2026 (4) TMI 272 - HC - Income Tax

Co-operative bank interest is not deductible under Section 80P(2)(d); remand on income head upheld absent perversity.

Interest earned from deposits placed in a co-operative bank was held not deductible under Section 80P(2)(d) because Section 80P(4) bars such relief once ... Deduction u/s 80P(2)(d) - Interest on deposits with co-operative banks - HELD THAT: - The Court held that the second substantial question of law stood concluded by its earlier decision in M/s. Judicial Employees House Building Cooperative Society Limited [2025 (10) TMI 770 - KARNATAKA HIGH COURT]. Following that view, it accepted that once the deposit is with a co-operative bank carrying on banking business under a banking licence, the statutory bar under Section 80P(4) applies, and the interest so earned cannot be treated as qualifying for deduction u/s 80P(2)(d). As no distinguishing feature was shown, the question was held not to survive for consideration. [Paras 4, 6] The claim for deduction u/s 80P(2)(d) on interest from deposits with co-operative banks was rejected. Deduction u/s 80P(2)(a)(i) - HELD THAT: - The Court noted that the Tribunal had remanded the matter only for determining the proper head of income. It held that an order of remand does not by itself give rise to a substantial question of law unless perversity is shown. Since no fundamental error in the remand order was pointed out and the Court found the remand justified, it declined to entertain the challenge on this issue. [Paras 7] The remand on the issue under Section 80P(2)(a)(i) was upheld, and no substantial question of law was found to arise. Final Conclusion: Both appeals were dismissed. The Court held that the claim under Section 80P(2)(d) was concluded against the assessee by binding precedent, and the Tribunal's remand on the issue under Section 80P(2)(a)(i) disclosed no perversity warranting interference. Issues: (i) Whether interest income earned from investments was attributable to the appellant's business so as to qualify for deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961. (ii) Whether interest earned from deposits made in co-operative banks qualified for deduction under Section 80P(2)(d) of the Income-tax Act, 1961.Issue (i): Whether interest income earned from investments was attributable to the appellant's business so as to qualify for deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961.Analysis: The Tribunal had remanded the matter to the Assessing Officer for determining the head of income. The Court found no fundamental error in the remand order and no perversity in the Tribunal's approach. It held that an order of remand does not give rise to a substantial question of law unless perversity is demonstrated.Conclusion: The remand on this issue was upheld and the appellant was not entitled to interference.Issue (ii): Whether interest earned from deposits made in co-operative banks qualified for deduction under Section 80P(2)(d) of the Income-tax Act, 1961.Analysis: The Court adopted its earlier view that where the recipient entity is a co-operative bank carrying on banking business, the deposit made in such entity does not qualify for deduction under Section 80P(2)(d). It further noted that Section 80P(4) operates as a bar once the investment is made in a co-operative bank.Conclusion: The claim for deduction under Section 80P(2)(d) was rejected.Final Conclusion: Both substantial questions were answered against the appellant, and the appeals were dismissed.Ratio Decidendi: Interest earned from deposits in a co-operative bank is not deductible under Section 80P(2)(d) because Section 80P(4) bars such deduction, and a remand order on the head of income does not warrant interference absent perversity.