2025 (6) TMI 1995 - AT - Income Tax

Deduction u/s. 80P(2)(d) - interest income earned by the assessee from investments made with Pune District Central Cooperative Bank Ltd. (PDCC) - revenue denied the deduction as PDCC is not a Cooperative Society. HELD THAT - This issue is no longer res integra by virtue of catena of decisions taking consistent view that interest income earned from deposits with Cooperative Banks is eligible for deduction u/s. 80P(2)(d) of the Act. Recently this Bench in the case of Annapurna Nagari Sahkari Pathsanstha Maryadit Yawal 2025 (6) TMI 963 - ITAT PUNE wherein allowed the deduction claimed by the assessee u/s. 80P(2)(d). Deduction claimed by the assessee on the interest income earned from deposits/Investments with Lokmangal Cooperative Bank u/s. 80P(2)(d) deserves to be allowed. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issue considered by the Tribunal in this appeal is whether the interest income earned by the assessee from deposits held in Pune District Central Cooperative Bank Ltd. (PDCC) is eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961. The specific questions include:

• Whether PDCC qualifies as a Cooperative Society under the relevant Cooperative Societies Act, thereby entitling the assessee to claim deduction under section 80P(2)(d).
• Whether interest income earned from deposits with a Cooperative Bank, which holds a banking license but is registered under the Maharashtra Cooperative Societies Act, can be treated as income eligible for deduction under section 80P(2)(d).
• The correctness of the lower authorities' denial of the deduction claim on the grounds that PDCC is not a Cooperative Society.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Eligibility of deduction under section 80P(2)(d) for interest income earned from deposits held with Pune District Central Cooperative Bank Ltd. (PDCC)

Relevant legal framework and precedents:

Section 80P(2)(d) of the Income-tax Act provides deduction for income by way of interest or dividend derived by a Cooperative Society from its investment with any other Cooperative Society. The provision aims to exempt such income from taxation to promote cooperative principles.

The Maharashtra Cooperative Societies Act, 1960, governs the registration and regulation of Cooperative Societies in the state, including Cooperative Banks such as PDCC.

Several precedents from this Tribunal have consistently held that interest income earned from deposits with Cooperative Banks is eligible for deduction under section 80P(2)(d) as Cooperative Banks are essentially Cooperative Societies that have obtained banking licenses. Relevant decisions cited include:

• Satara Z.P. Class Four Employees Co-op Credit Society Ltd. vs. ITO
• The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society vs. ITO
• Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. vs. ITO
• Annapurna Nagari Sahkari Pathsanstha Maryadit Yawal vs. ITO

Court's interpretation and reasoning:

The Tribunal examined the certificate of registration submitted by the assessee, which demonstrated that PDCC is registered under section 9 of the Maharashtra Cooperative Societies Act, 1960, and is therefore a Cooperative Society. The Tribunal noted that the lower authorities erred in denying the deduction on the ground that PDCC was not a Cooperative Society.

Relying on the consistent view taken in the cited precedents, the Tribunal emphasized that Cooperative Banks, while licensed as banks, remain Cooperative Societies for the purposes of section 80P(2)(d). The Tribunal underscored that this issue is no longer res integra (an open question) and has been settled by a catena of decisions.

Key evidence and findings:

The key evidence was the Certificate of Registration issued by the Registrar of Cooperative Societies, Bombay Presidency, confirming PDCC's registration as a Cooperative Society under the Maharashtra Cooperative Societies Act, 1960.

The Tribunal also took note of the fact that the Assessing Officer had accepted the interest income earned from PDCC deposits but denied the deduction under section 80P(2)(d).

Application of law to facts:

Given that PDCC is registered under the Maharashtra Cooperative Societies Act and functions as a Cooperative Bank, the interest income earned by the assessee from deposits with PDCC qualifies for deduction under section 80P(2)(d). The Tribunal applied the legal principle established in prior decisions that Cooperative Banks are Cooperative Societies for this purpose, and thus the interest income is exempt.

Treatment of competing arguments:

The Revenue contended that PDCC was not a Cooperative Society and therefore the deduction under section 80P(2)(d) was not available. However, the Revenue did not controvert the assessee's reliance on the precedents or the registration certificate. The Tribunal found the Revenue's argument unpersuasive in light of the binding precedents and documentary evidence.

Conclusions:

The Tribunal concluded that the deduction claimed under section 80P(2)(d) for interest income of Rs. 17,51,124 earned from PDCC deposits must be allowed. The order of the CIT(A) denying the deduction was set aside, and the appeal was allowed accordingly.

3. SIGNIFICANT HOLDINGS

The Tribunal's significant legal holdings include the following:

"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."

"This issue is no more res integra as the Coordinate Benches of this Tribunal has been consistently holding that the interest income earned out of the FDs/Investments kept with Cooperative Banks is allowable u/s. 80P(2)(d) of the Act."

"The interest earned from deposits with Cooperative Banks are also eligible for deduction 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 same, we hold that deduction claimed by the assessee on the interest income earned from deposits/Investments with PDCC u/s. 80P(2)(d) of the Act at Rs. 17,51,124/- deserves to be allowed."

The core principle established is that Cooperative Banks, registered under the Cooperative Societies Act and holding banking licenses, continue to be Cooperative Societies for the purpose of section 80P(2)(d), and interest income earned from deposits with such banks is eligible for deduction.

The final determination was to allow the assessee's claim for deduction under section 80P(2)(d) on the interest income earned from PDCC deposits, setting aside the orders of the lower authorities that denied such deduction.