Cooperative society's interest income from deposits with other cooperatives eligible for section 80P(2)(d) deduction

The ITAT Pune held that interest income earned by a cooperative society from fixed deposits/investments with other cooperative societies is eligible for deduction under section 80P(2)(d). The tribunal clarified that for claiming this deduction, the interest income must be derived from investments made by the assessee cooperative society with any other cooperative society. The court distinguished this from section 80P(2)(a)(i), noting that interest income on investments falls specifically under section 80P(2)(d). Following the Karnataka HC decision in Totagars Cooperative Sale Society, which held that the SC ratio in Totgar's Co-operative Sale Society Ltd. does not apply to interest income on investments, the tribunal concluded that interest income earned by cooperative societies on deposits made from surplus funds with cooperative banks qualifies for deduction under section 80P(2)(d). The assessee's appeal was allowed.

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ISSUES:

Whether interest income earned by a co-operative society from deposits/investments with co-operative banks is eligible for deduction under section 80P(2)(a)(i) or 80P(2)(d) of the Income Tax Act, 1961.Whether the interest income from such deposits is attributable to the business activities of providing credit facilities to members and thus qualifies for exemption under section 80P.

RULINGS / HOLDINGS:

The Court held that the interest income earned by the co-operative society from deposits with co-operative banks qualifies for deduction under section 80P(2)(d) of the Act, as such income is derived from investments made with other co-operative societies.The Court rejected the earlier view that deduction under section 80P is disallowed on interest earned from deposits with co-operative banks, distinguishing the Supreme Court decision in Totgars Co-operative Sale Society Ltd. Vs. ITO on the basis that it applies to section 80P(2)(a)(i) and not section 80P(2)(d).The Court set aside the order of the Commissioner of Income Tax (Appeals) and allowed the appeal, confirming that the deduction claimed under section 80P(2)(d) is valid for the interest income earned from co-operative banks.

RATIONALE:

The Court relied on the statutory provisions of section 80P(2)(d) of the Income Tax Act, which exempts income derived by a co-operative society from investments held with other co-operative societies.The Court followed the decision of the co-ordinate bench of the Tribunal and the Karnataka High Court in CIT vs. Totagars Cooperative Sale Society, which held that the Supreme Court decision in Totgars Co-operative Sale Society Ltd. Vs. ITO does not apply to interest income under section 80P(2)(d).The Court emphasized that the relevant criterion is that the income should be derived from investments made with other co-operative societies, which includes co-operative banks as a species of co-operative society.No contrary material was presented by the Revenue to rebut the applicability of section 80P(2)(d) to the interest income in question.

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