Co-operative society interest deduction under section 80P(2)(d) applies where both parties are co-operative societies, not by label alone.

A co-operative housing society is entitled to deduction under section 80P(2)(d) on interest earned from deposits and balances with another co-operative society. The decisive factor is the legal status of both the recipient and payer as co-operative societies under section 2(19), not the label attached to the payer in common parlance. Section 80P(4) excludes only a claimant assessee that is a co-operative bank and is intended to deny the benefit to co-operative banks functioning like commercial banks. Because the assessee was not a co-operative bank and the payer was shown to be a co-operative society under State law, disallowance under section 80P(4) was unsustainable.

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Issues: Whether the assessee, a co-operative housing society, was entitled to deduction under section 80P(2)(d) of the Income-tax Act, 1961 in respect of interest income earned from deposits and balances maintained with a co-operative bank, or whether the disallowance was attracted by section 80P(4) of the Income-tax Act, 1961.

Analysis: Deduction under section 80P(2)(d) applies where the recipient and the payer are co-operative societies within the meaning of section 2(19) of the Income-tax Act, 1961. The decisive test is the legal status of the recipient assessee and the payer society, and not the class or label attached to the payer in common parlance. Section 80P(4) operates only where the claimant assessee is a co-operative bank and is intended to exclude co-operative banks functioning at par with commercial banks. The assessee was a co-operative housing society and not a co-operative bank. The payer was also shown to be a co-operative society under the relevant State law. On that basis, section 80P(4) could not be used to deny the deduction.

Conclusion: The assessee was entitled to deduction under section 80P(2)(d), and the disallowance under section 80P(4) was unsustainable.

Ratio Decidendi: Section 80P(4) of the Income-tax Act, 1961 excludes only a claimant assessee that is a co-operative bank, and does not deny deduction under section 80P(2)(d) to a co-operative society earning interest from another co-operative society merely because the payer is styled as a co-operative bank.

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