In a significant ruling for the co-operative sector, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has allowed deduction under Section 80P(2)(d) of the Income Tax Act on interest income earned by a co-operative society from deposits placed with co-operative banks.
The decision came in the case of New Bombay Co-operative Commercial Complex Premises Society Ltd. for Assessment Year 2021–22. The dispute pertained to disallowance of Rs 1.76 lakh, made through a rectification order under Section 154, on account of denial of deduction claimed on interest income earned from deposits with Maharashtra State Co-operative Bank and Saraswat Bank.
The Assessing Officer had invoked Section 80P(4), contending that co-operative banks are excluded from the benefits of Section 80P. This view was upheld by the Commissioner of Income Tax (Appeals).
However, the Tribunal reversed the lower authorities’ findings, following consistent judicial precedents on the issue. It held that Section 80P(4) applies only to co-operative banks claiming deduction themselves, and does not affect the eligibility of a co-operative society claiming deduction on interest earned from investments made with such banks.
The ITAT noted, in line with earlier rulings, that a co-operative bank, though excluded from claiming deduction under Section 80P, continues to fall within the definition of a “co-operative society” under Section 2(19) of the Act. Therefore, interest income earned by a co-operative society from investments with co-operative banks qualifies for deduction under Section 80P(2)(d).
The Bench relied on earlier coordinate bench rulings, which follow the interpretation laid down by the Supreme Court in Mavilayi Service Cooperative Bank Ltd. vs CIT, clarifying the limited scope of Section 80P(4).
Accordingly, the Tribunal directed deletion of the disallowance, subject to factual verification by the jurisdictional assessing officer.
The ruling reinforces a consistent judicial view and is expected to provide relief to co-operative housing societies and other co-operative entities investing surplus funds in co-operative banks.
