Interest on deposits with co-operative banks qualifies for deduction when the recipient is a co-operative credit society.

A co-operative credit society's interest income from fixed and time deposits placed with co-operative banks was held deductible because a co-operative bank was treated as a co-operative society for the relevant deduction provision. The Tribunal followed its coordinate bench view that the exclusion for co-operative banks did not prevent a co-operative society from claiming deduction on interest earned from such deposits, and where conflicting views existed, the interpretation favourable to the assessee was adopted. The deduction claim was therefore allowed.

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Issues: Whether interest income earned by a co-operative credit society from fixed deposits and time deposits maintained with co-operative banks is deductible under section 80P(2)(d) of the Income-tax Act, 1961.

Analysis: The assessee, being a co-operative credit society, had earned interest from deposits kept with co-operative banks and claimed deduction on the net interest income under section 80P(2)(d). The earlier view of the appellate authority denying the claim proceeded on the basis that the provision refers to investments with another co-operative society, while the deposits were with co-operative banks. The Tribunal followed its coordinate bench decision holding that a co-operative bank is also a co-operative society for the purposes of section 80P(2)(d), and that the exclusion in section 80P(4) does not bar a co-operative society from claiming deduction on interest derived from deposits placed with a co-operative bank. The interpretation adopted was the one favouring the assessee in view of the conflicting views noticed on the issue.

Conclusion: The interest income earned from deposits with co-operative banks was held eligible for deduction under section 80P(2)(d), and the assessee's claim was allowed.

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