Cooperative society wins deduction under section 80P(2)(d) for interest earned on cooperative bank deposits

ITAT Pune allowed the appeal of a cooperative society claiming deduction under section 80P(2)(d) for interest earned on fixed deposits with cooperative banks. The revenue authorities had denied the deduction arguing that interest was received from banks. The tribunal held that cooperative banks are principally cooperative societies operating under RBI guidelines with banking licenses. Relying on Karnataka HC precedent, the tribunal distinguished this case from Supreme Court's decision in Totgars case, ruling that interest income from cooperative bank investments qualifies for deduction under section 80P(2)(d). The impugned orders were set aside and deduction allowed.

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Issues:
The judgment involves the denial of deduction claimed under section 80P(2) of the Income-tax Act, 1961 for the assessment years 2018-19 and 2020-21.

For Assessment Year 2018-19:
The appellant, a credit co-operative society, claimed a deduction under section 80P(2) of the Act for interest income earned from fixed deposits and savings account with cooperative banks. The Assessing Officer (AO) denied the deduction citing judicial precedents. The appellant contended that the interest income generated from investments in liquid funds qualifies as business income and is eligible for deduction under section 80P(2)(a)(i) of the Act. The Tribunal agreed, stating that the surplus fund theory does not apply to credit co-operative societies, and the interest earned qualifies for deduction under section 80P(2)(a)(i).

For Assessment Year 2020-21:
In this assessment year, the appellant's deduction under section 80P(2) was denied for interest income accrued from fixed deposits with cooperative banks. The appellant argued that since the interest was earned from investments made with other cooperative societies, it qualifies for deduction under section 80P(2)(d) of the Act. The Tribunal concurred, emphasizing that interest income derived from investments in cooperative banks by a registered co-operative society is eligible for deduction under section 80P(2)(d) of the Act.

Conclusion:
The Tribunal allowed both appeals, setting aside the denial of deduction under section 80P(2) for the respective assessment years. The interest income earned by the appellant from investments in cooperative banks was deemed eligible for deduction under section 80P(2)(a)(i) and 80P(2)(d) of the Act. The impugned orders were reversed, and the appeals of the assessee were allowed.

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