Deduction for cooperative societies: interest and dividend on deposits with cooperative banks allowed where society only lends to members.

Interest and dividend earned on deposits with cooperative banks/societies qualify for deduction under the relevant cooperative-society tax exemption where the assessee is a cooperative credit society providing credit solely to members and not carrying on banking business to the public; the analysis applies statutory deduction provisions and limits and follows coordinating tribunal precedents favourable to such societies despite conflicting High Court decisions, resulting in allowance of the deduction and reversal of the assessing authority's denial.

---

---

Issues: Whether interest income on fixed deposits with cooperative banks is eligible for deduction under Section 80P(2)(a)(i) and Section 80P(2)(d) of the Income-tax Act, 1961 in respect of a cooperative credit society that provides credit facilities to its members only and does not carry on banking business to the public.

Analysis: The appeal concerns denial of deduction claimed on interest earned from deposits with cooperative banks. Relevant statutory provisions are Section 80P(2)(a)(i) and Section 80P(2)(d) of the Income-tax Act, 1961, and the limitation in Section 80P(4). Coordinate benches of the Tribunal have considered identical facts and applied precedents holding that interest and dividend from investments with cooperative banks/societies qualify for deduction under Section 80P where the assessee is a cooperative credit society providing credit only to its members and not carrying on banking business to the public. The Tribunal also considered the existence of conflicting High Court decisions and followed the non-jurisdictional precedents favourable to the assessee in accordance with established approach to conflicting non-jurisdictional authorities.

Conclusion: Deduction claimed under Section 80P(2)(a)(i) and Section 80P(2)(d) of the Income-tax Act, 1961 in respect of interest income from deposits with cooperative banks is allowed in favour of the assessee; the order of the lower authority is set aside and the appeal is allowed.

Ratio Decidendi: Interest and dividend income from investments or deposits with cooperative banks/societies are entitled to deduction under Section 80P(2)(a)(i) and Section 80P(2)(d) of the Income-tax Act, 1961 where the assessee is a cooperative credit society that does not carry on banking business to the public and thus remains within the statutory exemption.

---