Deduction for interest from co-operative banks allowed under section 80P(2)(d) for co-operative society investments.

Interest earned by a co-operative housing society from fixed deposits and savings bank balances placed with co-operative banks is deductible under section 80P(2)(d) of the Income-tax Act, 1961. The provision allows full deduction of interest or dividend income derived by a co-operative society from investments with any other co-operative society, and co-operative banks were treated here as co-operative societies engaged in banking business. The contrary view relied on below was held inapplicable because it concerned section 80P(2)(a), not the deduction claimed under section 80P(2)(d).

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Issues: Whether interest earned by a co-operative housing society on fixed deposits and savings bank balances placed with co-operative banks qualifies for deduction under section 80P(2)(d) of the Income-tax Act, 1961.

Analysis: Section 80P(1) allows deduction of the sums specified in sub-section (2) while computing the total income of a co-operative society. Under section 80P(2)(d), income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society is deductible in full. The co-operative banks from which the assessee earned interest were treated as co-operative societies engaged in banking business, so the interest was regarded as income from investments with another co-operative society. The decision relied on by the lower appellate authority concerned section 80P(2)(a) and did not govern the claim under section 80P(2)(d).

Conclusion: The assessee was entitled to deduction under section 80P(2)(d) on the interest income from fixed deposits and savings bank accounts with co-operative banks.

Ratio Decidendi: Interest earned by a co-operative society from investments placed with co-operative banks, being co-operative societies, is deductible under section 80P(2)(d) of the Income-tax Act, 1961.

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