Co-operative society interest deduction under section 80P(2)(d) remains available for co-operative bank deposits, subject to statutory limits.

Interest earned by a co-operative society from investment with a co-operative bank remains eligible for deduction under section 80P(2)(d), because section 80P(4) applies to co-operative banks as assessees and does not, by itself, withdraw the deduction from the recipient society. Interest income from scheduled commercial banks was not treated as deductible under section 80P(2)(d), but the related proportionate interest expenditure required factual verification and was sent back for examination. The society was also allowed the basic deduction of Rs. 50,000 under section 80P(2)(c), subject to the statutory conditions and ceiling.

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Issues: (i) whether interest income earned from co-operative banks qualified for deduction under section 80P(2)(d); (ii) whether the assessee was entitled to proportionate interest expenditure in relation to interest income from scheduled commercial banks; and (iii) whether the assessee was entitled to the basic deduction of Rs. 50,000 under section 80P(2)(c).

Issue (i): whether interest income earned from co-operative banks qualified for deduction under section 80P(2)(d).

Analysis: The jurisdictional High Court had already held that interest earned by a co-operative society from investment with a co-operative bank is eligible for deduction under section 80P(2)(d). The exclusion in section 80P(4) applies to co-operative banks as assessees and does not, by itself, take away the deduction available to a co-operative society receiving interest income from such a bank.

Conclusion: This issue was decided in favour of the assessee.

Issue (ii): whether the assessee was entitled to proportionate interest expenditure in relation to interest income from scheduled commercial banks.

Analysis: The assessee accepted that the interest from scheduled commercial banks was not deductible under section 80P(2)(d), but claimed deduction of the corresponding expenditure incurred for earning that income. The matter required factual verification of the actual interest expense relatable to such income, and therefore was sent back to the assessing officer for examination in accordance with law.

Conclusion: This issue was restored to the assessing officer for verification and fresh decision.

Issue (iii): whether the assessee was entitled to the basic deduction of Rs. 50,000 under section 80P(2)(c).

Analysis: The assessee's alternative claim for the statutory basic deduction was accepted on the footing that the society's non-eligible income could still attract the limited deduction available under the residuary provision, subject to the statutory ceiling and conditions.

Conclusion: This issue was decided in favour of the assessee.

Final Conclusion: The assessee succeeded on the claim relating to interest from co-operative banks and on the alternative basic deduction, while the claim relating to interest expenditure on scheduled bank income was remitted for verification, leaving the matter only partly concluded at this stage.

Ratio Decidendi: Interest received by a co-operative society from investment with a co-operative bank remains eligible for deduction under section 80P(2)(d), and section 80P(4) does not, by itself, defeat that deduction in the absence of an amendment to the specific clause granting the benefit.

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