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

Shri Kalpesh Bhupendrabhai Brahambhatt, Vadodara vs. The Income Tax Officer, Ward-5(2), Now Ward-3(1)(2), Vadodara

In the result, appeal of the assessee is allowed for statistical purposes

ITA 1990/AHD/2016[2011-12]Status: DisposedITAT Ahmedabad08 Oct 2018AY 2011-12

Bench: Shri Rajpal Yadav & Shri Waseem Ahmedआयकर अपील सं./ Ita No. 1990/Ahd/2016 "नधा"रण वष"/Assessment Year : 2011-12 Kalpesh Bhupendrabhai Vs. Ito, Brahambhatt, Ward – 5(2), Baroda, B/12, Mrudand Park Society, Now 3(1)(2), B/H. Bright School, Vip Road, Vadodara. Karelibaug, Vadodara – 390 018. अपीलाथ"/ (Appellant) "" यथ"/ (Respondent) Assessee By : Shri Mukund Bakshi, A.R. Revenue By : Shri Apoorva Bhardwaj, Sr.D.R. सुनवाई क" तार"ख/Date Of Hearing : 09.08.2018 घोषणा क" तार"ख /Date Of Pronouncement : 08.10.2018 आदेश/O R D E R Per Waseem Ahmed: The Captioned Appeal Has Been Filed At The Instance Of The Assessee Against The Appellate Order Of The Learned Commissioner Of Income-Tax (Appeals)-3, Vadodara [“Cit(A)” In Short] Relevant To Assessment Year 2011- 12. 2. Assessee Has Raised The Revised Grounds Of Appeal Vide Letter Dated 6Th August, 2018 Which Are Reproduced As Under: “1. The Ld. Cit (Appeals) Has Erred In Law & In Facts In Not Admitting The Additional Evidences Filed In Support Of The Appellant'S Claim Against The Additions Made In The Assessment. The Hon'Ble Tribunal Be Pleased To Admit The Same & Allow Necessary Reliefs. 2. The Ld. Cit (Appeals) Has Erred In Law & In Facts In Confirming The Action Of The Ld. A.O. In Holding That An Amount Of Rs.22,71,343/- Received In The Course Of Business Of Plying Of Motor Trucks Was To Be Assessed U/S. 56 Of The It Act & That No Further Allowance Of Expenditure From The Same Could Be Allowed.

For Appellant: Shri Mukund Bakshi, A.RFor Respondent: Shri Apoorva Bhardwaj, Sr.D.R
Section 194CSection 44ASection 56