2025 (6) TMI 1983 - AT - Income Tax

Denial of deduction u/s.80P(2)(d) - interest income earned from deposits/investments with Cooperative Banks - HELD THAT - The issue under consideration is no more res integra by virtue of series of decisions by this Tribunal holding that interest income from Cooperative Banks which are basically Cooperative Societies are allowable as deduction to the assessee u/s.80P(2)(d). See Annapurna Nagari Sahkari Pathsanstha Maryadit Yawal 2025 (3) TMI 1224 - ITAT PUNE as held assessee is eligible for deduction u/s.80P(2)(d) of the Act for the interest income earned from Cooperative Banks - Decided in favour of assesee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Tribunal was whether the interest income earned by the assessee, a Cooperative Society, from deposits/investments with Cooperative Banks qualifies for deduction under section 80P(2)(d) of the Income-tax Act, 1961. Specifically, the issue was whether such interest income should be treated as eligible for deduction or treated as income from other sources and thus not deductible.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Eligibility of deduction under section 80P(2)(d) for interest income earned from deposits/investments with Cooperative Banks.

Relevant legal framework and precedents: Section 80P(2)(d) of the Income-tax Act provides that any income by way of interest or dividend derived by a Cooperative Society from its investment with any other Cooperative Society is eligible for deduction under section 80P. The legal question was whether Cooperative Banks qualify as Cooperative Societies for the purpose of this provision.

The Tribunal noted that this issue is no longer res integra and has been consistently addressed in a series of decisions by various Benches of the Tribunal. The precedent relied upon included the recent decision in the case of Annapurna Nagari Sahkari Pathsanstha Maryadit Yawal (ITA No.2471/PUN/2024 dated 24.03.2025), where a similar claim for deduction of interest income from Cooperative Banks was allowed. The Tribunal also referred to Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. vs. ITO (ITA No.1365/PUN/2023 dated 01.01.2024) and The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society vs. ITO (ITA No.84/PAN/2018 dated 27.05.2022), which held that Cooperative Banks, though licensed as banks, are essentially Cooperative Societies and thus interest income from deposits with such banks qualifies for deduction under section 80P(2)(d).

Court's interpretation and reasoning: The Tribunal analyzed the nature of Cooperative Banks and concluded that they are fundamentally Cooperative Societies that have obtained banking licenses. The interest income earned by the assessee from deposits with such Cooperative Banks therefore falls within the scope of section 80P(2)(d). The Tribunal rejected the Assessing Officer's treatment of the interest income as income from other sources and upheld the view that the deduction should be allowed.

Key evidence and findings: The assessee, a Cooperative Society registered under the Cooperative Societies Act, declared nil income after claiming the deduction of Rs. 3,69,980 as interest income from deposits with Sangli District Central Cooperative Bank. The Assessing Officer denied the deduction, and the CIT(A) affirmed this denial without detailed discussion. The Tribunal, however, relied on the consistent judicial trend and the nature of Cooperative Banks to find in favor of the assessee.

Application of law to facts: Applying the legal principle that interest income from investments with Cooperative Societies is deductible under section 80P(2)(d), and recognizing Cooperative Banks as Cooperative Societies for this purpose, the Tribunal held that the assessee's claim for deduction on interest income from the Cooperative Bank was valid and should be allowed.

Treatment of competing arguments: The Assessing Officer and the CIT(A) treated the interest income as taxable under the head "Income from Other Sources," denying the deduction. The Tribunal, however, rejected this approach based on binding precedents and the legislative intent behind section 80P(2)(d), which aims to provide tax relief to Cooperative Societies on income derived from their mutual cooperation, including interest from deposits with other Cooperative Societies.

Conclusions: The Tribunal concluded that the assessee is entitled to deduction under section 80P(2)(d) for the interest income earned from the Cooperative Bank. The findings of the CIT(A) and the Assessing Officer were set aside, and the appeal was allowed.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Section 80P(2)(d) of the Act provides that the sum received in respect of any income by way of interest or dividend derived by Cooperative Society from its investment with any other Cooperative Society, the whole of such income is eligible for deduction u/s.80P of the Act."

"...the interest income earned out of the FDs/Investments kept with Cooperative Banks is allowable u/s.80P(2)(d) of the Act as Cooperative Banks are basically Cooperative Societies only but have turned into Bank on getting necessary banking license."

"Respectfully following the above referred decisions taking consistent view along with considering the facts of the case, where the assessee made investment with the Cooperative Banks we hold that the assessee is eligible for deduction u/s.80P(2)(d) of the Act for the interest income earned from Cooperative Banks."

The core principle established is that Cooperative Banks, despite having banking licenses, retain their character as Cooperative Societies for the purpose of section 80P(2)(d), and interest income earned by a Cooperative Society from deposits with such banks is eligible for deduction.

Final determination: The appeal was allowed, the order of the CIT(A) was set aside, and the Assessing Officer was directed to allow the deduction claimed by the assessee for interest income earned from Cooperative Banks under section 80P(2)(d) of the Income-tax Act.