Vijapur Taluka Co-operative Purchase and Sale Union Ltd. Vs ITO (ITAT Ahmedabad)
Co-operative Bank Interest Gets Section 80P Relief—But SBI Interest Does Not
Deduction Depends on Who Paid the Income
The Ahmedabad Tribunal held that a co-operative society was entitled to deduction under section 80P(2)(d) on interest and dividend received from other co-operative societies, including a co-operative bank.
Following the jurisdictional Gujarat High Court’s decisions, the Tribunal rejected the view that section 80P(4) automatically disqualified interest received by a society from a co-operative bank.
However, the relief was confined to qualifying receipts. The Tribunal specifically excluded amounts received from State Bank of India and Sardar Sarovar Narmada Nigam Ltd., since those entities were not co-operative societies.
The Assessing Officer was directed to verify the sources and allow deduction only on eligible interest and dividend.
Interest and Dividend Claimed by the Society
The assessee was a co-operative society engaged in activities falling under section 80P(2)(a)(iv).
During the relevant year, it reported interest income of ₹14,84,685 from other co-operative societies, mainly Mehsana District Central Co-operative Bank Ltd.
It also received dividend of ₹6,21,202 from entities such as IFFCO, Jilla Sangh and Gujarat State Co-operative Marketing Federation.
The assessee claimed deduction under section 80P(2)(d). The Assessing Officer rejected the claim, taking the position that interest on deposits with a co-operative bank did not qualify, except in the categories of institutions specifically protected by section 80P(4).
Assessing Officer Relies on Karnataka High Court’s Totgars Decision
The Assessing Officer relied extensively on the Karnataka High Court’s decision in PCIT v. Totgars Co-operative Sale Society, reported at 83 taxmann.com 140, dated 16 June 2017.
As reproduced in the assessment reasoning, that decision denied deduction under section 80P(2)(d) on interest earned from investments in a co-operative bank.
The reasoning treated the exclusion in section 80P(4) as extending to the disputed interest income and drew support from the Supreme Court’s earlier decision in Totgars Co-operative Sale Society Ltd. v. ITO (2010) 322 ITR 283.
The first appellate authority confirmed the disallowance. Its reasoning also relied on the Supreme Court’s Totgars decision concerning interest earned on surplus funds.
The assessee therefore approached the Tribunal.
Gujarat High Court Decisions Support the Claim
Before the Tribunal, the assessee relied on Baroda District Co-operative Milk Producers Union Ltd. v. ACIT, ITA No. 417/Ahd/2025.
It also cited PCIT v. Ashwinkumar Arban Co-operative Society Ltd. [2024] 168 taxmann.com 314 (Guj.) and the Ahmedabad Tribunal’s decision in The Harsiddhi Co-operative Credit Society Ltd. v. ACIT, ITA No. 1765/Ahd/2024.
The Tribunal reproduced the relevant reasoning from Baroda District Co-operative Milk Producers Union Ltd., which followed the Gujarat High Court’s decisions.
Those authorities recognised that a co-operative bank is itself a co-operative society for the purpose of considering an investing society’s deduction under section 80P(2)(d).
The distinction between the bank’s own entitlement and the investing society’s entitlement was central to the analysis.
Section 80P(4) Does Not Bar the Investing Society’s Deduction
The Gujarat High Court reasoning reproduced in the order explained that section 80P(4) excludes a co-operative bank from claiming section 80P benefits in its own assessment, subject to the statutory exceptions.
That exclusion does not, by itself, deny another co-operative society deduction on interest earned from investments with the bank.
The reproduced judgment also rejected the proposition that the amendment to section 194A(3)(v) removed co-operative banks from the definition of co-operative societies. The amendment concerned the obligation to deduct tax at source; it did not establish such a change in institutional status.
Following the binding jurisdictional High Court decisions, the Tribunal accepted the assessee’s entitlement to deduction on qualifying co-operative interest and dividend.
SBI and Narmada Nigam Receipts Remain Outside the Relief
While examining the paper book, the Tribunal noticed an item of interest received from State Bank of India and certain amounts received from Sardar Sarovar Narmada Nigam Ltd.
It expressly held that these receipts were not eligible under section 80P(2)(d) because the paying entities were not co-operative societies.
The Assessing Officer was directed to verify the amounts received from co-operative banks and co-operative societies and allow deduction accordingly.
The appeal was allowed, with this verification direction. The order did not grant a blanket deduction for every investment receipt appearing in the society’s accounts.
Author’s Comments
The decision reinforces the importance of examining the particular deduction provision and the status of the payer. A conclusion that interest is assessable as “income from other sources” does not, in this order’s reasoning, settle the separate section 80P(2)(d) question.
It also illustrates the significance of jurisdiction. The Ahmedabad Tribunal followed the Gujarat High Court’s position, despite the Revenue’s reliance on the contrary Karnataka High Court decision reproduced in the order. This ruling should therefore not be described as overruling the Karnataka decision or automatically settling cases within that jurisdiction.
For computation purposes, the society must separate eligible co-operative receipts from non-co-operative receipts. Here, the Tribunal accepted the legal claim while preserving the source-based exclusions and directing verification of the eligible amounts.
Cases Discussed
1. Baroda District Co-operative Milk Producers Union Ltd. Vs ACIT (ITAT Ahmedabad), ITA No. 417/Ahd/2025 — Followed. The decision, applying the jurisdictional Gujarat High Court authorities, held that interest earned by a co-operative society from a co-operative bank qualifies for deduction under section 80P(2)(d) and section 80P(4) does not bar the investing society’s claim.
2. PCIT Vs Ashwinkumar Arban Co-operative Society Ltd. (Gujarat High Court), [2024] 168 taxmann.com 314 (Guj.) — Followed. The Gujarat High Court held that a co-operative bank remains a co-operative society for section 80P(2)(d), and section 80P(4) does not disentitle an investing co-operative society from claiming deduction on interest earned from it.
3. The Harsiddhi Co-operative Credit Society Ltd. Vs ACIT (ITAT Ahmedabad), ITA No. 1765/Ahd/2024 — Relied upon by the assessee on the admissibility of section 80P(2)(d) deduction for interest/dividend earned from a co-operative bank.
4. ACIT Vs The Sardar Patel Coop. Credit Soc. Ltd. (ITAT Ahmedabad), ITA No. 1404/Ahd/2019, order dated 20.05.2022 — Referred to in the reproduced decision of Baroda District Co-operative Milk Producers Union Ltd.; deduction under section 80P(2)(d) was allowed on interest earned from surplus held with co-operative banks.
5. PCIT Vs Totgars Co-operative Sale Society (Karnataka High Court), 83 taxmann.com 140, dated 16.06.2017 — Relied upon by the Assessing Officer for denying section 80P(2)(d) deduction on interest earned from investments with a co-operative bank; the Ahmedabad Tribunal followed the contrary binding view of the jurisdictional Gujarat High Court.
6. State Bank of India Vs CIT (Gujarat High Court), (2016) 389 ITR 578 (Guj.) — Referred to in the reproduced precedent as holding that interest income earned by a co-operative society on investments held with a co-operative bank is eligible for section 80P(2)(d) deduction.
7. Totgars Co-operative Sale Society Ltd. Vs ITO (Supreme Court), (2010) 322 ITR 283 (SC); (2010) 3 SCC 223 — Considered. The Supreme Court dealt with surplus-fund interest under section 80P(2)(a)(i) and section 56; the jurisdictional Gujarat authorities distinguished its operation while considering a claim under section 80P(2)(d).
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
The present appeal has been filed by the assessee against the order of the Ld. Addl/Joint Commissioner of Income Tax (Appeals)-2, Pune, (hereinafter referred to as “CIT(A)”), dated 09.02.2026 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2017-18.
2. The appellant is a Co-operative Society registered under the Co-operative Societies Act, engaged in activities as laid down in section 80P(2)(a)(iv) of the Act. During the relevant previous year, the assessee had earned interest income of Rs.14,84,685/- from other Co-operative Societies, mainly the Mehsana District Central Co-operative Bank Ltd., and Rs. 6,21,202/- being dividend received from other Co-operative Societies, such as IFFCO, Jilla Sangh, Gujarat State Co-operative Marketing Federation etc. The assessing officer rejected the assessee’s claim for deduction u/s. 80P(2)(d) stating as follows:
“3.4 The reply of the assessee was perused carefully. The same is not acceptable. As per the provisions of section 80P of the Act, deduction u/s 80P(2) is not applicable in relation to any interest earned on deposit in any Co-operative Bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
3.5 The assessee has relied upon the judgment in the case of State Bank of India of Hon’ble Gujarat High Court. However, on going through the said judgment, it was noticed that there was issue involved in respect of the deduction of the interest income of Rs. 16,14,579/- on the deposits placed with State Bank of India u/s 80P(2)(a)(i) of the Income Tax Act. While in the present case the issue of deduction u/s 80P(2)(d) is involved on the interest income from co-operative bank. Thus the issue involved in the case of assessee is totally different from the issue involved in the above cited case and in the said cited case, the appeals of the assessee have been dismissed by the Honble Gujarat High Court. On the other side, the order passed u/s 263 on the facts was upheld by the Hon’ble Gujarat High Court.
3.6 Further, reliance is placed in the case of The Pr. Commissioner of income Tax vs. Hon’ble Karnataka High Court in Totgar’s Co-operative Sales Society, 83 Taxman.com 140, wherein Hon’ble Court has decided that interest received on investment made in co-operative bank are not eligible for deduction under section 80P(2(d) of the Act.
It is pertinent to discuss the order of the Hon’ble Karnataka High Court Dharwad Bench in the case of Pr. Commissioner of Income Tax vs. The Totgars Co-operative Sale Society, Sirsi dated 16th June, 2017 which delved on specifically this question of law which are enumerated as below:
1.“Whether the assessee, Totgar Co-operative Sale Society, Sirsi, is entitled to 100% deduction under section 80P(2)(d) of the Income Tac Act, 1961 (for short ‘the Act’) in respect of whole of its income by way of interest earned by it during the relevant Assessment Years from 2007-2008 to 2011-2012 on the deposits or investments made by it during these years with a Co-operative Bank, M/s Kanara District Central Co-operative Bank Limited?
2. Whether the Supreme Court decision in the case of the present respondent assessee, Totgar Co-operative Sale Society Limited itself rendered on 08th February, 2010, in Totgar’s Co-operative Sale Society Limited vs. Income Tax Officer, reported in (2010) 322 ITR 283 SC : (2010) 3 SCC 223 for the preceding years, namely Assessment Years 1991-1992 to 1999-2000 (except Assessment year 1995-1996) holding that such interest income earned by the assessee was taxable under the head ‘Income from other sources’ under section 56 of the Act and was not 100% deductible from the Gross Total Income under section 89P(2)(a)(i) of the Act, is not applicable to the present Assessment Years 2007-2008 to 2011-2012 involved in the present appeals and therefore, whether the Income Tax Appellate Tribunal as well as CIT(Appeals) were justified in holding that such interest income was 100% deductible under section 89P(2)((d) of the Act?
The Hon’ble Bench of Karnataka High Court analyzed the decision of Totgar’s Co-operative Sale Society Limited vs. Income Tax Officer, (2010) 322 ITR 283 SC. It stated that the Hon’ble Apex Court had held:
“ At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us is – whether interest on such deposits / securities, which strictly speaking accrues to the members account, could be taxed as business income under section 28 of the Act? In our view, such interest income would be taxable under section 56 of the Act, as rightly held by the Assessing Officer.”
The Hon’ble Karnataka High Court, Dharwad Bench stated that :
“14. The banking business, even though run by a Co-operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under section 80P of the Act. The purpose of bringing on the statute book sub-section (4) in section 80P of the Act was to exclude the applicability of section 80P of the Act altogether to any co-operative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in section 80P(4) are significant. They are : “ The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society….” The words “in relation to” can include within its ambit and scope even the interest income earned by the respondent-assessee, a co-operative Society from a Co- operative Bank. This exclusion by section 80P(4) of the Act even though without any amendment in section 80P(2)(d) of the Act is sufficient to deny the claim of the respondent assessee for deduction under section 80P(2)(d) of the Act. The only exception is that of a primary agricultural credit society. The depository Kanara District Central Bank Limited in the present case is admittedly not such a primary agricultural credit society.
15. …
16. If the legislative intent is so clear, then it cannot contended that the omission to amend Clause (d) of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co operative bank, even though the Hon’le Supreme Court’s decision in the case of Respondent assessee itself is otherwise.
17. As stated above, it is the character and nature of income which determines its taxability or exemption from taxability. It is needless to say that the provisions relating to exemption and deduction need to be strictly construed and no liberal interpretation or intendment can be inferred in such provisions. What was clearly held to be not exempt and not deductible under Section 80P(2)(a) of the Act by the Hon’ble Supreme Court in the case of respondent assessee, cannot be contrarily held as exempted and deductible now for these years, merely because the depository bank, with whom the investments were made by the respondent assessee happens to be a co-operative bank. We cannot appreciate this distinction so as not to apply the binding precedent of the Hon’ble Supreme Court for subsequent years merely on account of the change of the Bank where such deposits were made by the respondent assessee, all other facts remaining the same, particularly the nature and character of the income earned by it.
The interest income of the assessee continues to be not attributable to its business operations even in these subsequent years.
18. The contention of the learned counsel for the assessee that a co ordinate bench of this Court dismissed the Revenue’s appeals by referring, but not applying the decision of the Hon’ble Supreme Court, we observe with greatest respects that we do not find any detailed discussion of the facts and law pronounced by the Hon’ble Supreme Court in the case of the respondent assessee in the said order passed by the co-ordinate Bench and therefore, we are unable to follow the same in the face of the binding precedent laid by the Hon’ble Supreme Court. We find in paragraph 8 of the said order passed by a co-ordinate bench that the learned Judges have observed that “ the issue whether a co-operative bank is considered to be a co-operative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate Tribunal itself in different cases…..”. No other binding precedent was discussed in the said judgment. Of course, the Bench has observed that a Co- operative Bank is a specie of the genus co-operative Society, with which we agree, but as far as applicability of Section 80P(2) of the Act is concerned, the applicability of the Supreme Court’s decision cannot be restricted only if the income was to fall under Section 80P(2)(a) of the Act and not under Section 80P(2)(d) of the Act.
19. In our opinion, it would not make a difference, whether the interest income is earned from investments/deposits made in Scheduled Bank or in a Co operative Bank.
Therefore, the said decision of the Co-ordinate Bench is distinguishable and cannot be applied in the present appeals, in view of the binding precedent from the Hon’ble Supreme Court…
26. The substantial question of law framed above are thus answered in favour of the Revenue and against the assessee and it is held that the income by way of interest earned by the assessee co-operative society during the Assessment Years 2007-2008 to 2011-12 on the investments made in the co-operative bank are not eligible for deductions under Section 80P(2)(d) of the Act.(emphasis mine)
Thus the Hon’ble Court holding the Supreme Court as binding precedent held that the interest income on funds deposited in Co-operative Banks if not attributable to banking operations is not deductible from total income of the assessee u/s 80P(2)(d) of the Act.
The Hon’ble Karnataka High Court Dharwad Bench decision is directly on the specific question on availability of deduction u/s 80P(2)(d) of interest earned on funds in Co-operative Banks which is in favour of Revenue and the ratio is based on the interpretation of binding precedent laid by the Hon’ble Supreme Court decision of the case Totgar’s Co-operative Sale Society Limited vs. Income Tax Officer, reported in (2010) 322 ITR 283 SC.
3. On appeal, The Addl./JCIT(A) confirmed the action of the assessing officer holding as under:
“6.4 I have carefully considered the submissions of the appellant, the assessment order, and the judicial precedents relied upon. The issue stands squarely covered by the decision of the Hon’ble Supreme Court in Totgar’s Co-operative Sale Society Ltd. v. ITO [ 2010] (188 Taxman 282), wherein it was held that interest income earned on surplus funds invested in banks is assessable under the head “Income from Other Sources” and is not eligible for deduction under section 80P(2)(d) of the act. In view of the aforesaid judgment of the Hon’ble Supreme Court, the action of the Assessing Officer in treating the interest income from co-operative banks as taxable and disallowing the deduction under section 80P(2)(d) is upheld. Hence, Ground No.1 to 4 is dismissed.”
4. Aggrieved by this order, the appellant is in appeal before us in course of hearing. Ld. Counsel for the assessee stated that this case is squarely covered by decision of ITAT Ahmedabad Bench in the case of Baroda District Co-operative Milk Producers Union Ltd. vs. ACIT ITA No. 417/Ahd/2025. The assessee has also placed reliance on the judgment of the Hon’ble Gujarat High Court in PCIT vs. Ashwinkumar Arban Co-operative Society Ltd.: [2024] 168 taxmann.com 314 (Guj.) and another decision of ITAT Ahmedabad Bench in the case of The Harsiddhi Co-Op. Credit Society Ltd. vs. ACIT ITA No. 1765/Ahd/2024.
5. We notice that the legal issue involved, that is the admissibility of deduction u/s 80P(2)(d) in case of interest and dividend earned from Co-operative Bank has been considered in detail by the cases relied upon by the assessee. It will be useful for the purpose of this appeal to quote the relevant portion of the decision in Baroda District Co-operative Milk Producers Union Ltd. (supra) which is reproduced below:
“11. The assessee has relied upon the decision of the Ahmedabad Bench of the ITAT in the case of ACIT vs. The Sardar Patel Coop. Credit Soc. Ltd. in ITA No. 1404/Ahd/2019 in respect of A.Y. 2016-17 vide order dated 20.05.2022. The assessee in that case was held eligible for deduction/s 80P(2)(d) of the Act in respect of interest earned by the assessee on surplus held with cooperative banks. In the aforesaid decision this Tribunal followed the decision of the Hon’ble Gujarat High Court in the case of State Bank of India vs. CIT (2016) 389 ITR 578 (Guj.). The Hon’ble High Court had held in that case that interest income earned by a cooperative society on its investment held with a cooperative bank would be eligible for claim of deduction u/s 80P(2)(d) of the Act.
12. The Hon’ble Gujarat High Court in the case of PCIT vs. Ashwinkumar Arban Co-operative Society Ltd. (supra) considered all the case laws relevant for the purpose of Section 80P(2)(d) and Section 80P(4) while examining the allowability of deduction u/s. 80P(2)(d) for interest earned by a Co-operative Society from a Co-operative Bank, and accepted the assessee’s contention that the provision of Section 80P(2)(d) would be applicable to the interest earned by the assessee from a Co-operative Bank. The Hon’ble High Court held as under:
“28. Having heard learned advocates for the respective parties and considering the controversy arising in these tax appeals, we are of the opinion that the controversy sought to be canvassed with regard to deduction under section 80P(2)(d) of the Act is no more res integra in view of the decision of this Court in case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. (supra) as well as in case of State Bank of India (supra) wherein it was held that the deduction of under section 80P(2)(d) of the Act is available to the cooperative societies on the income earned as interest on the investment made with the cooperative bank which in turn, is a cooperative society itself.
29. Reliance placed by the learned advocate for the revenue on decisions of the Hon’ble Karnataka High Court and Hon’ble Supreme Court in case of Totgars’ Cooperative Sale Society Ltd. (supra), the Hon’ble Karnataka High Court appears to have taken into consideration the amendment in section 194A(3)(v) of the Act wherein the cooperative bank is excluded from the applicability of tax to be deducted at source. However, it appears that the interpretation made by the Hon’ble Karnataka High Court to the effect that the cooperative banks have been excluded from the definition of the cooperative societies by Finance Act,2015 by amending section 194A(3)(v) of the Act is concerned, on perusal of section 194A (3) of the Act, it appears that it provides for exemption from deducting Tax Deducted at Source [‘TDS’ for short] from the income on interest other than interest on securities as the cooperative societies other than cooperative banks meaning thereby that the cooperative banks are liable to deduct TDS from the interest other than interest on securities. Therefore it cannot be said that cooperative banks are excluded from the definition of cooperative societies by such an amendment.
30. Moreover, as reliance placed on the aforesaid decision for applicability of section 80P(4) of the Act in the facts of the case is also not possible to accept as section 80P(4) of the Act would be applicable to the cooperative bank when the cooperative bank is liable to pay tax under the provisions of the Act and in such eventuality, the provision of section 80P would not be applicable as per the amendment of sub-section (4) of section 80P of the Act. Therefore, the exclusion of applicability of section 80P to cooperative banks by section 80P (4) of the Act would not disentitle the respondent-assessee from claiming deduction under section 80P(2)(d) of the Act in absence of any amendment in the said section and that would not be sufficient to deny the claim of the respondent-assessee for deduction of interest earned from investment made in a cooperative bank which is also a cooperative society from the total income.”
13. The aforesaid judicial precedents reveal that whereas there is an apparent difference of opinion in the decisions of the Karnataka High Court on the applicability of the judgment of the Supreme Court in the case of Totgars Sale Co-operative Society Ltd., the Hon’ble Gujarat High Court have expressed a consistent view. In view of the binding decision of the Hon’ble Jurisdictional High Court, we hold that the interest earned by the assessee from Baroda District Co-operative Central Bank would be available as deduction u/s 80P(2)(d) of the Act and Section 80P(4) does not come as a bar in the course of claiming this deduction. The assessee’s appeal is allowed on this ground and disallowance of Rs.68, 33,529/- is deleted.”
6. In view of the aforesaid decision of the Ahmedabad Bench, following decisions of the Jurisdictional High Court of Gujarat, we have no hesitation in holding that the assessee could be entitled to deduction u/s 80P(2)(d) of the Act in respect of interest and dividend earned from Co-operative society including a Co-operative Bank. From a perusal of the details filed by the assessee in the paper book. We notice that there is one item appearing as interest received from State Bank of India and some amounts received from Sardar Sarovar Narmada Nigam Ltd. The amounts received from these entities, not being Co-operative Societies, would not be eligible for deduction u/s 80P(2)(d) of the Act. The assessing officer while allowing deduction in terms of our direction herein shall verify the amounts of interest and dividend received only from a Co-operative Bank or Co-operative Society and allow the same.
7. In the result, the appeal of the assessee is allowed.
This Order is pronounced on 05/10/2026
