Deduction for interest on co-operative bank deposits allowed where a co-operative society earns investment income under the tax exemption provision.

Interest earned by a co-operative society from deposits placed with co-operative banks was held eligible for deduction, because the receipts were treated as income from investments with another co-operative society for the purpose of section 80P(2)(d). The Tribunal followed the prevailing High Court authorities and accepted that section 80P(4) restricts deductions for co-operative banks themselves, not for a co-operative society earning interest from such deposits. The contrary view was declined, and the disallowance of the deduction was held unsustainable.

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

Analysis: The interest income arose from investments of surplus funds placed with co-operative banks. The legal question turned on whether such receipts fell within the expression income by way of interest derived by the co-operative society from its investments with any other co-operative society. The Tribunal followed the most recent binding and persuasive authorities, including the decision of the jurisdictional High Court and the later High Court view holding that section 80P(2)(d) applies to interest earned from co-operative banks and that the exclusion in section 80P(4) is directed to co-operative banks claiming deduction, not to a co-operative society earning interest from such banks. The contrary view was not accepted in preference to the authorities relied upon for the assessee.

Conclusion: The assessee is entitled to deduction under section 80P(2)(d) on the interest earned from deposits with co-operative banks, and the disallowance was unsustainable.

Ratio Decidendi: For a co-operative society, interest derived from deposits with a co-operative bank qualifies for deduction under section 80P(2)(d) where the receiving entity is treated as a co-operative society for that purpose, and section 80P(4) does not deny the deduction to the investing co-operative society.

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