NITYANAND NAGAR VIBHAG - IV COOPERATIVE HOUSING SOCIETY LIMITED,ANDHERI EAST vs. INCOME TAX OFFICER WARD 24(3)(1), MUMBAI

PER RATNA DASGPUTA, AM

The captioned appeal by the assessee arises out of order dated 06/05/2026 passed by National Faceless Appeals Centre, Delhi- [in short, “Ld. CIT(A)”] – under section 250 of the Income-

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tax Act, 1961 – [in short, “the Act”] -for Assessment Year 2020-21, raising following grounds of appeal :- i. The learned Commissioner of Income Tax (Appeals) Income Tax Department, hereinafter referred to as, 'The CIT(A)' erred in dismissing the appeal and erred in not allowing the deduction of Rs. 31,44,672.00 on account of Interest on Fixed Deposit with Maharashtra State Co-operative Bank Ltd. u/s. 80P(2)(d) of I.T. Act, 1961 claimed as a deduction under Chapter VI-A of the Act in the ITR filed. ii. 'The CIT(A)' erred in dismissing the appeal and erred in not allowing the deduction of Rs. 31,44,672.00 u/s. 80P(2) (d) of I.T. Act, 1961 is ILLEGAL. The return of income for the A.Y. 2020-21 was filed declaring income of Rs.150.00. The accounts of the appellant are audited under the provisions of Maharashtra Co-operative Societies Act, 1960. Hence the appeal order u/s.250 regarding the assessment order u/s. 143(3) should be cancelled and returned income should be accepted by allowing the 80P(2) (d) of IT Act, 1961 deduction to do the natural justice to the appellant. iii. The learned Commissioner of Income Tax (Appeals) Income Tax Department, erred in dismissing the appeal against levying the interest u/s 234B of Rs. 1,95,600.00 and interest u/s 234C of Rs. 49,390.00. (Total interest Rs. 2,44,990.00).

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proceedings, the Ld. Assessing Officer (in short, AO) observed that assessee has earned interest of Rs. 31,44,672/- from investment in Savings Account and Fixed Deposits with Maharashtra State Co- operative Bank, on which deduction @ 100% was claimed u/s 80P(2)(d) of the Act. He disallowed the above deduction holding, inter alia, that the interest had been earned out of investment of idle, surplus fund with other banks and does not qualify for deduction under the said section. 2.1 Before the Ld. CIT(A), the central claim of the assessee was that interest earned from deposits with a cooperative bank qualifies for deduction under section 80P(2)(d) of the Act. The Ld. CIT(A) held as follows:  The language of section 80P(2)(d) clearly restricts the deduction to interest or dividend income derived from investments with any other co-operative society. A co- operative bank, though registered under the Co-operative Societies Act, operates under a distinct regulatory framework and performs banking functions akin to commercial banks. The distinction between a co-operative society and the co- operative bank has been judicially recognised and cannot be ignored merely on the basis of registration under the same statute.

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 The assessee’s argument that the interest income derived from deposits placed with co-operative banks qualifies for deduction u/s 80P(2)(d) is fully misconceived. The legislature, in its wisdom, has consciously used the term ‘co-operative society’ and not ‘co-operative bank’. Though a co-operative bank has the skeleton of a cooperative society, it discharges the functions of a commercial banking institution.  The Karnataka High Court, in Pr. CIT v. Totagars Co- operative Sale Society (392 ITR 74), held that interest received from co-operative banks cannot qualify for deduction u/s 80P(2)(d).  The legislative intent was made clear by insertion of sub- section (4) to section 80P with effect from 01/04/2007. This provision categorically excludes co-operative banks from the ambit of deduction u/s 80P, except in the case of primary agricultural credit societies or primary co-operative agricultural and rural development banks.  In the present case, the interest earned by the assessee arises out of deposits placed with co-operative banks. These deposits represent parking of surplus funds with banking institutions and cannot be equated with income attributable to the activity of providing credit facility to members. Since the source of the interest is a co-operative bank and not a co-operative society,

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the income squarely falls outside the scope of section 80P(2)(d).  The character of income depends on the immediate source and activity generating such income. Once funds are parked in fixed deposits or saving accounts with a bank, the income arises from the act of investment and not from the core activity or mutual dealings of the society. Based on these reasons, the Ld. CIT(A) upheld the action of the Ld. AO in disallowing deduction of Rs.31,44,672/- u/s 80P(2)(d) of the Act. 2.2 It is against the aforesaid decision of the Ld. CIT(A) that the assessee is in appeal before this Tribunal. 3. Before us, the Ld. Authorised Representative (AR) for the assessee made the following submission through a written statement:  The assessee cannot be denied deduction of interest income earned from deposits made in co-operative banks because it is a compulsory provision for Co-operative Housing Societies registered in Maharashtra to keep their funds in co-operative banks.  Section 80P of the Act is a benevolent provision enacted by the Parliament for encouraging growth of the co-

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operative sector. Such a provision, therefore, has to be read liberally in favour of the assessee.  Co-operative banks are registered under the Co- operative Societies Act, 1960, and hence interest received from co-operative banks are eligible for deduction u/s 80P of the Act. The new sub-section(4) of section 80P is exclusively for banks which are governed by Reserve Bank of India's rules and regulations. However, the co-operative housing societies are not governed by the banking provisions of the RBI. Therefore, the amendment under section 80P(4) of the Act is applicable only to banks and not to housing co- operative societies and other co-operative societies.  Order of Co-ordinate Bench of Hon’ble ITAT in the assessee’s own case for A.Y. 2021-22 supports the assessee’s stand. 3.1 Per contra, the Ld. Sr. AR, representing the Department, supported the orders of the lower authorities. 3.2 We have considered the rival submissions of both the parties in the light of the material placed before us. The impugned issue has been the subject matter of deliberation by various Courts. We particularly note the decision, dated 27/07/2023, of the Hon’ble Co-ordinate Bench of the Tribunal (Mumbai) in the case of Pathare

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Prabhu Co-operative Housing Society Ltd. vs ITO, reported in ITA No. 1346 and 1347/Mumbai/2023, where an almost identical claim of deduction u/s 80P(2)(d) of the Act was considered. Observing that all Co-operative banks are Co-operative societies but not vice versa, the Hon’ble Court referred to the decision in the case of Kaliandas Udyog Bhavan Premises Co-operative Society Ltd. v. ITO, reported in ITA 6547/Mum/2017, where it was held that though with the insertion of section 80P(4) vide the Finance Act, 2006, w.e.f 01/04/2007, the provisions of section 80 P would no more be applicable in relation to any cooperative bank, other than a primary agricultural credit society or a primary or a primary cooperative agricultural and rural development bank, but the same would not jeopardize the claim of deduction of a co-operative society u/s 80P(2)(d) in respect of the interest income on their investments parked with a cooperative bank. As long as it is proved that the interest income is being derived by a co-operative society, the claim of deduction under the aforesaid statutory provision would be duly available. Quoting the definition of a ‘Co-operative Society’ to mean a society registered under the Co-operative Societies Act,1912, the Hon’ble Court held that though the Co-operative Bank pursuant to insertion of section 80P(4) would no more be entitled for claim of deduction u/s 80P, but the interest income derived by a co- operative society from its investments held with a cooperative bank would be entitled for claim of deduction under section 80P(2)(d)

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because a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912. Regarding the reliance placed by the Ld. CIT(A) on the decision of the Hon’ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sales Society, 2017 (supra), the Hon’ble Court observed that the same High Court, in an earlier decision, had held that the amount of interest earned from a co-operative society bank would be deductible from the gross income of the cooperative society u/s 80P(2)(d) of the Act. While there are divergent views of the same High Court on the impugned issue, no decision of the jurisdictional High Court had been brought on record on this matter. In view of this, the Hon’ble ITAT found guidance from the judgment of the Hon’ble Supreme Court in CIT(A) v. Vegetable Products Ltd (88 ITR 192), which laid down the principle that if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. In this backdrop, the Hon’ble Court allowed the assessee’s claim of deduction under section 80P(2)(d) of the Act. 4. Respectfully following the judicial precedents as above, we deem it fit to allow the assessee’s appeal and direct the Ld. AO to allow the assessee’s claim of deduction u/s 80P(2)(d) of the Act. 5. Ground No. (iii) relating to interest under section 234B and 234C is consequential and need not be adjudicated at this stage.

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Order pronounced in the open Court on 05/10/2026

Sd/- Sd/- (ANIKESH BANERJEE) (RATNA DASGPUTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 05/10/2026 Z.U., P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER, ABHINAV ANANT Digitally signed by ABHINAV ANANT GAVANDE GAVANDE Date: 2026.10.16 10:16:17 +05'30' //True Copy// (Assistant Registrar) ITAT, Mumbai