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Facts
The assessee, a co-operative housing society, claimed deduction under Section 80P(2)(d) for interest income earned from deposits with co-operative banks. The Assessing Officer (AO) disallowed this deduction, citing a distinction between co-operative banks and co-operative societies. The CIT(A) upheld the AO's decision.
Held
The Tribunal held that interest income earned by a co-operative society from its investments in other co-operative societies, including co-operative banks, is eligible for deduction under Section 80P(2)(d). The exclusion in Section 80P(4) pertains to co-operative banks claiming deduction for their own income, not to other co-operative societies investing in them.
Key Issues
Whether interest income earned by a co-operative housing society from investments in co-operative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act.
Sections Cited
80P(2)(d), 80P(4), 2(19)
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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
The above-captioned appeals have been filed by the assessee against separate impugned orders dated 24/10/2025 passed by the Ld. CIT(A), NFAC, arising out of assessments framed u/s 143(3) r.w.s. 254 for A.Y. 2013-14 and u/s 143(3) for A.Y. 2018- 19. Since the issue involved in both the years is identical and arises out of the same factual matrix, these appeals were heard together and are being disposed of by this consolidated order.
In both the years, the sole grievance of the assessee relates to disallowance of deduction claimed u/s 80P(2)(d) of the Act in
The assessee is a co-operative housing society registered under the Maharashtra Co-operative Societies Act, 1960 and is engaged in the activity of managing and maintaining residential premises for the benefit of its members. During the relevant previous years, surplus funds were invested in fixed deposits with co-operative banks and interest income was earned thereon. The assessee claimed deduction u/s 80P(2)(d) in respect of such interest income.
4. The Ld. AO, after referring to the definition of “co-operative society” under section 2(19) and examining the provisions of section 80P(4), observed that the legislature has drawn a distinction between a co-operative bank and a co-operative society and that such distinction cannot be ignored while interpreting section 80P(2)(d). Proceeding on this premise, the Ld. AO disallowed the deduction claimed by the assessee.
The Ld. AO further recorded that in A.Y. 2017-18, the Ld. CIT(A) had decided the issue in favour of the assessee; however, according to the Ld. AO, the Department had preferred an appeal before the Tribunal against the said appellate order. Solely on this reasoning, and without pointing out any independent distinguishing feature in the facts of the year under consideration, In appeal, the Ld. CIT(A) affirmed the disallowance by placing reliance upon the judgment of the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs. CIT (2021) 431 ITR 1 and the decision of the Hon’ble Karnataka High Court in DCIT vs. Totgars Co-operative Sale Society Ltd. (2017) 83 taxmann.com 140, and concurred with the view that interest earned from co- operative banks would not qualify for deduction under section 80P(2)(d).
Before us, it has been submitted that the issue now stands squarely covered in favour of the assessee by the order of the Tribunal in assessee’s own case for A.Y. 2017-18 in dated 07/01/2025. The relevant findings of the Tribunal are reproduced hereunder:
“3. We have heard the parties and perused the material available on record. We notice that the Co-ordinate Bench has been consistently holding that the income derived by way of interest from Co-operative Banks is also eligible for deduction under section 80P. The relevant observations of the coordinate bench in Pathare Prabhu Co– operative Housing Society Ltd. (supra) where it is held that – 8. We have considered the submissions of both sides and perused the material available on record. The only dispute raised by the assessee is against the disallowance of deduction under section 80P(2)(d) of the Act in respect of interest income received from the Co-operative Banks. The assessee is a registered Co- operative Housing Society and during the assessment year 2018- 19 earned interest income of Rs. 50,39,861 from the investments made in various Co-operative Banks.
I.T.A. No. 8468 & 8469/Mum/2025
Before proceeding further, it is relevant to note the provisions of section 80P of the Act under which the assessee has claimed the deduction in the present case. As per the provisions of section 80P(1) of the Act, the income referred to in sub-section (2) to section 80P shall be allowed as a deduction to an assessee being a Co- operative Society. Further, section 80P(2)(d) of the Act, reads as under:
"80P. 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 investments with any other co-operative society, the whole of such income;"
Thus, for the purpose of provisions of section 80P(2)(d) of the Act, two conditions are required to be cumulatively satisfied- (i) income by way of interest or dividend is earned by the Co-operative Society from the investments, and (ii) such investments should be with any other Co-operative Society. Further, the term co-operative society? is defined under section 2(19) of the Act as under:
"(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 ;
In the present case, there is no dispute that the assessee is a Co- Operative Housing Society. Thus, if any income as referred to in sub-section (2) to section 80P of the Act is included in the gross total income of the assessee, the same shall be allowed as a deduction. It is pertinent to note that since the assessee is registered under the Maharashtra Co-operative Societies Act, 1960, it is required to invest or deposit its funds in one of the modes provided in section 70 of the aforesaid Act, which includes investment or deposit of funds in the District Central Cooperative Bank or the State Co-operative Bank. Accordingly, the assessee kept the deposits in Co-operative Banks registered under the Maharashtra Co-operative Societies Act and earned interest, which was claimed as a deduction under section 80P(2)(d) of the Act. The AO denied the deduction under section 80P(2)(d) of the Act on the basis that the Co-operative Bank is covered under the provisions of section 80P(4) of the Act. We find that the Hon?ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 123 taxmann.com 161/279 Taxman 75/431 ITR 1 while analysing the provisions of section 80P(4) of the Act held that section 80P(4) is a proviso to the main provision contained in section 80P(1) and & 8469/Mum/2025 (2) and excludes only Co-operative Banks, which are Co-operative Societies and also possesses a licence from RBI to do banking business. The Hon'ble Supreme Court further held 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, we are of the considered view that section 80P(4) of the Act is of relevance only in a case where the assessee, who is a Co- operative Bank, claims a deduction under section 80P of the Act which is not the facts of the present case. Therefore, we find no merits in the aforesaid reasoning adopted by the AO and upheld by the learned CIT(A) in denying deduction under section 80P(2)(d) of the Act to the assessee.
As regards the claim of deduction under section 80P(2)(d) of the Act, it is also pertinent to note that all Co-operative Banks are Co-operative Societies but vice versa is not true. We find that the coordinate benches of the Tribunal have consistently taken a view in favour of the assessee and held that even the interest earned from the Co-operative Banks is allowable as a deduction under section 80P(2)(d) of the Act. In Kaliandas Udyag Bhavan Premises Co-op Society Ltd. v. ITO [2018] 94 taxmann.com 15 (Mum.)/[ITA No. 6547/Mum./2017, dated 25-4- 2018], while dealing with the provisions of section 80P(2)(d) vis-à-vis section 80P(4) of the Act, the coordinate bench of the Tribunal observed as under:
"7. ……Thus, from a perusal of the aforesaid sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee co- operative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We may herein observe, that what is relevant for claim of deduction under sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other cooperative society. We though are in agreement with the observations of the lower authorities that with the insertion of sub-section (4) of sec. 80P, vide the Finance Act, 2006, with effect from 1-4- 2007, the provisions of sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, but however, are unable to subscribe to their view that the same shall also jeopardise the claim of deduction of a co-operative society under sec. 80P(2)
(d) in respect of the interest income on their investments parked with a co- operative bank. We have given a thoughtful consideration to the issue before us and are of the considered view that as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. sec. 80P(2)(d) would be duly available. We may herein observe that the term 'co-operative society' had been defined under sec. 2(19) of the Act, as under:- '(19) "Co-operative society" means a cooperative 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;' NEETU We are of the considered view, that though the co- operative bank pursuant to the insertion of Sub-section (4) of sec. 80P would no & 8469/Mum/2025 more be entitled for claim of deduction under sec. 80P of the Act, but however, as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being enforced in any state for the registration of co-operative societies, therefore, 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 sec.80P(2)(d) of the Act."
We find that the learned CIT(A) has placed reliance upon the decision of the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sales Society [2017] 83 taxmann.com 140/395 ITR 611, wherein it was held that interest earned by the assessee, a Co-operative Society, from surplus deposits kept with a Co- operative Bank, was not eligible for deduction under section 80P(2)(d) of the Act. We find that in an earlier decision the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169/392 ITR 74 held that according to section 80P(2)(d) of the Act, the amount of interest earned from a Co-operative Society Bank would be deductable from the gross income of the Co- operative Society in order to assess its total income. Thus, there are divergent views of the same Hon'ble High Court on the issue of eligibility of deduction under section 80P(2)(d) of the Act in respect of interest earned from Co-operative Bank. No decision of the Hon'ble jurisdictional High Court was brought to our notice on this aspect. We have to, with our highest respect to both the views of the Hon'ble High Court, adopt an objective criterion for deciding as to which decision of the Hon'ble High Court should be followed by us. We find guidance from the judgment of the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR
In the aforesaid decision, the Hon'ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted".
Therefore, in view of the above, we uphold the plea of the assessee and direct the AO to grant the deduction under section 80P(2)(d) of the Act to the assessee in respect of interest income earned from investment with Co-operative Banks. Accordingly, we set aside the impugned order passed by the learned CIT(A) for the assessment year 2018-19. As a result, grounds raised by the assessee are allowed.
Considering that the issue in assessee's case being identical i.e. denial of deduction under section 80P(2)(d) towards interest earned from deposits with Cooperative Banks, respectfully following the above decision we hold that the assessee is entitled for deduction under section 80P(2)(d) towards income derived from deposits with Co-operative Bank. Accordingly, the AO is directed to allow the deduction claimed by the assessee.”
We have heard the rival submissions and carefully perused the material placed on record, including the statutory provisions, the orders of the authorities below and the decision of the Tribunal in assessee’s own case for A.Y. 2017-18. The controversy essentially centres around the true scope and interpretation of section 80P(2)(d), and whether interest income earned by a co- operative society from its investments with a co-operative bank falls within the statutory expression “any other co-operative society”, notwithstanding the insertion of section 80P(4). In substance, the question is not whether a co-operative bank is entitled to deduction under section 80P, but whether its legal character as a co-operative society stands eclipsed for the limited purpose of clause (d) of sub-section (2). The answer must emerge from a harmonious and contextual reading of the provision as a whole.
Section 80P(2)(d) grants deduction in respect of any income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society. The statutory language is clear and does not carve out any exception in respect of co-operative banks. A co-operative bank, though engaged in banking activity and subject to regulatory control, continues to be registered under the State Co-operative Societies Act and therefore squarely falls within the definition of “co- operative society” under section 2(19). The exclusion contained in section 80P(4) operates in the case of a co-operative bank claiming
deduction for its own income; it does not obliterate its status as a co-operative society for the purpose of determining eligibility of another co-operative society under clause (d) of sub-section (2). To read section 80P(4) as impliedly curtailing section 80P(2)(d) would be to introduce a limitation which the legislature has consciously not provided.
This statutory interplay has been carefully examined by the Tribunal in the assessee’s own case for A.Y. 2017-18, wherein, after considering the very judgments relied upon by the lower authorities, the claim of deduction was allowed. Not only in the case of the present assessee, but also in several decisions of the Co-ordinate Benches on identical issues, it has been consistently held that interest received from co-operative banks is eligible for deduction in the hands of a co-operative society under section 80P(2)(d). Once such a view has been consistently adopted and applied, particularly when the assessee’s own case stands covered, there remains no justification to take a divergent course in the absence of any distinguishing circumstance. Respectfully following the earlier order of the Tribunal and the consistent line of authority, we hold that the assessee is entitled to deduction under section 80P(2)(d) in respect of the impugned interest income.
9. Accordingly, the disallowance of deduction u/s 80P(2)(d) for both the assessment years under consideration is directed to be deleted and the Assessing Officer is directed to allow the deduction as claimed.