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

Income Tax Officer 21(2)(2), Mumbai vs. Mahapalika Kshetra Madhyamik Shikshak Sahakari Patsanstha Maryadit, Mumbai

In the result, the appeal filed by the revenue is hereby ordered to be dismissed

ITA 928/MUM/2018[2014-15]Status: DisposedITAT Mumbai25 Jun 2019AY 2014-15

Bench: Shri Shamim Yahya, Am & Shri Amarjit Singh, Jm आयकर अपील सं/ I.T.A. No.928/Mum/2018 (निर्धारण वर्ा / Assessment Year: 2014-15) Ito-21(2)(2) बिधम/ M/S. Mahapalika Kshetra Room No.111, 1St Floor, Madhyamik Vs. Shikshaksahakari Patsanstha Piramal Chambers, Parel, Mumbai-400012. Maryadit, 201/202, Anish Tower, Senapati Bapat Marg, Matunga (W), Mumbai-400016. स्थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Aaaam1865G (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) Revenue By: Shri S. K. Mitra Assessee By: Shri Narend. Sheth सुनवाई की तारीख / Date Of Hearing: 09/05/2019 घोषणा की तारीख /Date Of Pronouncement: 25/06/2019 आदेश / O R D E R Per Amarjit Singh, Jm: The Revenue Has Filed The Present Appeal Against The Order Dated 13.11.2017 Passed By The Commissioner Of Income Tax (Appeals) -33, Mumbai [Hereinafter Referred To As The “Cit(A)”] Relevant To The A.Y.2012- 13. 2. The Revenue Has Raised The Following Grounds: -

For Appellant: Shri Narend. ShethFor Respondent: Shri S. K. Mitra
Section 143(2)Section 56Section 80PSection 80P(2)(a)Section 80P(2)(i)

Patel Goyal Associates, Pune vs. Income-Tax Officer

In the result, the appeal of the assessee is partly allowed

ITA 132/PUN/2016[2008-09]Status: DisposedITAT Pune20 Mar 2019AY 2008-09

Bench: Ms. Sushma Chowla, Jm & Shri D. Karunakara Rao, Am आयकर अपील सं. / Ita No.132/Pun/2016 िनधा"रण वष" / Assessment Year : 2008-09 Patel Goyal Associates, 501, Fortune House, Prabhat Road, Erandwane, Pune-411004. अपीलाथ"/Appellant Pan : Aahfp0519N …. Vs. Ito, Judicial (Hq), …. ""यथ" / Respondent Pune. अपीलाथ" क" ओर से / Appellant By : Shri Nikhil Pathak & Shri Kailash Agarwal ""थ" की ओर से / Respondent By : Shri Sanjeev Ghai सुनवाई क" तारीख / घोषणा क" तारीख / Date Of Hearing : 24.01.2019 Date Of Pronouncement: 20.03.2019 आदेश / Order Per D. Karunakara Rao, Am : This Appeal Is Filed By The Assessee Against The Order Of Cit(A)-3, Pune Dated 24.11.2015 For The Assessment Year 2008-09. 2. The Grounds Raised By The Assessee Are As Under :- “1. Disallowance Of Interest Of Rs.29,65,196/- U/S 57(Iii) In The Facts & Circumstances Of The Case The Learned Cit(A) Erred In Confirming The Disallowance Of Interest U/S 57(Iii). 2. In The Facts & Circumstances Of The Case, Interest Paid Ought To Have Been Allowed U/S 57(Iii). For That Learned Cit(A) Failed To Appreciate That When The Learned A.O. Has Recorded A Clear Cut Finding In The Assessment Order & Affirmed The Position Taken By The Appellant In Return Of Income That When Interest Is Not Claimed & Also Not Allowable U/S 36(1)(Iii), It Has To Be Allowed U/S 57(Iii). 3. For That In The Facts & Circumstances Of The Case, The Learned Cit(A) Failed To Appreciate The Fact That When Borrowed Funds Were Not Required For Business Purposes Due To Availability Of Surplus Funds In Regular Business, Interest Is Paid Only To Earn Interest Income & Hence Interest Cannot Be Disallowed U/S 57(Iii).

For Appellant: Shri Nikhil Pathak &For Respondent: Shri Sanjeev Ghai
Section 143(3)Section 263Section 36(1)(iii)Section 57Section 80I