Section 80P deduction for interest from co-operative banks remains available to co-operative societies

Interest earned by a co-operative housing society from deposits or investments with co-operative banks is treated as income from investments with another co-operative society for section 80P(2)(d). Section 80P(4) excludes co-operative banks from claiming deduction in their own right, but it does not prevent a co-operative society from claiming deduction on interest received from such banks. The interpretive rule favouring the assessee where two reasonable constructions of a taxing provision are possible supports this reading, so the interest income qualifies for deduction and the disallowance is unsustainable.

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

Analysis: Deduction under section 80P(2)(d) is available where interest or dividend income is derived by a co-operative society from investments with any other co-operative society. A co-operative bank remains a co-operative society within the meaning of section 2(19), and section 80P(4) only excludes co-operative banks from claiming deduction in their own right; it does not bar a co-operative society from claiming deduction on interest earned from deposits with such banks. The reasoning is reinforced by the principle that where two reasonable constructions of a taxing provision are possible, the construction favourable to the assessee must be adopted.

Conclusion: The interest income from deposits with co-operative banks qualifies for deduction under section 80P(2)(d), and the disallowance is not sustainable.

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