Section 80P deduction denied on interest from co-operative bank deposits; co-operative bank treated as excluded from the benefit.

Interest earned by a co-operative society from deposits and investments with co-operative banks was examined under section 80P(2)(d) of the Income-tax Act. The Tribunal held that the deduction applies only to interest or dividend derived from investments with another co-operative society, and that a co-operative bank is a distinct entity treated at par with a bank for the exclusion under section 80P(4). It further applied strict construction of exemption provisions and rejected reliance on registration under State co-operative law alone. The interest was therefore held not deductible under section 80P(2)(d), and the Revenue's objection to deletion of the addition was accepted.

---

---

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

Analysis: The relevant inquiry was whether the recipient institutions, though registered under State co-operative laws, could be treated as "other co-operative society" for the purpose of section 80P(2)(d). The Tribunal noted that section 80P(2)(d) grants deduction only for interest or dividend derived from investments with another co-operative society, while section 80P(4) excludes co-operative banks from the benefit of section 80P except for the specifically carved out categories. It held that a co-operative bank, although possessing the character of a co-operative society in a broader sense, is a distinct specie engaged in banking business and is to be treated at par with a bank for the purpose of the exclusion. The Tribunal also applied the principle that exemption provisions must be strictly construed and rejected the contention that registration under State co-operative law alone was sufficient to bring the interest within section 80P(2)(d).

Conclusion: Interest earned from investments with co-operative banks was held to be not deductible under section 80P(2)(d), and the Revenue's objection to the deletion of the addition was accepted.

---