Section 56 of the Income Tax Act

Income-tax Act, 2025: s.92

Section 56 of the Income-tax Act, 1961 corresponds to section 92 (Income from other sources) of the Income-tax Act, 2025.

Read section 92 of the 2025 Act

Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.

The decision most relied on for Section 56 is Totgars Co-operative Sale Society Ltd. v. ITO (322 ITR 283), cited in 1,283 of the 1,790 judgments on BharatTax that turn on this section.

Leading authorities on Section 56

Totgars Co-operative Sale Society Ltd. v. ITO
322 ITR 283 · 2010 · Supreme Court
1,283
citing judgments

The interest income earned by a cooperative society from investing its surplus funds in fixed deposits with banks is not "derived from" its eligible business activities and is taxable as "income from other sources" under Section 56, thus not qualifying for deduction under Section 80P.

Pr. CIT v. Totagars
395 ITR 611 · 2017 · High Court
1,074
citing judgments

Interest income earned by a cooperative society from surplus deposits or investments held with a cooperative bank is not eligible for deduction under Section 80P(2)(d) of the Act.

Mavilayi Service Co-operative Bank Ltd. v. CIT
431 ITR 1 · 2021 · Supreme Court
999
citing judgments

Section 80P(4) serves as a proviso to Section 80P(1) and (2), excluding only cooperative banks that are cooperative societies and possess an RBI license for banking business. Its purpose is to exclude cooperative banks operating like commercial banks that lend money to the public.

Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO
230 Taxmann 309 · 2015 · High Court
527
citing judgments

A cooperative society is eligible for deduction under Section 80P(2)(a)(i) if it is engaged in cooperative activities. It also clarifies the allowability of deduction under Section 80P(2)(d) for interest income received from investments made in cooperative banks, after duly considering the Supreme Court's decision in Totgars Co-operative Sale Society Ltd.

Citizen Co-operative Society Ltd. v. ACIT
397 ITR 1 · 2017 · Supreme Court
499
citing judgments

A co-operative credit society engaged in banking business with the general public, accepting deposits from non-members and advancing loans to non-members, is treated as a co-operative bank. Such a society falls under the exclusionary clause of Section 80P(4) and is not eligible for deduction under Section 80P(2)(a)(i).

Totgar's Co-operative Sale Society Ltd. v. ITO
188 Taxmann 282 · 2010 · Supreme Court
486
citing judgments

Interest income earned by a co-operative society from investments, particularly with co-operative banks, is not eligible for deduction under Section 80P as it is not attributable to the core business activities of the society and constitutes "other income", not "profits and gains of business".

CIT v. Andhra Pradesh State
200 Taxmann 220 · 2011 · High Court
348
citing judgments

Interest earned by a Co-operative Society from investing fixed deposits in banks is entitled to a deduction under Section 80P(2)(a)(i) of the Income-tax Act.

Pr. CIT v. Totagars Co-operative Sales Society
83 Taxmann.com 140 · 2017 · High Court
306
citing judgments

Interest income earned by a co-operative society from deposits or investments made in a co-operative bank is not eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961, in view of Section 80P(4).

Tumkur Merchants Souharda Credit Co-op. Ltd. v. ITO
55 Taxmann.com 447 · 2015 · High Court
267
citing judgments

Interest income earned by a co-operative society from temporary deposits with other banks, when such deposits are made from its business funds, qualifies as business income eligible for deduction under Section 80P(2)(a)(i) and not as income from other sources.

Bangalore Club v. CIT
350 ITR 509 · 2013 · Supreme Court
247
citing judgments

The Supreme Court affirmed the doctrine of mutuality, holding that contributions received from and returned to members for a common purpose do not constitute taxable profits. However, income from transactions with non-members or interest earned from investments in external entities (like cooperative banks) may break the mutuality chain and be taxable under Section 56, falling outside the scope of Section 80P deductions.

Judgments on Section 56

Mohammed Ayub Mainuddin Shaikh, Mumbai vs. Income Tax Office, Int Tax Ward 4(2)(1), Mumbai

In the result, appeal of the assessee is allowed

ITITA 2301/MUM/2025[2016-2017]Status: DisposedITAT Mumbai16 Dec 2025AY 2016-2017

Bench: Ms. Suchitra Raghunath Kamble & Shri Girish Agrawalit(It)A No. 2301/Mum/2025 Assessment Year: 2016-17 Mohammed Ayub Mainuddin Vs Income Tax Officer, Int Tax Shaikh Ward 4(2)(1), Mumbai Premier Exotica I, E Wing, 203, Aayakar Bhavan, Premier Road, Off. Lal Bahadur Churchgate, Mumbai Shashtri Marg, Kurla, Mumbai 400002 400070 Pan: (Calps3314L) Appellant Respondent Present For: Appellant By : Shri. Ajinkya M. Vaishampayan, C.A. Respondent By : Shri. Krishna Kumar, Sr. Dr Date Of Hearing : 18.09.2025 Date Of Pronouncement : 16.12.2025 O R D E R Per Girish Agrawal: This Appeal Filed By The Assessee Is Against The Final Assessment Order Of Ld. Ito (Intl. Tax) Ward 4(2)(1) Mumbai-3 Vide Order No. Itba/Ast/S/147/2024-25/10701239464(1) Dated 16.12.2024 Passed Pursuant To The Directions Of The Dispute Resolution Panel U/S. 144C(5) Of The Income-Tax Act, 1961 (Hereinafter Referred To As The “Act”), Dated 06.12.2024, For Ay 2016-17. 2. Grounds Taken By The Assessee Are Reproduced As Under: " 1) That The Assessment Order & Demand Order Dated 16Th December 2024 Passed Under Section 147 Read With Section 144C(13) (And R.W.S.

For Appellant: Shri. Ajinkya M. Vaishampayan, C.AFor Respondent: Shri. Krishna Kumar, Sr. DR
Section 144C(13)Section 144C(5)Section 147Section 148Section 148ASection 149(1)(b)Section 271(1)(c)Section 274Section 56Section 56(2)(vii)