Co-Op Society cannot Claim Income Tax Deduction on Interest from Regional Rural Bank Deposits: ITAT [Read Order]
The Tribunal noted CBDT Circular No. 319 dated 11.01.1982 and its subsequent withdrawal by CBDT Circular No. 6/2010 dated 20.09.2010, thereby observing that the earlier benefit is no longer available.
![Co-Op Society cannot Claim Income Tax Deduction on Interest from Regional Rural Bank Deposits: ITAT [Read Order]](https://images.taxscan.in/h-upload/2025/09/23/2090126-itat-section-80p-rural-banks-taxscan.webp "Co-Op Society cannot Claim Income Tax Deduction on Interest from Regional Rural Bank Deposits: ITAT [Read Order]")
The Income Tax Appellate Tribunal (ITAT), Ahmedabad, has ruled that interest earned from deposits with Regional Rural Banks (RRBs) is not eligible for deduction under Section 80P of the Income Tax Act, 1961. However, the Tribunal remanded the second issue of proportionate administrative expenses incurred on deposits with the State Bank of India (SBI) back to the Assessing Officer (AO) for fresh adjudication.
The appeal was filed by Shri Vidhyut Board Credit & Consumers Co-operative Society Limited, a credit and consumer co-operative society formed for the benefit of employees of the Gujarat Vidhyut Board. For the Assessment Year (AY) 2017–18, the society filed its return declaring income of ₹98,020.
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During scrutiny, the AO observed that the society had earned ₹1,08,418 as interest from deposits with SBI and ₹13,97,679 as interest from deposits with Saurashtra Gramin Bank (a Regional Rural Bank). The AO treated these as “Income from Other Sources” under Section 56 of the Income Tax Act, 1961 and disallowed deductions claimed under Section 80P.
Aggrieved by the Assessment Order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [ CIT(A) ]. The disallowance was upheld by the CIT(A) .
The appellant represented by Tushar Hemani contended that RRB are to be treated as co-operative societies as per Section 2(19) of the Income Tax Act, 1961, and thus interest earned from such banks qualifies for deduction under Section 80P(2)(d) of the Income Tax Act.
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It was further argued that, with respect to deposits with SBI, the AO failed to allow proportionate administrative expenses that were incurred to earn such interest income, thereby inflating taxable income. Reliance was placed on Circular No. 319 dated 11.01.1982 and on the Supreme Court’s decision in CIT v. Karnataka State Co-operative Apex Bank (2001).
The revenue, represented by C. Dharani Nath, submitted that Regional Rural Banks are not co-operative societies within the meaning of Section 2(19) of the Income Tax Act, 1961. It was further submitted that Circular No. 319 of 1982 had already been withdrawn with effect from AY 2007–08 by Circular No. 6/2010 dated 20.09.2010.
Regarding the issue of expenses claimed on SBI interest income, it was contended that the matter required verification at the level of the AO and should be remanded back for reconsideration.
The Judicial Member, Suchitra Kamble dismissed the appellant’s claim for deduction on interest earned from Saurashtra Gramin Bank, holding that reliance on the withdrawn Circular No. 319 was misplaced. The Tribunal held that interest from Regional Rural Banks cannot qualify for deduction under Section 80P of the Income Tax Act.
However, on the issue of interest income from SBI deposits, the Tribunal accepted that proportionate administrative expenses should be considered and remanded the matter back to the Assessing Officer for fresh adjudication after providing the assessee an opportunity of hearing.
The appeal was thus partly allowed for statistical purposes.
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