Interest deduction under Section 80P(2)(d) for cooperative society deposits upheld where payer lacks RBI banking licence

Whether interest received by a cooperative thrift and credit society from deposits in a district central cooperative bank qualifies for deduction under Section 80P(2)(d) was decided by examining whether the payer functioned as a cooperative society or as a cooperative bank operating with a banking licence. The Tribunal applied the principle that payments by another cooperative society qualify for the Section 80P(2)(d) exemption unless the payer conducts public banking under a licence; finding no material showing an RBI licence for the payer, it held the interest of Rs. 41,93,070 was deductible and directed allowance by the assessing officer.

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Issues: Whether interest of Rs. 41,93,070 received by a co-operative thrift and credit society from deposits in Salem District Central Co-operative Bank is eligible for deduction under Section 80P(2)(d) of the Income-tax Act, 1961.

Analysis: Section 80P(2)(d) provides deduction for income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society. Section 80P(4) and the Explanation refer to definitions in Part V of the Banking Regulation Act, 1949 for terms such as "co-operative bank" and "primary agricultural credit society." The claim was examined in light of whether the bank from which interest was received is a co-operative society entitled to protection under Section 80P(2)(d) or whether it is a co-operative bank carrying on banking business under an RBI licence. Prior authoritative guidance establishes that deduction under Section 80P(2)(d) cannot be denied where the payer is another co-operative society unless it is shown that the payer operates as a co-operative bank with an RBI licence to do banking business with the public. Applying these principles to the facts, the interest was paid by Salem District Central Co-operative Bank and there was no material to show that the payer possessed an RBI licence to operate as a co-operative bank for public banking business; accordingly the statutory exemption under Section 80P(2)(d) applies.

Conclusion: Deduction under Section 80P(2)(d) of the Income-tax Act, 1961 is allowable in favour of the assessee in respect of interest income of Rs. 41,93,070 received from Salem District Central Co-operative Bank; the assessing officer is directed to allow the said deduction.

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