2026 (3) TMI 335 - AT - Income Tax

Deduction under Section 80P(2)(d) for interest from deposits in another cooperative society confirmed; qualification upheld.

The article addresses whether interest earned by a co-operative society on deposits with another co-operative bank qualifies for deduction under Section ... Deduction u/s 80P(2)(d) - interest income earned by Co-operative Societies on deposits made out of surplus funds generated by the society with the another Co-operative Bank - Interpretation of 'co-operative society' under section 2(19) Deduction under section 80P(2)(d) for interest from investments in another co-operative society - HELD THAT: - The Tribunal held that where a co-operative society derives interest from investments made in another co-operative society, such interest falls squarely within the scope of section 80P(2)(d) and is eligible for deduction. The Tribunal applied the definition of 'co-operative society' in section 2(19) of the Act to include a co-operative bank registered under the State Co-operative Societies Act, and relied on the decision of Thorapadi Urban Co-op Credit Society Ltd [2023 (11) TMI 779 - MADRAS HIGH COURT] observing that the facts of that case are identical and its ratio is directly applicable. Tribunal distinguished the Supreme Court decision in Totgars Co-operative Sale Society Ltd [2010 (2) TMI 3 - SUPREME COURT] on the basis that Totgars dealt with a different sub-clause of section 80P and therefore is not apposite to the present issue. Applying these principles to the material on record, the Tribunal directed the Assessing Officer to allow the deduction under section 80P(2)(d) in respect of the interest income earned on deposits with the co-operative bank. [Paras 7, 8] Final Conclusion: Appeal allowed - Tribunal directed that the interest income earned by the assessee from deposits with the co-operative bank be allowed as deduction under section 80P(2)(d) for Assessment Year 2016-17. Issues: Whether interest income earned by a co-operative society on deposits made with another co-operative bank/society qualifies for deduction under Section 80P(2)(d) of the Income-tax Act, 1961.Analysis: The dispute turns on the scope of Section 80P(2)(d) of the Income-tax Act, 1961 which provides deduction for income by way of interest or dividends derived by a co-operative society from its investment with any other co-operative society, and on the definition of 'co-operative society' in Section 2(19) of the Income-tax Act, 1961 which encompasses societies registered under state co-operative laws. Relevant precedents were examined; the Supreme Court decision in Totgars concerned a different limb of Section 80P and is distinguishable. The Division Bench of the Madras High Court in Thorapadi Urban Co-op Credit Society Ltd applied the statutory definition and concluded that a co-operative bank registered under the Co-operative Societies Act falls within the term 'co-operative society' for Section 80P(2)(d) purposes. The facts in the present case match those decisions and the ratio is applicable.Conclusion: Deduction under Section 80P(2)(d) of the Income-tax Act, 1961 is allowable in respect of interest income earned by the assessee on deposits with the co-operative bank; the appeal is allowed in favour of the assessee.