Co-operative society deduction under 80P: interest on deposits with co operative banks qualifies when claimant is a society, not a bank.

A co-operative society is entitled to deduction for interest income from deposits or investments with co-operative banks under the statutory deduction provision addressing co-operative societies; the proviso that excludes entities functioning as commercial banks applies only where the claimant itself is a co-operative bank, so that proviso does not bar a co-operative society. The statutory requirement that the interest be derived from investments made with another co-operative society or co-operative bank governs the claim. The assessee's disallowance was deleted and the appeal allowed for the society.

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Issues: Whether a co-operative society (assessee) is entitled to deduction in respect of interest income earned from deposits/investments with co-operative banks under section 80P(2)(d) of the Income-tax Act, 1961.

Analysis: The issue turns on the scope of section 80P(2)(d) and the effect of section 80P(4). The Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT analysed section 80P(4) as a proviso that excludes from section 80P those co-operative banks which, by virtue of an RBI licence, function as commercial banks; consequently section 80P(4) operates only where the claimant itself is a co-operative bank. Where the claimant is a co-operative society (and not a co-operative bank), the embargo in section 80P(4) is not attracted. The relevant statutory scheme requires that interest income qualify as derived from investments made by the co-operative society with another co-operative society for claim under section 80P(2)(d).

Conclusion: The assessee, being a co-operative society, is entitled to deduction under section 80P(2)(d) for interest income from deposits/investments with co-operative banks; the disallowance is deleted and the appeal is allowed in favour of the assessee.

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