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Facts
The assessee, a cooperative credit society, claimed deductions under Section 80P(2)(a)(i) for dealings with nominal/associate members and under Section 80P(2)(d) for interest income from cooperative banks. The Assessing Officer and CIT(A) denied these deductions, arguing that dealings with nominal members were not eligible and interest from cooperative banks was not deductible.
Held
The Tribunal remanded the issue of deduction under Section 80P(2)(a)(i) for dealings with nominal/associate members back to the AO for verification, citing a Supreme Court decision. It allowed the deduction under Section 80P(2)(d) for interest income from cooperative banks, relying on previous Tribunal decisions that cooperative banks are treated as cooperative societies for this purpose.
Key Issues
The key legal issues were the eligibility for deduction under Section 80P(2)(a)(i) for a cooperative society dealing with nominal/associate members and the eligibility for deduction under Section 80P(2)(d) for interest income earned from deposits with cooperative banks.
Sections Cited
Section 80P(2)(a)(i), Section 80P(2)(d), Section 143(2), Section 142(1), Section 143(3), Section 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PANAJI BENCH
Before: SHRI PAVAN KUMAR GADALE & SHRI G D PADMAHSHALI
Assessee by Shri.Ravish Rao.AR Revenue by Smt.Rijula Uniyal. Sr.DR सुनवाई की तारीख/Date of Hearing 10.02.2026 घोषणाकीतारीख/DateofPronouncement 17.02.2026 ORDER PER BENCH: These two appeals are filed by the assessee against the separate orders of the National Faceless Appeal Centre (NFAC), Delhi / (CIT(A) passed u/se 143(3) and u/sec250 of the Act.
2. Since the issues involved in these appeals are common and identical, hence they are clubbed, heard and a consolidated order is passed. For the sake of convenience, we shall take up A.Y.2017-18 as a lead case and facts narrated. The assessee has raised the BARDC Bank. grounds of appeal
challenging the order of the CIT(A) sustaining the denial of claim of deduction u/sec80P(2)(a)(i) of the Act made by the Assessing Officer in respect of dealings with the Associate/Nominal members and without prejudice alternate reliefs u/sec80P(2)(d) of the Act on interest income from cooperative banks and other banks
3. The brief facts of the case are that, the assessee is a registered cooperative credit society engaged in providing credit facilities to its members. The assessee has filed the return of income for the A.Y 2017-18 on 16.10.2017 disclosing a total income of Rs.1,60,030/- after claiming deduction u/sec80P(2)(a)(i) of the Act of Rs.1,39,56,334/- Subsequently the case was selected for limited scrutiny under the CASS and the Assessing Officer (A.O) has issued notice u/sec143 (2) and u/sec 142(1) of the Act calling for the details in respect of claims and the information supporting the return of income filed. The assesse has filed the information of members of the society along with interest income on deposits with the cooperative banks and other banks. The Assessing Officer (A.O) has dealt on the submissions filed on various dates/details of regular members and associate/nominal members and find that the assessee is not eligible for claim of deduction under section 80P(2)(a)(i) of the Act and has not made separate disallowance of interest income on deposits with the cooperative banks and other banks aggregating to BARDC Bank. Rs.1,87,45.060/-. Finally the A.O. was not satisfied with the explanations on the members information and dealt on the provisions and judicial decisions and denied the claim of deduction u/sec80P2(a)(i) of the act of Rs.1,39,56,334/- and finally assessed the total income of Rs.1,41,16,360/- and passed the order u/sec 143(3) of the Act dated 10.12.2019.
4. Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) has considered the grounds of appeal, submissions of the assessee and findings of the A.O but sustained the denial of claim of deduction of interest income received from the cooperative banks and other banks and also denied the claim of deduction u/sec80P2(a)(i) of the Act. Aggrieved by the order of the CIT(A), the assessee has filed an appeal with the Hon’ble Tribunal.
5. At the time of hearing, the Ld.AR submitted that the CIT(A) has erred in confirming the action of the A.O as the cooperative society is registered under Karnataka cooperative societies Act 1959 and is dealing with nominal members is ineligible for the deduction u/sec80P2(a)(i) of the Act and the CIT(A) also erred in treating the interest income received from the cooperative banks and other banks is not eligible for deduction u/sec80P(2)(d) of the Act. The BARDC Bank. Ld.AR made alternative claim that the interest income from other banks on the concept of attributable to activities of the society be allowed as deduction u/sec80P(2)(a)(i) of the Act. Further the Ld.AR emphasized that the CIT(A) has wrongly considered the registration certificate belongs to the Bhaktal urban cooperative bank Ltd referred at page 28 &29 of the CIT(A)order, where the assessee has made fixed deposits and observed that that the assessee is a urban cooperative bank.The Ld.AR supported the submissions with the paper book and judicial decisions. Per Contra, the Ld.DR relied on the order of the CIT(A).
6. We heard the rival submissions and perused the material on record. The Ld.AR submitted that the CIT(A) has erred in sustaining the disallowance overlooking the submissions and the judicial decisions and the Assessing Officer has ignored the factual aspects and wrongly denied the claim. The Ld.AR mentioned that CIT(A) has not appreciated the facts that nominal members and associate members are recognised by the governing by laws of the society and there are no dealing with non members/ outsiders. Further the CIT(A) has erred in treating the interest income received from the cooperative banks and other banks is not eligible for deduction u/sec80P(2)(d) of the Act. The Ld.AR made alternative claim that the interest income from other banks on the concept of attributable to activities of the society be allowed as deduction
BARDC Bank. u/sec80P(2)(a)(i) of the Act. Whereas the Ld.AR relied on the decision of the Honble Income Tax Tribunal Panaji Bench in ITA.No.158,159& other 27 numbers/PAN/20223/24&25 dated 28-11-2025 –Akshaya Co-Op Credit society & others Vs ITO and relied on Para 5 of the order on the subject matter of nominal members and associate members.
5. On the first disputed issue, the AO and CIT(A) has not allowed the claim of deduction under section 80P(2)(a)(i) of the Act, where the Cooperative credit society deals with the three class of members i.e Regular, Nominal and Associate Members. The assessee is a co-operative society registered under the Goa Cooperative Societies Act 1961 and is engaged in the business of providing credit facilities to its members. The society deals with three classes of member’s i.e. regular members, Nominal members and Associate members and are recognized by the governing law and the bye laws. The Ld. AR submissions are that the society deals only with its members and there are no dealings with outsiders, non-members or with public at large. The Ld. DR stated that the assessee has violated the provisions of the co-operative societies act and cooperative society’s rules and the number of nominal members are exceeding more than 15% of the regular members and therefore the claim u/sec 80P (2) (a) (i) under the Income tax act 1961 is not allowed. The Ld.AR relied on the decision of the Hon’ble Supreme Court in the case of Maviyali Service Co-operative Bank Ltd v CIT reported in 123 taxmann.com 161 (SC) / 431 ITR 1 (SC) has held that , when nominal members are defined in the governing law dealings with them are entitled for deduction u/s 80P.”. In the present case the nominal and associate members are recognized by the governing law i.e: The Goa Co-operative Societies Act 2001 and the bye laws of the society. The Ld.DR submitted that "If the society is found to be giving loans to general public or to persons who are not its members in the strict sense, it would be acting as a co-operative bank, thereby disentitling it from deduction under Section 80P.". We find the assessing officer has not verified these facts that the Primary members are only having voting rights and share in the surplus of the society and the Nominal members are admitted as per the provisions of the cooperative society and there are no dealings with outsiders or non- members. We considering the facts and submissions restore this disputed issue for limited purpose to BARDC Bank. the file of the assessing officer for verification and examination as discussed above and to adjudicate on merits. And we allow this ground of appeal for statistical purpose.”
7.On the alternate ground of appeal the Ld.AR submitted that the CIT(A) has erred in giving findings that the interest income from cooperative banks is ineligible for deduction u/s 80P(2)(d) of the Act and also interest income from scheduled bank is ineligible for the deduction u/sec80P2(a)(i) of the Act. Whereas The Honble Income Tax Tribunal Panaji Bench in ITA.No.158,159& other 27 numbers/PAN/20223/24&25 dated 28-11-2025 –Akshaya Co-Op Credit society & others Vs ITO dealt at Para 7 of the order on the subject matter of interest income from cooperative banks is eligible for deduction u/s 80P(2)(d) of the Act as under:
“7.------“The Third disputed issue, where the AO and CIT(A) has not allowed the claim of deduction under section 80P(2)(d)of the Act, in the case of the cooperative society earns / receives interest on deposits maintained with the cooperative banks.
The assessee’s is co-operative society registered under the Karnataka Souharda Sahakari Act 1997 and similarly under the Karnataka Co-operative Societies Act 1959 and is engaged in providing the credit facilities to its members. Whereas the Assessing officer found that the assessee earns/receives interest on deposits maintained with the cooperative banks and was not satisfied with the explanations of the assessee and dealt on the provisions and judicial decisions and denied the claim of deduction u/sec 80P2(d) of the Act and the CIT(A) has sustained the disallowance. On further appeal to Tribunal, the Ld.AR submitted that the CIT(A) has erred in confirming the action of the A.O in treating the interest income from cooperative banks is ineligible for deduction u/s 80P(2)(d) of the Act. Whereas, the CIT(A) has considered the facts on claim of deduction u/s 80P(2)(d) but took a different view. The Ld.AR emphasized that the claim has to be allowed as the cooperative bank is treated as a cooperative society for eligibility of deduction u/s 80P(2)(d) of the Act and substantiated We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue envisaged by the Assessee Representatives is in respect of granting of deduction u/s 80P(2)(d) of the Act to the Cooperative Society. The Ld. AR submitted that the interest income derived by a co- operative society from its deposits with the co-operative bank would be entitled for deduction u/s 80P(2)(d) of the Act. Whereas on the similar disputed issue, the Hon’ble Tribunal Panaji bench in the case ITA.No74/PAN/2024 of The Bardez Urban Co-Operative Credit Society Limited, Vs ITO Panaji dated 11-2-2025 has dealt at Para 6 to 8 of the order as under:
“6. We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue envisaged by the Ld.AR is in respect of granting of deduction u/s 80P(2)(d) of the Act to the Cooperative Society. The Ld. AR submitted that the interest income derived by a co-operative society from its deposits with the co-operative bank would be entitled for deduction U/sec 80P(2)(d) of the Act. The Ld.AR highlighted that the asssessee has received interest on fixed deposits with the Goa State Co-op Bank Limited and further the co-operative bank is treated as a cooperative society for eligibility of deduction u/s 80P(2)(d) of the Act. We find the Hon’ble Tribunal in Amore Commercial Premises Co-op Society Ltd vs. CPC Karnataka in & 2874/Mum/2022 dated 17-01-2023 has dealt on the taxability of interest earned on the deposits with the Cooperative Banks at page 2 Para 3 of the order, which is read as under:
3. Briefly stated facts necessary for consideration an adjudication of the issues at hand are :- Assessee being a CoOperative Society has claimed disallowance/deduction u/s. 80P (2)(d) in respect of the interest of Rs. 6,96,725/- for parking its funds with Saraswat Co-Operative Bank, Sham Vithal Rao CoOperative Bank and district central CoOperative Bank. However, centralized processing centre (CPC)/ Assessing Officer has disallowed the deduction Claimed by the Assessee u/s 143(1).
4. Assessee carried the matter before the Ld.CIT(A) by way of filing Appeals who has confirmed the addition by dismissing Appeals. Filling aggrieved Assessee has come up before the Tribunal by way of filing present Appeal.
BARDC Bank. 5. We have heard the Ld. Authorized Representative of the parties to the Appeals, perused the order passed by the Lower Revenue Authorities and documents available on record in the light of the law applicable thereto.
6. Undisputedly Assessee Society has invested is surplus funds with Co-Operative banks and earned the interest income to the tune of Rs. 6,96,725/- and claimed it is deduction u/s. 80P (2)(d) of the Act, which has been disallowed by Assessing Officer & confirmed by the Ld.CIT(A) by relying upon decision rendered by Hon’ble Karnataka High Court in case of principle Ld.CIT Vs. Totgar’s Co- Operative Sales Society Ltd.
7. Issue as to the allow-ability of the deduction claimed by the Assessee u/s. 80P (2)(d) of the Act, is no longer Res-Integra having being decided by the co-ordinate Bench of the Tribunal in case of Palm Court M Premises Co-operative Society Ltd. in order dated 09.09.2022 by settling the issue in favour of the assessee by distinguishing the judgment rendered by Hon'ble Supreme Court in case of Totgar's Cooperative Sale Society Ltd. Vs. Income Tax Officer, 188 Taxman 282(SC) and by discussing the decision rendered by Hon'ble Bombay High and Hon'ble Gujarat High Court wherein it is held that interest income earned by the Co-operative Society on its investment made with co-operative bank would be eligible for claim of deduction under section 80P(2)(d) of the Act by returning following findings:
We have given a thoughtful consideration to the contentions advanced by the Id. Authorized representatives for both the parties in context of the aforesaid issue under consideration. As stated by the ld. A.R, and rightly so, the issue that interest received by a co-operative society on its deposits with cooperative banks would be eligible for deduction w/s 80P(2)(d) of the Act is covered in assessee's favour by orders of the various coordinate benches of the Tribunal in the following cases: (i). M/s Solitaire CHS Ltd. Vs. Pr.CIT-26, Mumbai, dated 29.11.2019 (ii). Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum.) (iii). M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017. (iv). Marvwanjee Cama Park Cooperative Housing Society Ltd. V's. ITO-Range 20(2)(2), Mumbai (ITA NO. 6139/Mum/2014, dated 27.09.2017. (v). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai. In the aforesaid orders, it has been held by the Tribunal that though the cooperative banks pursuant to the insertion of subsection (4) to Sec. 80P of the Act would no more be entitled for claim of deduction u/s 80P of the Act, but 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 in force in any State for the registration of co- BARDC Bank. operative societies, therefore, the interest income derived by a cooperative society from its investments held with a co-operative bank would be entitled for claim of deduction w/s 80P(2)(d) of the Act. We find that the aforesaid issue had exhaustively been looked into by the ITAT, "G" bench, Mumbai in the case of M/s Solitaire CHS Ltd, Vs. Pr.CIT-26, Mumbai dated 29.11.2019, wherein the Tribunal had observed as under: "6. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought, for adjudicating, as to whether the claim of the assessee for deduction under section. 80P(2)(d) in respect of interest income earned from the investments/deposits made with the cooperative banks is in order, or not. In our considered view, the issue involved in the present appeal revolves around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P as had been made available on the statute, vide the Finance Act 2006, with effect from 01.04.2007. On a perusal of the order passed by the Pr.CIT under Sec. 263 of the Act, we find, that he was of the view that pursuant to insertion of subsection (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2) (d) in respect of the interest income that was earned on the amounts which were parked as investments/deposits with cooperative banks, other than a Primary Agricultural Credit Society or a Primary Cooperative Agricultural and Rural Development Bank. Observing, that the co- operative banks from where the assessee was in receipt of interest income were not co-operative societies, the Pr. CIT was of the view that the interest income earned on such investments/deposits would not be eligible for deduction under Sec. 80P(2)(d) of the Act.
7. After necessary deliberations, we are unable to persuade ourselves to be in agreement with the view taken by the Pr. CIT. Before proceeding any further, we may herein reproduce the relevant extract of the aforesaid statutory provision, viz. Sec. 80P(2) (d), as the same would have a strong bearing on the adjudication of the issue before us. "80P(2) (d) (1). Where in the case of an assessee being a cooperative 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 subsection (2), in computing the total income of the assessee. (2). The sums referred to in sub-section (1) shall be the following, namely:- (a)......................................................................................... ......... (b)………………………………………………………… ………………………………….. (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;" On a perusal of Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee cooperative society from its investments held BARDC Bank. with any other cooperative society shall be deducted in computing its total income. 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 co-operative society. We are in agreement with the view taken by the Pr. CIT, that with the insertion of sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, 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. However, at the same time, we are unable to subscribe to his view that the aforesaid amendment would jeopardise the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of its interest income investments/deposits parked with a co- operative bank. In our considered view, as long as it is proved that the interest income is being derived by a cooperative 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 find that the term cooperative society" had been defined under Sec. 2(19) of the Act, as under:- "(19) "Co-operative society" means a cooperative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of cooperative societies;" We are of the considered view, that though the cooperative banks pursuant to the insertion of subsection (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a cooperative 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 in force in any State for the registration of co- operative societies, therefore, the interest income derived by a cooperative society from its investments held with a cooperative bank would be entitled for claim of deduction under Sec.80P(2) (d) of the Act.
8. We shall now advert to the judicial pronouncements that have been relied upon by the Id. A.R. We find that the issue that a co- operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a cooperative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH $2 (Mum) (ii) M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 (iii) Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITO-Range-20(2)(2). Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017. (iv). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai. We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had held, that the interest income earned by the assessee on BARDC Bank. its investments with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the co-operative banks which were functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. Insofar the reliance placed by the Pr. CIT on the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) is concerned, we are of the considered view that the being distinguishable on facts had wrongly been relied upon by him. The adjudication by the Hon"ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a cooperative society towards deduction under Sec. 80P(2) (d) on the interest income on the investments/deposits parked with a co-operative bank. Although, in all fairness, we may observe that the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars cooperative Sale Society (2017) 395 ITR 611 (Karn), had concluded that a co-operative society would not be entitled to claim of deduction under Sec. 80P(2) (d). At the same time, we find, that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had observed, that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec. 80P(2) (d) of the Act. We find that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom), where there is a conflict between the decisions of nonjurisdictional High Court's, then a view which is in favour of the assessee is to be preferred as against that taken against him. Accordingly, taking support from the aforesaid judicial pronouncement of the Hon'ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a cooperative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.
9. Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and therein concluded that the assessee would be entitled for claim of deduction under Sec. 80P(2) (d) on the interest income earned on its investments/deposits with cooperative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 for dislodging the same. In fact, as observed by us hereinabove, the aforesaid view taken by the A.O at the time of framing of the assessment was clearly supported by the order of the jurisdictional BARDC Bank. Tribunal in the case of Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum). Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we "set aside" his order and restore the order passed by the A.O under Sec. 143(3), date 14.09.2016." As the facts and the issue involved in the present case before us remains the same as were there before the Tribunal in the case of M/s Solitaire CHS Ltd. (supra), wherein the order passed by the Pr. CIT u/s 263 of the Act was quashed, we, thus, respectfully follow the same. Backed by our aforesaid deliberations, we are unable to uphold the view taken by the Pr. CIT that the failure on the part of the A.O to be disallow the assessee's claim for deduction u/s 80P(2)(d) had rendered the assessment order passed by him u/s 143(3) of the Act, dated 31.08.2017 as erroneous in so far it was prejudicial to the interest of the revenue.
Accordingly, on the basis of our aforesaid observations, we herein not finding favor with the view taken by the Pr. CIT that the order passed by the A.O u/s 143(3), dated 31.08.2017 was erroneous in so far it was prejudicial to the interest of the revenue within the meaning of Sec. 263 of the Act set-aside the same and restore the order passed by the A.O u/s 143(3) of the Act, dated 31.08.2017."
8. Hon'ble High Court of Karnataka in case of Pr. CIT & Anr.Vs. Totgar's Co-operative Sale Society Ltd. (2017) 292 ITR 74 (Kar.) and Hon'ble Gujarat High Court in case of State Bank of India vs. CIT (2016) 389 ITR 578 (Guj.) had held that interest income earned by a co-operative society on its investment held with cooperative bank would be eligible for claim of deduction under section 80P(2)(d) of the Act.
9. So following the decision rendered by Hon'ble Karnataka High Court (supra) and Hon'ble Gujarat High Court (supra), we are of the considered view that assessee society who has earned an amount of Rs. Rs. 6,96,725/- from its investment of surplus fund with cooperative banks is entitled for deduction under section 80P(2)(d) of the Act. Resultantly, the Ld. CIT(A) has erred in upholding the denial of deduction by the AO to the assessee under section 80P(2)(d) of the Act.
We have considered the facts, circumstances and the ratio of the judicial decisions. The Honble Tribunal has dealt on the catena of judicial decisions were the co-operative society receives/earns interest on deposits with the co-operative bank is eligible for claim of deduction under section 80(2)(d) of the Act. Accordingly, we fallow the judicial precedence, and set aside the order of the CIT(A) on the disputed issue and direct the Assessing officer to allow the claim of deduction u/sec 80P(2)(d) of the Act to the extent of interest income included in the gross total income and such
8. In the result, the appeal filed by the appeal is allowed”
Hence We considering, the facts, circumstances and follow the judicial precedence and we set aside the order of the CIT (A) on this disputed issue and direct the Assessing officer to allow deduction u/sec80P(2)(d) of the Act as discussed above. And these grounds of appeal of the assesse are allowed in favour of the assessee.”
8. Similarly The Honble Income Tax Tribunal Panaji Bench in ITA.No.158,159 & other 27 numbers/PAN/20223/24&25 dated 28-11-2025 –Akshaya Co-Op Credit society & others Vs ITO dealt at Para 11 of the order on the subject matter of interest income from scheduled banks/nationalized banks as under:
“ 11.----The seventh disputed issue, where the AO and CIT(A) has not allowed the claim of deduction under section 80P(2)(a)(i) of the Act. As the cooperative society earns / receives interest on deposits maintained with the nationalized banks / scheduled banks/ non cooperative banks.
The Ld.AR’s submitted that the assessee has claimed deduction u/s 80P(2) (a) (i) of the Act relating to interest income from scheduled banks as the same constitutes income attributable to carrying of business of providing credit facilities to its members.. Further such investments are made as per specific clause 58 of The Karnataka Cooperative Societies Act 1959. The amount invested for short term is out of working capital available in the process of carrying out providing credit facilities which is the business of the assessee. As per specific clause of the governing law and bye laws the amounts are invested in Co-operative Credit societies, Co-operative Banks and Scheduled Banks. Investments in scheduled banks are made on account of commercial expediency of quick liquidity whenever the need arises. Whereas the provisions of section 80P(2) (a) (i) of the Act are dealt in cases were the whole of the amount of profits and gains of a business which are attributable to any of the activities referred to in clauses (i) to (vii) of that section shall qualify for deduction. The impugned interest income falls under profits and gains attributable to carrying on business of providing credit facilities BARDC Bank. to its members. Further the assessee-society is entitled to deduction under section 80P in respect of interest income from fixed deposits with nationalized bank when source of such investment was income derived from activities listed in sub-clauses (i) to(vii) of clause (a) of section 80P(2) of the Act. The Ld.AR’s relied on the judicial decisions 1. Bihar State Co-operative Bank Ltd v CIT 39 ITR 114 (SC) 2. Cambay Electric Supply Industrial Co. Ltd v CIT 113 ITR 84 (SC). 2.1 Tumkur Merchants Souharda Credit Cooperative Ltd v ITO Ward – V, Tumkur 55 taxmann.com 447 (Kar).
Guttigedarara Credit Co-operative Society Ltd v ITO Ward 2(2), Mysore 377 ITR 464 (Kar) .
Vavveru Co-operative Rural Bank Ltd v Chief Commissioner of Income Tax 396 ITR 371 (A.P and Telangana).
Pr.CIT v Sahyadri Co-operative Credit Society Ltd 166 taxmann.com 445 (Ker).
Pr.CIT v Gunja Samabay Krishi Unnayan Samiti Ltd 147 taxmann.com 518(Cal) 7. Chennai Central Co-operative Bank Ltd 148 taxmann.com 17 (Mad).
8. Athani Credit Co-operative Society Ltd ITA No.121/PAN/2023.
9. Shree Adinath Minority Credit Souhard Sahakari Ltd Further Interest income earned by cooperative credit society from its funds parked with nationalized and commercial banks would be construed as profits and gains of business, thus eligible for deduction under section 80P(2)(a)(i) of the Act. The CBDT CIRCULAR No.18/2015 F.No.279/Misc./140/2015/ITJ dated 02.11.2015 on the issue of interest SLR securities of banks states that – 1.“It has been brought to the notice of the Board that in the case of Banks, field officers are taking a view that, "expenses relatable to investment in non-SLR securities need to be disallowed u/s 57(i) of the Act as interest on non-SLR securities is income from other sources."
Clause (id) of sub-section (1) of Section 56 of the Act provides that income by way of interest on securities shall be chargeable to income tax under the head "Income from Other Sources", if, the income is not chargeable to income-tax under the head "Profits and Gains of Business and Profession".
3. The matter has been examined in light of the judicial decisions on this issue. In the case of ClT v.Nawanshahar Central Cooperative Bank Ltd. [2007] 160TAXMAN 48(SC), the Apex Court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head "Profits and Gains of Business and Profession" The authorized representatives of the assessee’s substantiated the submissions with the judicial decisions and the Ld.DR relied on the order of the CIT(A) and submissions. The Ld. AR’s submitted that the assessee functions as a co-operative society & interest from scheduled banks is attributable to banking business which also utilized for the purpose of providing credit facilities. The interest income partakes the character of business income for the co-operative society. On the issue for the attributable to the banking business, the assessee being a credit co-operative society is engaged in providing credit facilities to its members and the claim was in respect of the money available for business that in the nature of credit facilities provided & there is no surplus funds and BARDC Bank. applying the theory of attributable to the objects and also there are no surplus funds except the operational money which is available for providing credit facilities. Further the surplus funds generating the interest income were part of the working/operational funds of the society’s core business of providing credit facilities to its members. The assessee has deposited the funds in the scheduled banks to obtain higher rate of interest therefore the concept of availability of surplus funds does not arise in the case of credit co-operative societies. Accordingly, the Ld. Assessing Officer to consider the facts of earning of interest income by the assessee from its core business of providing credit facilities to its members and allow the deduction.
On the second category of multipurpose Co-operative societies which deal in providing the credit facilities & also other business activities with its members and outsiders in such cases where the funds are invested with the scheduled banks by way of short term deposits cannot be said to be providing credit facilities to its members and the income is taxed as “other income” under the Income from other Sources u/sec 57 of the Act subject to allowing the deduction of direct and indirect cost incurred on such investments/deposits by the assessee from such interest income earned. Accordingly, this disputed issue is restored to the file of the assessing officer to verify and examine the earning of interest income and allow the deductions as discussed above and adjudicate on merits. Further the deduction u/sec80P(2)(a)(i) of the Act in respect of scheduled bank interest in both the categories of socities should be restricted to the income forming part of gross total income. And these grounds of appeal are partly allowed for statistical purpose.”
9. Therefore, considering the facts, circumstances, submissions and the ratio of the judicial decisions dealt in the above issues and also follow the judicial precedence. Accordingly, set aside the order of the CIT(A) on these disputed issues and direct the assessing officer to allow deduction under section 80P(2)(d) of the Act in respect of interest income on deposits with cooperative banks and restore the disputed issue of interest on deposits with scheduled/other banks dealt in the paragraph 8 above to the file of the Assessing Officer to adjudicate on similar
BARDC Bank. directions discussed and the total aggregate claim including deduction u/sec80P(2)(d) of the Act shall be restricted to original deduction u/sec80P(2)(a)(i) of the Act claimed in the return of income filed by the assessee. Further the assesse should be provided adequate opportunity of hearing and shall cooperate in submitting the information. And the grounds of appeal of the assessee are partly allowed for statistical purposes. (A.Y.2018-19)
10. As the facts and circumstances in this appeal is identical to (except variance in figures) and the decision rendered in above paragraph 5 to 9 would apply mutatis mutandis for the grounds of appeal no.1,2,&4 this appeal also. And these grounds of appeal of the assessee are partly allowed for statistical purposes.
11. Further the Assessee has raised ground of appeal no.3, where the CIT(A) has erred in denying the deduction under section 80P(2)(a)(i) of the Act towards miscellaneous receipts i.e recovery charges, postage & telephone, shares fees, admission fees etc earned in the course of providing credit facilities to members. The Ld.ARs contentions are they are attributing to the activities of the assessee society and prayed for opportunity to substantiate the receipts with evidences before the lower authorities. Therefore, considering the facts, circumstances and principles of natural justice shall provide with one more
BARDC Bank. opportunity of hearing and accordingly restore this disputed issue for limited purpose to the file of the Assessing Officer for verification and to adjudicate fresh on merits and the assessing officer shall provide adequate opportunity of being heard to the assessee and the assessee should also cooperate in submitting the information. And this ground of appeal of the assessee is allowed for statistical purpose.
12. In the result, the two appeals filed by the assessee are partly allowed for statistical purposes. Order pronounced in the open court on 17.02.2026.