The Pune Bench of the Income Tax Appellate Tribunal (ITAT) ruled that interest income earned from cooperative banks qualifies for a deduction under Section 80P(2)(d) of the Income Tax Act, 1961, citing that cooperative banks are essentially cooperative societies.
Dnyaneshwar More Bigarsheti Gramin Pat Puravatha Sahakari Sanstha Ltd., the assessee, is a cooperative credit society registered under the Cooperative Societies Act. The society filed its income tax return declaring Nil income after claiming a deduction under Chapter VIA amounting to Rs. 13,48,854 and a business loss of Rs. 3,56,511 for the Assessment Year 2017-18.
During limited scrutiny, the assessing officer (AO) disallowed the deduction claim under Section 80P(2)(d) for interest income of Rs. 17,05,365 earned on fixed deposits with cooperative banks, categorizing it as “Income from Other Sources” under Section 56 of the Income Tax Act, 1961.
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On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the assessing officer’s decision. Aggrieved, the assessee approached the ITAT arguing that the interest income earned from deposits with cooperative banks qualifies for the deduction as cooperative banks are essentially cooperative societies that have obtained banking licenses.
The single-member bench Dr. Manish Borad (Accountant Member) analyzed the issue and stated the matter was no more res integra. The tribunal held that under Section 80P(2)(d) of the Income Tax Act, 1961 interest income earned from deposits with cooperative banks is eligible for deduction.
The tribunal referenced the previous ITAT ruling in the case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. ITO which held that interest earned from deposits with cooperative banks qualifies for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
The tribunal also referenced The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society vs. ITO which clarified that cooperative banks are cooperative societies for tax purposes.
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The tribunal overruled the CIT(A)’s findings, directed the AO to allow the deduction of Rs. 17,05,365, and upheld the society’s claim. The appeal was allowed.
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