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Facts
The Assessee, a Co-operative Credit Society, claimed a deduction of Rs.1,95,55,277/- under Section 80P(2)(d) for interest income earned from deposits maintained with Co-operative Banks. The Assessing Officer and the CIT(A) disallowed this deduction, considering Co-operative Banks as not Co-operative Societies for the purpose of this section and treating the interest as 'income from other sources'. The Assessee appealed this disallowance.
Held
Following the pronouncements by the Hon'ble Karnataka and Sikkim High Courts, the Tribunal held that interest earned by a Co-operative Society from its investments with other Co-operative Banks is indeed eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961. Therefore, the Assessing Officer was directed to allow the claimed deduction for the Assessee.
Key Issues
Whether interest income earned by a Co-operative Credit Society from deposits held with Co-operative Banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
Sections Cited
Section 80P, Section 80P(2)(d), Section 80P(2)(a)(i), Section 80P(4), Section 143(3), Section 144B, Section 250, Section 56(i)(ccv) of the Banking Regulations Act, 1949
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Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the Assessee against the order of ld.Commissioner of Income Tax(Appeal)[NFAC], passed under section 250 of the Income Tax Act, 1961 for the A.Y.2022-23 dated 10.01.2025 emanating from the Assessment Order passed under 143(3) read with section 144B of the Act, dated 05.03.2024. The Assessee has raised the following grounds of appeal :
1. The ld CIT(A) erred in law and on facts in confirming disallowance of deduction u/s 80P(2)(d) of Rs.1,95,55,277/- in respect of interest income earned from investment when deduction u/s 80P(2)(a)(i) was claimed in respect of such income.
2. The ld CIT(A) erred in law and on facts in assessing interest income as income from other sources as against business income without appreciating that the said income is attributable to the activities of extending credit facilities to the members of the appellant Society.
3. Without Prejudice to Ground No 1 and 2, the ld CIT(A) ought to have allowed the deduction u/s 80P(2)(a) in respect of the interest income earned by the appellant.
4. The appellant craves leave to add, alter, modify or substitute any ground of appeal at the time of hearing.” Findings & Analysis :
2. We have heard both the parties and perused the records. In this case, as observed from Assessment Order, Assessee had filed Return of Income for A.Y.2022-23 on 28.09.2022 declaring total income at Rs.44,94,110/- after claiming deduction u/s.80P at Rs.2,24,75,447/-. Assessee’s case was selected for scrutiny assessment. Admittedly, Assessee is a Co-operative Credit Society registered under Maharashtra Co-operative Societies Act, 1960. During the assessment proceedings, Assessee submitted that Assessee is engaged in the business of providing banking facilities to its members. Assessee further submitted that as per the RBI 2 Rules, Assessee has to maintain certain deposits with Co-operative Societies. During the assessment proceedings, assessee claimed that interest earned from such deposits is eligible for deduction u/s.80P as the interest earned is Business Income. The Assessing Officer disallowed assessee’s claim for Chapter-VIA deduction under section 80P(2)(d) of the Act, of Rs.1,95,55,277/- on the ground that Co-operative Banks are not Co-operative Societies, hence, interest earned from Co-operative Banks is not eligible for deduction u/s.80P(2)(d) of the Act. Aggrieved by the Assessment Order, Assessee filed appeal before the ld.CIT(A) who upheld the assessment order.
3. Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal.
During the appellant proceedings, ld.AR filed copy of Income Tax Return filed by Assessee for A.Y.2022-23. As per the said Income Tax Return, Assessee has claimed deduction u/s.80P(2)(a)(i) of Rs.28,70,170/- and Section 80P(2)(d) of Rs.1,95,55,277/-.
In the Ground No.1 raised by the Assessee before us, Assessee has stated that it had claimed deduction u/s.80P(2)(a)(i) of 3 Rs.1,95,55,277/-, we have verified the Return of Income filed by the Assessee and noted that Assessee had claimed deduction u/s.80P(2)(d) of Rs.1,95,55,277/- in the Return of Income. In these facts and circumstances of the case, Ground No.1 raised by the Assessee is dismissed.
Section 80P(2)(d) of the Act is reproduced here under : “Deduction in respect of income of co-operative societies. 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub- section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :— (a) in the case of a co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities : Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:— (1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities; (2) the co-operative credit societies which provide financial assistance to the society; (3) the State Government; xxxxxxxxxxxxxxxxxxxxx 4 (d) in respect of any income by way of interest or dividends derived by the co-operative
The Hon’ble Karnataka High Court in the case of PCIT Vs. Totagar’s Co-operative Sale Society [2017] 392 ITR 74 vide order dated 05.01.2017 has held as under : Quote “5. The learned counsel for the Revenue has pleaded that two substantial questions of law are raised in the present appeal, namely, '1. Whether the learned Tribunal was justified in deleting the additions made by the Assessing Authority being the disallowed deduction claimed u/S. 80P(2)(d) of the Income Tax Act and in the light of the decision of the Supreme Court with regard to the same exact assessee as the present one, namely, The Totgars Co- operative Sale Society Ltd. v. Income Tax Officer in Civil AppealNos.1622 to 1629/2010 decided by the Apex Court on 08.02.2010 or not? 2. Whether, in the facts and circumstances of the case, the Tribunal is justified in not following the decision rendered by the Hon'ble Supreme Court in Civil Appeal No. 1622 of 2010, wherein the Apex Court has to be held that the words used in Section 80P "the whole of the amount of profits and gains of business" emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society and as such interest earned on funds which are not required for business purposes falls under the category of "other income" taxable under the Income Tax Act?' ………………………..
The issue whether a Co-operative Bank is considered to be a Co-operative Society is no longer res integra. For the said issue has been decided by the ITAT itself in different cases. Moreover the word "Co-operative Society" are the words of a large extent, and denotes a genus, whereas the word "Co-operative Bank" is a word of limited extent, which merely demarcates and identifies a particular species of the genus Co-operative Societies. Co- Operative Society can be of different nature, and can be involved in different activities; the Co-operative Society Bank is merely a 5 variety of the Co-operative Societies. Thus the Co-operative Bank
Furthermore, even according to Section 56(i)(ccv) of the Banking Regulations Act, 1949, defines a primary Co-Operative Society bank as the meaning of Co-Operative Society. Therefore, a Co-operative Society Bank would be included in the words 'Co- operative Society' 10. Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the I.T. Act, the said 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. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent.
The learned counsel has relied on the case of Totgars Co- operative Sale Society Ltd. v. ITO [2010] 322ITR 283/188 Taxman 282 (SC). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the I.T. Act. For, in the present case the interpretation that is required is of Section 80P(2)(d) of the I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case.
For the reasons stated above, this Court does not find any merit in the present appeal. Hence, the appeal is dismissed.”Unquote.(emphasis supplied) 8. The Hon’ble Sikkim High Court in the decision of [2025] 181 taxmann.com 494 (SIKKIM)Sikkim State Cooperative Supply and Marketing Federation Ltd. v. Deputy Commissioner of Income-tax vide order dated 10.12.2025 has held as under : Quote.“4.When we took up the matter on 12thNovember, 2025, the following substantial questions of law were framed:- "1. Whether the learned Tribunal misinterpreted section 80P(4), 6 which only bars cooperative banks from claiming deductions on 80P(2)(d) deductions to the Appellant, being a non-bank cooperative society, in respect of interest received from cooperative banks? 2. Whether the learned Tribunal correctly applied the ratio in Totgars' Cooperative Sale Society Ltd. (322ITR 283 (SC)), which concerned section 80P(2)(a)(i) and retained members' funds shown as liability to deny deductions under section 80P(2)(d), when the facts and statutory provisions in the present case are materially different?" ……………………. …………………….
We are, therefore, of the view that in the facts of the instant case, the assessee is entitled to claim deduction under section 80P(2)(d) of the Income Tax Act, 1961.”Unquote.
Hon’ble Karnataka High Court and Hon’ble Sikkim High Court has held that interest earned by Co-operative Society from deposits kept with Co-operative Banks is eligible for deduction u/s.80P(2)(d) of the Act.
Thus, whether a co-operative Society is eligible for deduction u/s.80P(2)(d) of the Act, on the interest earned from Co-operative Bank has been decided in favour of assessee by Hon’ble High Courts.
Respectfully, following the Hon’ble High Court(supra), we direct the Assessing Officer to allow deduction u/s.80P(2)(d) of the 7
Since we have decided the main ground, remaining grounds become academic, accordingly, dismissed as unadjudicated.
In the result, appeal of the Assessee is partly allowed. Order pronounced in the open Court on 23 January, 2026.