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Facts
The assessee, a co-operative society, filed its return declaring Nil income after claiming deduction under section 80P. The AO denied the deduction on interest income earned from deposits with co-operative banks, treating it as income from other sources. The CIT(A) upheld the AO's action.
Held
The Tribunal held that the interest income earned by the co-operative society from deposits made with another co-operative bank is eligible for deduction under section 80P(2)(d) of the Income Tax Act, 1961. The High Court's decision in CIT vs. Salem Agricultural Producers Co-operative Marketing Society Ltd. was relied upon.
Key Issues
Whether interest income earned by a co-operative society from deposits with another co-operative bank is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
Sections Cited
80P(2)(d), 143(3), 144B, 56
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: INTURI RAMA RAO & SHRI MANU KUMAR GIRI
आदेश / O R D E R
PER INTURI RAMA RAO, A.M: This appeal filed by the assessee for Assessment Year (AY) 2022-23 arises out of the order of Learned Commissioner of Income Tax (NFAC), Delhi [hereinafter “CIT(A)”] dated 29.08.2025 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s 144B of the Income-tax Act, 1961 (hereinafter “the Act”) dated 27.02.2024.
ESI Hospital Employees Co-op. Thrift & Credit Society Ltd. :- 2 -: 2. The brief facts of the case are that the assessee is a co- operative society incorporated under the Tamil Nadu Co-operative Societies Act. The society was formed with the object of accepting deposits from its members and providing credit facilities to them. The return of income for AY 2022–23 was filed on 07.11.2022 declaring total income at Nil after claiming deduction under section 80P of the Act. The assessment was completed by the AO vide order dated 27.02.2024 passed under section 143(3) read with section 144B of the Act determining the total income at Rs. 8,71,080/-. While completing the assessment, the AO denied the claim of deduction under section 80P(2)(d) of the Act in respect of interest income earned by the assessee-society on deposits held with co-operative banks by holding that such interest income does not qualify for deduction and is assessable as income from other sources under section 56 of the Act.
Aggrieved by the said assessment order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), vide the impugned order, relying upon the decision of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT [2021] 123 taxmann.com 161 (SC), confirmed the action of the AO. Being aggrieved by the order of the Ld. CIT(A), the assessee is in further appeal before the Tribunal.
ESI Hospital Employees Co-op. Thrift & Credit Society Ltd. :- 3 -: 3. We have heard the rival submissions and perused the materials available on record. The issue that arises for our consideration is whether the interest income earned by a co-operative society from deposits made with co-operative banks is eligible for deduction under section 80P(2)(d) of the Act. In this regard, the Hon’ble Jurisdictional High Court in the case of Thorapadi Urban Co-operative Credit Society Ltd. vs. ITO [2023] 156 taxmann.com 419 (Madras), after referring to the judgment of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. (supra), decided the issue in favour of the assessee. The relevant portion of the decision reads as under:
“7. I have given due consideration for the submission made by the learned counsel appearing for the petitioner as well as the respondent.
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 co-operative 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 ESI Hospital Employees Co-op. Thrift & Credit Society Ltd. :- 4 -: 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 Co-operative 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 Co-operative 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.'
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 co-operative 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.
The learned counsel for the respondent referred to the judgment of the Hon'ble Supreme Court rendered m Totgars Co- operative Sale Society Ltd. (supra), wherein the issue came up for consideration as to whether the interest income received by a Co- operative Bank from its members by way of providing the credit facilities to its members is eligible for deduction or not. Ultimately the Hon'ble Surpeme Court found that under section 80P(2)(4)(1), the same is eligible for deduction. Therefore, the law laid down by the Hon'ble Supreme Court is not applicable for in the present case as the eligibility of deduction of interest has to be decided under section 80P(2)(d) and not under section 80P(2)(a)(i). The learned counsel has also relied upon other judgments which are not applicable for the present facts of the present case.
At this juncture, it would be appropriate to refer a judgment passed by a Division Bench of this Court in CIT v. Salem Agricultural Producers Co-operative Marketing Society Ltd. [2016] 76 taxmann.com 225 (Mad.)/[Tax Case Appeal No. 5 of 2015], wherein, apart from other substantial issues, the following issue has been framed for consideration, which reads as under:
"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is to be treated as primary agricultural society and is carrying on the business ESI Hospital Employees Co-op. Thrift & Credit Society Ltd. :- 5 -: of banking or providing credit facilities to its members and is entitled for deduction under section 80P(2)(a)(i) of the Income- tax Act, 1961 with respect to the interest received from Class B members who were involved in non-agricultural society?". While answering to the above, the Division Bench held that the respondent therein, which is a Co-operative society, is entitled to avail the benefit under 80P(2)(d) of the Act. The judgment was rendered on 10-8-2016, where the judgement rendered by the Hon'ble Supreme Court in 2010 was considered.”
The ratio laid down by the Hon’ble Jurisdictional High Court in the above decision is squarely applicable to the facts of the present case, we direct the AO to allow deduction under section 80P(2)(d) of the Act in respect of the interest income earned by the assessee- society from deposits made with co-operative banks.
In the result, the appeal of the assessee is allowed.
Order pronounced on 09th day of March, 2026 at Chennai.
Sd/- Sd/- (मनु कुमार िग$र) (इंटूरी रामा राव) (Manu Kumar Giri) (Inturi Rama Rao) �याियक सद�य �याियक सद�य / Judicial Member लेखा लेखा सद�य लेखा लेखा सद�य सद�य /Accountant Member सद�य �याियक �याियक सद�य सद�य चे�नई/Chennai, �दनांक/Dated: 09th March, 2026. EDN, Sr. P.S