIT(A) and submitted that the Assessee had received interest from the Co- operative Banks in respect of which Assessee was not entitled to claim deduction under Section 80P(2)(d) of the Act. Reliance was placed by the Learned Departmental Representative on the decision of Bangalore Bench of the Tribunal in the case of SDM College Co- operative Stores Vs. Income Tax Officer, Ward – 1, Puttur, dated 21/04/2025 referred to Paragraph 9.2 of the order passed by the Learned CIT(A).
We have considered the rival submissions and have perused the material on record including the decisions of the Tribunal in the case of the Assessee for the Assessment Year 2010-2011 [ITA Assessment Year 2013-2014 & 2014-2015 No.3583/Mum/2014, order dated 27/10/2020].
We find that for the Assessment Year 2010-2011 Assessee had claimed deduction under Section 80P(2)(d) of the Act in respect of interest received from Bombay Mercantile Cooperative Bank Limited and Maharashtra State Co-operative Bank Ltd. While the Assessing Officer had rejected the Assessee’s claim for deduction under Section 80P(2)(d) of the Act and the Tribunal allowed the same vide Order dated 27/10/2020, passed in [Assessment Year 2012-2013] holding as under:
4. The brief facts of the case are that the assessee company was a Credit Co-operative society and filed its return of income on 21.08.2010 declaring a total income to the tune of Rs.Nil after claiming deduction u/s 80P(2)(a)(i) of the Income tax Act, 1961 for an amount of Rs.85,63,511/-. The case was selected for scrutiny and notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The main object of the company was to enable its members to obtain loans on reasonable term, to lend money to the members of the society, to enable its member to save part of their income in a safe convenient way, etc. The paid up capital of the Pathepdhi was Rs.6,63,45,850/- as on 31.03.2010. The loans given and investments made are of Rs.10,51,95,000/- and Rs.2,00,70,433/- respectively as on 31.03.2010. The gross total income was in sum of Rs.85,63,511/-. The assessee claimed the deduction u/s 80P(2)(a)(i) of the Income tax Act, 1961 at Rs. 85,63,511/-. In support of the claim of deduction under Chapter VI-A, the assessee submitted letter dated 16.11.2012 i.e. a Registered Credit Co-operative Society with limited liability since 12th March, 1960 which was collecting contribution from its members towards share capital from their salaries and does not accept any deposits and or loans from any pension for its transaction and activities. The society was availing overdraft facility against its own deposits from the Bombay Mercantile Co-operative Bank Ltd. and paid interest on the same. The assessee by virtue of letter dated 21.11.2012 also stated that the society was eligible for deduction u/s 80P(2)(a)(i) as the society was not a Cooperative Bank as defined under Part V of the Banking Regulation Act, 1949 and the new Proviso to Section 80P(4) was applicable only to Cooperative Banks and not to Credit Co-operative Societies. Assessment Year 2013-2014 & 2014-2015 The case of the assessee was examined and the claim of the assessee was declined by the AO. Feeling aggrieved, the assessee filed an appeal before the CIT(A) and the CIT(A) has held that the assessee was eligible for deduction u/s 80P(2)(a)(i) but was not eligible for deduction u/s 80P(2)(d) in respect of the interest income of Rs.16.74 lacs earned by the appellant on the deposits kept with Bombay Mercantile Co- operative Bank Ltd and Maharashtra State Co-operative Bank Ltd. The revenue filed an appeal against the order of the CIT(A) by virtue of dated 27.10.2015 and it was held that the assessee was entitled for deduction u/s 80P(2)(a)(i) of the Act. The appeal of the assessee is in connection with the disallowance of deduction u/s 80P(2)(d) in respect of in respect of the interest income of Rs.16.74 lacs earned by the appellant on the deposits kept with Bombay Mercantile Co-operative Bank Ltd and Maharashtra State Co- operative Bank Ltd. xx xx ISSUE No. 2.1 6. Under this issue the assessee has ……… The issue is in connection with the disallowance of interest income of Rs.16.74 lacs earned by the appellant on the deposits kept with Bombay Mercantile Co-operative Bank Ltd and Maharashtra State Co- operative Bank Ltd in view of the provisions u/s 80P(2) (d) of the Act. This issue has discussed and decided by the Hon’ble ITAT Delhi Bench in the case of ACIT Vs. M/s. Jawala Cooperative Urban Thrift & Credit Society Ltd. (supra). The relevant finding is hereby reproduced as under.:- “6 to 10. xx xx 7. The Hon’ble High Court of Karnataka has also decided the issue in favour of the assessee by virtue of judgment in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. Vs. ITO (2015) 55 taxmann.com 447 (kar). The relevant finding has been given in para no. 6 to 10 mentioned below.:- “6 to 10. xx xx 8. The Hon’ble Gujarat High Court in the case of Surat Vankar Sahakari Sangh Ltd. Vs. ACIT (2016) 72 taxmann.com 169 (Guj) has also decided the issue in favour of the assessee and the relevant finding is hereby reproduced as under.:- Assessment Year 2013-2014 & 2014-2015 “7 to 9. xx xx 9. Taking into account all the facts and circumstances and also considering this fact that the similar issue was involved in the above cited judgment, therefore, we are of the considered view that the assessee is entitled for the deduction u/s 80P(2)(d) in respect of the interest income of Rs.16.74 lacs earned by the appellant on the deposits kept with Bombay Mercantile Co- operative Bank Ltd and Maharashtra State Co-operative Bank Ltd. Accordingly, we set aside the finding of the CIT(A) on this issue and allowed the claim of the assessee.
(Emphasis Supplied) 11. The Revenue has failed to bring any material on record to distinguish any fact in appeal pertaining to Assessment Year 2010- 2011 either in facts or in law.
Further we find that the above view taken by the Tribunal is in line with the judgement of the Hon’ble Supreme Court in the case of Mavilayi Services Co-operative Bank Limited Vs. CIT, Calicut: [2021] 431 ITR 1 (SC) [12/01/2021] wherein it was held as under: “20. We now come to the judgment of this Court in Citizen Cooperative Society Ltd. (supra). This judgment was concerned with an assessee who was established initially as a mutually aided cooperative credit society, having been registered under section 5 of the Andhra Pradesh Mutually Aided Cooperative Societies Act, 1995. As operations of the assessee began to spread over States outside the State of Andhra Pradesh, the assessee got registered under the Multi-State Cooperative Societies Act, 2002 as well. The question that the Court posed to itself was as to whether the appellant was barred from claiming deduction in view of Section 80P(4) of the Income-tax Act - see paragraph 5. After setting out the findings of fact in that case, and the income tax authorities concurrent holding that the society is carrying on banking business and for all practical purposes acts like a co-operative bank, this Court then held as follows: xx xx 21. An analysis of this judgment would show that the question of law that was reflected in paragraph 5 of the judgment was answered Assessment Year 2013-2014 & 2014-2015 in favour of the assessee. The following propositions may be culled out from the judgment: (I) That section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee; (II) That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in sub-section (2) of section 80P must be given by way of deduction; (III) That this Court in Kerala State Cooperative Marketing Federation Ltd. (supra) has construed section 80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied; (IV) This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co-operative society, such as is evident from section 80P(2)(b) qua milk co-operative societies, the legislature expressly says so - which is not the case with section 80P(2)(a)(i); (V) That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co- operative banks, which are cooperative societies who must possess a licence from the RBI to do banking business. Given the fact that the assessee in that case was not so licenced, the assessee would not fall within the mischief of section 80P(4) xx xx 26. Applying the aforesaid decisions, it is clear that the ratio decidendi in Citizen Cooperative Society Ltd. (supra) would not depend upon the conclusion arrived at on facts in that case, the case being an authority for what it actually decides in law and not for what may seem to logically follow from it. Thus, the statement of the principles of law applicable to the legal problems disclosed by the facts alone is the binding ratio of the case, which as has been stated hereinabove, is contained in paragraphs 18 to 23 of the judgment. Paragraphs 24 to 26, being the judgment based on Assessment Year 2013-2014 & 2014-2015 the combined effect of the statements of the principle of law applicable to the material facts of the case cannot be described as the ratio decidendi of the judgment. Nor can it be said that it would logically follow from the finding on facts that the assessing officer can go behind the registration of a society and arrive at a conclusion that the society in question is carrying on illegal activities. On this score alone, the Full Bench's understanding of this judgment has to be faulted and is set aside.
However, this does not conclude the issue in the present case. We now turn to the proper interpretation of section 80P of the Income-tax Act. Firstly, the marginal note to section 80P which reads "Deduction in respect of income of co- operative societies" is important, in that it indicates the general "drift" of the provision. This was so held by this Court in K.P. Varghese v. ITO [1981] 7 Taxman 13/131 ITR 597 as follows: "9. This interpretation of sub-section (2) is strongly supported by the marginal note to Section 52 which reads "Consideration for transfer in cases of understatement". It is undoubtedly true that the marginal note to a section cannot be referred to for the purpose of construing the section but it can certainly be relied upon as indicating the drift of the section or, to use the words of Collins, M.R. in Bushel v. Hammond [1904] 2 KB 563 to show what the section is dealing with. It cannot control the interpretation of the words of a section particularly when the language of the section is clear and unambiguous but, being part of the statute, it prima facie furnishes some clue as to the meaning and purpose of the section (vide Bengal Immunity Company Limited v. State of Bihar [1955] 2 SCR 603])."
Secondly, for purposes of eligibility for deduction, the assessee must be a "co-operative society". A co- operative society is defined in Section 2(19) of the IT Act, as being a co-operative society registered either under the Co- operative Societies Act, 1912 or under any other law for the time being in force in any State for the registration of co- operative societies. This, therefore, refers only to the factum of a co-operative society being registered under the 1912 Act or under the State law. For purposes of eligibility, it is unnecessary to probe any further as to whether the co-operative society is classified as X or Y.
Thirdly, the gross total income must include income that is referred to in sub-section (2). xx xx Assessment Year 2013-2014 & 2014-2015
Eighthly, sub-clause (d) also points in the same direction, in that interest or dividend income derived by a co- operative society from investments with other co- operative societies, are also entitled to deduct the whole of such income, the object of the provision being furtherance of the co-operative movement as a whole.
Coming to the provisions of section 80P(4), it is important to advert to speech of the Finance Minister dated 28-2-2006, which reflects the need for introducing section 80P(4). Shri P. Chidambaram specifically stated: "166.Cooperative Banks, like any other bank, are lending institutions and should pay tax on their profits. Primary Agricultural Credit Societies (PACS) and Primary Cooperative Agricultural and Rural Development Banks (PCARDB) stand on a special footing and will continue to be exempt from tax under section 80P of the Income-tax Act. However, I propose to exclude all other cooperative banks from the scope of that section."
Likewise, a Circular dated 28-12-2006, containing explanatory notes on provisions contained in the Finance Act, 2006, is also important, and reads as follows: "Withdrawal of tax benefits available to certain cooperative banks ** ** ** 22.2 The cooperative banks are functioning at par with other commercial banks, which do not enjoy any tax benefit. Therefore section 80P has been amended and a new sub- section (4) has been inserted to provide that the provisions of the said section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The expressions 'co-operative bank', 'primary agricultural credit society' and 'primary co-operative agricultural and rural development bank' have also been defined to lend clarity to them." 38. A clarification by the CBDT, in a letter dated 9-5-2008, is also important, and states as follows: "Subject: Clarification regarding admissibility of deduction under section 80P of the Income-tax Act, 1961. ** ** ** 2. In this regard, I have been directed to state that sub- section (4) of section 80P provides that deduction under Assessment Year 2013-2014 & 2014-2015 the said section shall not be allowable to any co- operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. For the purpose of the said sub- section, co-operative bank shall have the meaning assigned to it in part V of the Banking Regulation Act, 1949.
In part V of the Banking Regulation Act, "Co-operative Bank" means a State Co-operative bank, a Central Co- operative Bank and a primary Co-operative bank.
Thus, if the Delhi Co-op Urban T & C Society Ltd. does not fall within the meaning of "Co-operative Bank" as defined in part V of the Banking Regulation Act, 1949, sub-section(4) of section 80P will not apply in this case.
Issued with the approval of Chairman, Central Board of Direct Taxes."
The above material would clearly indicate that the limited object of section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from section 3 read with section 56 is that a primary co- operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, of deposits of money from the public. Likewise, under section 22(1)(b) of the Banking Regulation Act, 1949 as applicable to co-operative societies, no co- operative society shall carry on banking business in India, unless it is a co-operative bank and holds a licence issued in that behalf by the RBI. As opposed to this, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities.
As a matter of fact, some primary agricultural credit societies applied for a banking licence to the RBI, as their bye-laws also contain as one of the objects of the Society the carrying on of the business of banking. This was turned down by the RBI in a letter dated 25-10-2013 as follows: "Application for license Please refer to your application dated April 10, 2013 requesting for a banking license. On a scrutiny of the Assessment Year 2013-2014 & 2014-2015 application, we observe that you are registered as a Primary Agricultural Credit Society (PACS). In this connection, we have advised RCS vide letter dated UBD (T) No. 401/10.00/16A/2013-14 dated October 18, 2013 that in terms of Section 3 of the Banking Regulation Act, 1949 (AACS), PACS are not entitled for obtaining a banking license. Hence, your society does not come under the purview of Reserve Bank of India. RCS will issue the necessary guidelines in this regard xx xx 45. To sum up, therefore, the ratio decidendi of Citizen Co- operative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co- operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted.” (Emphasis Supplied)
On perusal of above it becomes clear that the Hon’ble Supreme Court had concluded that the object of Section 80P(4) of the Act was to deny the benefit of Section 80P of the Act to co-operative banks function at par with other commercial banks [i.e. which lend money to members of the public]. Therefore, the deduction claimed by the Assessee under Section 80P(2)(d) of the Act cannot be Assessment Year 2013-2014 & 2014-2015 denied by invoking the provisions contained in Section 80P(4) of the Act since the Assessee does not hold a banking license issued by the RBI for lending money to members of the public.
Further, on bare perusal of provisions of Section 80P(2)(d) of the Act shows that for purposes of eligibility for deduction under Section 80P(2)(d) of the Act, interest/dividend must be received from investment in a ‘co-operative society’. A co-operative society is defined in Section 2(19) of the IT Act, as being a co- operative society registered either under the Co-operative Societies Act, 1912 or under any other law for the time being in force in any State for the registration of co-operative societies. In the case of Kaliandas Udyog Bhavan Premises Co-operative Society Ltd. vs. ITO: dated 24.04.2018, the Mumbai Bench of the Tribunal has held that co-operative bank continues to be a co-operative society and therefore, the Assessee receiving interest from a co-operative bank would be eligible to claim deduction under Section 80P(2)(d) of the Act in respect of interest so received. To the same effect are the decisions of the Tribunal in the case of Lands End Co-operative Housing Society Ltd. Vs. ITO [ITA No.3566/Mum/2014, dated 15/01/2016], and Mystique Rose Cooperative Housing Society Ltd.: vs. ITO 22(2)(3) [ITA No. 1290/Mum/2021, dated 30/03/2022].
We further note that the judgment of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) was rendered in the context of Section 80P(2)(a) of the Act (wherein expression ‘the whole of the amount of profits and gains of business attributable to any one or more of such activities’ has been used), whereas in Section 80P(2)(d) of the Act expression used is ‘any income by way of interest’. Thus, ‘any income by way of interest’ derived by a co-operative society (from a co-operative bank) would be eligible for deduction under Section Assessment Year 2013-2014 & 2014-2015 80P(2)(d) of the Act irrespective of the fact that such interest income is taxable as ‘profits and gains of business’ or as ‘income from other sources’ since Section 80P(2)(d) uses the expression ‘any income’ and not ‘profits & gains of business’.
In view of the above, deduction of INR.24,08,874/- claimed by the Assessee under Section 80P(2)(d) of the Act is allowed and the corresponding disallowance is deleted. Thus, Ground No.1 raised by the Assessee is allowed.
In result, appeal preferred by the Assessee is allowed.
[Assessment Year 2014-2015] 18. We would now take up appeal preferred by the preferred by the Assessee is directed against the order, dated 04/09/2025, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] whereby the Ld. CIT(A) had partly allowed the appeal against the Assessment Order, dated 22/12/2016, passed under Section 143(3) of the Income Tax Act, 1961 for the Assessment Year 2014-2015.
The Assessee has raised following grounds of appeal :
1. The learned Commissioner of Income Tax (Appeals) has erred in making disallowance of claim of deduction under section 80P(2)(d) of Rs.28,44,034/- in respect of income earned by the Appellant from deposit kept with co-operative bank in the facts and circumstances of the Appellant’s case. The learned Commissioner of Income Tax (Appeals) ought to have allowed the various contentions of the appellant under the facts and circumstances of the case.
During the course of hearing both the sides had agreed that our finding/adjudication on the Ground No.1 raised in appeal preferred by the Assessee for the Assessment Year 2013-2014 shall apply mutatis mutandis to Ground No.1 raised in by the Assessee in the present appeal for the Assessment Year 2014-2015. Thus, keeping Assessment Year 2013-2014 & 2014-2015 in view the parity in the relevant facts and circumstances, and adopting the reasoning given while adjudicating Ground No. 1 of Assessee’s appeal for the Assessment Year 2013-2014 hereinabove, deduction of INR.28,44,034/- claimed by the Assessee under Section 80P(2)(d) of the Act is allowed and the corresponding disallowance is deleted. Thus, Ground No.1 raised by the Assessee is allowed.
In result, appeal preferred by the Assessee is allowed.
In conclusion, both the appeals preferred by the Assessee are allowed.