Interest from Urban Cooperative Banks Qualifies as Society Income: ITAT Allows 80P Deduction [Read Order]

The Ahmedabad SMC Bench of the Income Tax Appellate Tribunal has ruled in favour of a cooperative credit society, holding that interest income earned from deposits in an Urban Cooperative Bank is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.

The appeal was filed by The Bhagyalaxmi Co-operative Credit Society Limited, Mehsana, against the order dated September 20, 2022, passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, for the Assessment Year 2018–19. The dispute arose when the society's claim for deduction of Rs. 17,30,372 under Section 80P(2)(d) was disallowed by the Assessing Officer. The said amount represented interest received from fixed deposits and savings accounts maintained with Mehsana Urban Cooperative Bank.

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The society had filed its income tax return declaring nil income for the relevant year, and the return was picked up for limited scrutiny.

During assessment, the Assessing Officer observed that the assessee had earned interest income from deposits in a cooperative bank but had claimed the entire amount as exempt under Section 80P(2)(d). It was observed that the society had reflected fixed deposit and savings bank interest income of Rs.11,34,554 in the return, while the actual interest received amounted to Rs.17,30,372. The Officer held that Urban Cooperative Banks fall outside the purview of “cooperative societies” for the purpose of this deduction and therefore disallowed the claim, adding the amount to the total income.

Challenging this disallowance, the assessee contended that Mehsana Urban Cooperative Bank is a cooperative society and thus the interest received from it qualifies for exemption under the relevant provision. In support of the claim, reliance was placed on the Supreme Court's decision in Mavilayi Service Co-operative Bank Limited vs. CIT (2021), where the Apex Court held that Section 80P must be interpreted liberally to promote cooperative credit and the benefit must be extended to genuine cooperative entities.

The Revenue, on the other hand, argued that the decisions of the Hon’ble Gujarat High Court in SBI vs. CIT and the Apex Court ruling in Totgar’s Co-operative Sales Society Limited vs. ITO supported the disallowance, contending that interest from deposits with banks was not eligible for deduction under Section 80P(2)(d).

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However, Suchitra Kamble (Judicial Member) held that the facts in the present case were distinct, as the interest was derived from a member cooperative society bank. The Tribunal noted that Mehsana Urban Cooperative Bank, being a registered cooperative society, falls within the ambit of Section 80P(2)(d) and serves the benefit of its members. The Bench held that the decisions in Totgar’s and SBI vs. CIT were not applicable to the present facts.

Accordingly, the Tribunal set aside the orders of the lower authorities and allowed the assessee's appeal. The deduction under Section 80P(2)(d) for interest income from Mehsana Urban Cooperative Bank was held to be permissible.

To Read the full text of the Order CLICK HERE

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