Suvarnakarara Cooperative Society Limited Vs ITO (ITAT Panaji)
Bank Interest Qualifies for Section 80P Deduction Where Deposits Serve the Credit Society’s Business Requirements
Background
The assessee, a cooperative society registered under the Karnataka Cooperative Societies Act, 1959, carried on the business of providing credit facilities to its members.
For the three assessment years, it claimed deductions under section 80P(2)(d) in respect of interest from cooperative banks and under section 80P(2)(a)(i) in respect of interest from deposits with a nationalised bank.
The deductions in dispute amounted to ₹1,06,42,470 for AY 2017-18, ₹1,10,77,584 for AY 2018-19 and ₹1,03,71,115 for AY 2020-21.
The Assessing Officer denied the claims, relying on the Supreme Court decision in Citizen Cooperative Society. The NFAC confirmed the disallowances. Before the Tribunal, the assessee relied on decisions of coordinate benches supporting its entitlement. The Departmental Representative fairly conceded the position advanced regarding those decisions, while relying on the appellate orders.
Two Categories of Interest—Two Different Provisions
The Tribunal examined the interest income under two distinct statutory provisions.
Interest from investments with cooperative banks was considered under section 80P(2)(d), which concerns interest or dividend derived by a cooperative society from investments with another cooperative society.
Interest from Union Bank of India was examined under section 80P(2)(a)(i), with the enquiry directed towards whether the deposits formed part of the society’s business of providing credit facilities to members.
This distinction was central to the decision. The Tribunal did not allow the nationalised-bank interest under section 80P(2)(d).
Interest from Cooperative Banks Allowed Under Section 80P(2)(d)
The assessee earned interest from investments with Kanara District Central Cooperative Bank Limited, Janata Cooperative Credit Society Limited and Sirsi Urban Cooperative Bank Limited.
The Tribunal followed its coordinate bench decision in Goa PWD Staff Cooperative Credit Society v. ITO, ITA No. 107/PAN/2025, dated 7 August 2025, which had relied on ACGL BBD Employees Cooperative Credit Society Ltd. v. ITO.
The reasoning adopted was that the essential requirements of section 80P(2)(d) were satisfied where both the recipient society and the payer institution were registered cooperative societies. The payer’s classification as a cooperative bank did not, by itself, destroy its character as a cooperative society for this purpose.
The adopted reasoning further distinguished between the claimant’s eligibility under section 80P(4) and the status of the institution paying interest. It treated section 80P(4) as restricting deductions claimed by a cooperative bank, rather than automatically denying a qualifying cooperative society’s deduction merely because it invested with such a bank.
The Tribunal also relied on PCIT v. Peroorkada Service Cooperative Bank Ltd., (2022) 442 ITR 141 (Ker.), which recognised eligibility under section 80P(2)(d) for interest from district and state cooperative banks.
Accordingly, the deduction for interest earned from cooperative banks was allowed.
Union Bank Interest Had a Business Connection
The Tribunal separately considered the deposits maintained with Union Bank of India.
It found that these deposits were made principally for maintaining liquidity, protecting members’ funds, meeting operational requirements and conducting business smoothly from multiple locations.
Crucially, the Tribunal recorded that this was not a case of merely placing surplus funds with a nationalised bank. The deposits served the operational requirements of the credit society.
On these findings, the interest was treated as business income eligible for deduction under section 80P(2)(a)(i).
The decision therefore turns on the purpose and business connection of the deposits. It does not declare that every interest receipt from a nationalised bank qualifies for deduction.
Treatment of the Totagars Decisions
The coordinate bench reasoning reproduced in the order addressed the Karnataka High Court decision in PCIT v. Totagars Cooperative Sale Society. It treated that decision as distinguishable and relied on the subsequent Supreme Court exposition in Mavilayi Service Cooperative Bank Ltd. concerning the limited operation of section 80P(4).
The Kerala High Court authority relied upon also considered the Supreme Court decision in Totgars Cooperative Sale Society Ltd., 322 ITR 283, while recognising the separate operation of section 80P(2)(d).
These authorities were applied by the Tribunal to support the assessee’s claims; the present order does not itself overrule the Karnataka High Court decision.
Decision
The Tribunal set aside the NFAC orders and allowed the deductions for both categories of interest: cooperative-bank interest under section 80P(2)(d), and Union Bank interest under section 80P(2)(a)(i).
All three appeals were allowed.
Author’s Comments
The name of the bank does not complete the section 80P enquiry. The applicable clause and the purpose of the investment matter. This order is particularly useful because it separately addresses cooperative-bank investments and deposits maintained with a nationalised bank.
For nationalised-bank deposits, the practical strength of the claim lies in establishing their operational purpose through applicable liquidity requirements, board resolutions, cash-flow needs and records showing their connection with the credit business. A general assertion that all deposits safeguard members’ funds may not establish the same factual foundation.
For cooperative-bank interest, the decision provides favourable Tribunal support. However, its treatment of the Karnataka High Court’s Totagars ruling should be stated accurately: the Tribunal adopted reasoning distinguishing that authority and relying on later Supreme Court decisions. Presenting this as a Supreme Court ruling conclusively allowing all cooperative-bank interest would go beyond the order.
Cases Discussed
- Goa PWD Staff Cooperative Credit Society v. ITO (ITAT Panaji), ITA No. 107/PAN/2025, dated 07/08/2025.Followed for allowing deduction under section 80P(2)(d) on interest from cooperative banks.
- ACGL BBD Employees Cooperative Credit Society Ltd. v. ITO (ITAT Panaji), ITA No. 212/PAN/2024, dated 12/02/2025.Relied upon through the coordinate bench decision on investments with cooperative societies.
- Alaknanda Sahakari Gruharachana Sanstha Maryadit v. ITO (ITAT Pune), [2024] TaxPub(DT) 4845.Cited in the reproduced reasoning on cooperative-bank interest.
- Kerala State Co-operative Agricultural and Rural Development Bank Ltd. v. Assessing Officer (Supreme Court), 2023 INSC 830.Relied upon concerning cooperative banks and the operation of section 80P(4).
- PCIT v. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. (Supreme Court), (2023) 454 ITR 117.Relied upon concerning the distinction between cooperative credit societies and cooperative banks.
- PCIT v. Peroorkada Service Co-operative Bank Ltd. (Kerala High Court), (2022) 442 ITR 141.Followed for deduction under section 80P(2)(d) on interest from district and state cooperative banks.
- Mavilayi Service Cooperative Bank Ltd. v. CIT (Supreme Court), (2021) 431 ITR 1.Relied upon concerning the limited operation of section 80P(4).
- PCIT v. Totagars Cooperative Sale Society (Karnataka High Court).Distinguished in the reproduced coordinate bench reasoning.
- Citizen Cooperative Society Ltd. v. ACIT (Supreme Court), Civil Appeal No. 10245 of 2017.Relied upon by the Assessing Officer to deny the deduction.
- Totgars Cooperative Sale Society Ltd. v. ITO (Supreme Court), (2010) 322 ITR 283.Considered in the Kerala High Court authority concerning interest income and section 80P.
FULL TEXT OF THE ORDER OF ITAT PANAJI
The captioned appeals at the instance of assessee pertaining to A.Ys. 2017-18, 2018-19 and 2020-21 are directed against the separate orders dated 31.05.2025 of ld. NFAC, Delhi emanating out of respective Assessment Orders passed u/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
2. The common issue raised in these three appeals is against the disallowance made by the Assessing Officer u/s.80P of the Act for the interest income earned from the investments held with Scheduled Banks/Cooperative Banks.
3. At the outset, ld. Counsel for the assessee submitted that the assessee is a Cooperative Society and engaged in the business of providing credit facilities to its Members and for the impugned assessment years under appeal, the assessee claimed deduction u/s.80P(2)(d) of the Act for the interest income earned out of the deposits held with Cooperative Banks u/s.80P(2)(a)(i) of the Act for deposits held with Nationalised Bank. He further submitted that this very issue is squarely covered by plethora of decisions passed by various Coordinate Benches and therefore the same should be allowed to the assessee.
4. On the other hand, ld. DR fairly conceded the above position but merely relied on the orders of ld.CIT(A).
5. We have heard the rival submissions and perused the record placed before us. We observe that the assessee is a Cooperative Society registered under the Karnataka Cooperative Societies Act, 1959 and engaged in the business of providing credit facilities to its Members. For the impugned assessment years under appeal the assessee claimed deduction u/s.80P(2)(d) & u/s.80P(2)(a)(i) of the Act for the interest income earned out of the deposits held with Cooperative Banks and Scheduled banks respectively and for A.Yrs. 2017-18, 2018-19 and 2020-21 claimed alleged deduction at Rs.1,06,42,470/-, 1,10,77,584/- and Rs.1,03,71,115/- respectively which is disallowed by the ld. Assessing Officer stating that assessee society does not quality for deduction u/s.80P of the Act placing reliance on the Judgment of Hon’ble Apex Court in the case of M/s. Citizen Cooperative Society in Civil Appeal No.10245/2017. Aggrieved assessee challenged the disallowance before ld.CIT(A) who countenanced the view point of the Assessing Officer and now the assessee has approached this Tribunal
6. On perusal of the record, we find that the issue for our consideration is disallowance of deduction u/s.80P of the Act for the interest and dividend income earned from Nationalised Banks/Cooperative Banks. We observe that so far as the interest earned from Cooperative Banks is concerned which in the present case are Kanara District Central Cooperative Bank Limited, The Janata Cooperative Credit Society Limited, The Sirsi Urban Cooperative Bank limited, issue is no more res integra by virtue of plethora of decisions on this very issue consistently holding that interest income earned from investments held with Cooperative banks is also entitled for deduction u/s.80P(2)(d) of the Act. We take note of the decision of Coordinate Bench, Panaji in the case of Goa P W D Staff Co Op Credit Society vs. Income Tax Officer in ITA No.107/PAN/2025 order dated 07.08.2025 has decided the very same issue in favour of the assessee by observing as under :
“5. From the facts solidified by the rival party’s submission we note that, there is no dispute that the assessee is a co-operative society and is entitled to claim deduction u/s 80P(2)(a)(i)/(d) of the Act. Further there is much less dispute over the nature of income received/earned by the assessee in the form of interest on deposits & balances held with GSCBL Bank. The Revenue in the present case first on hand denied 80P(2)(d) deduction to the appellant assessee for a reason that, GSCBL is a bank and not a co-operative society within the meaning of section 2(19) of the Act, hence interest income was earned from such bank do not qualify for deduction u/s 80P(2)(d) of the Act. The Revenue further bettered its denial on the foundation that, surplus funds left with the assessee is taken out of mutuality for investment with bank hence contravene the privity of mutuality, therefore the interest earned on such investment do not qualify for deduction u/80P(2)(d). It the claim of the Revenue that, the character of such interest in view ‘PCIT Vs Totgar’s Co-operative Sale Society Ltd.‘ [2017, 292 ITR 74 (Kar)] falls out for deduction u/s 80P(2)(d) of the Act.
6. At the outset we note that, a similar issue of deduction of 80P(2)(d) deduction in relation to interest/dividend received by the co-operative society from GSCBL came for consideration before the Ld. Co-ordinate bench in ‘ACGL BBD Employees Co- op. Credit Society, Ltd. Vs ITO, Goa’ [ITA No. 212/PAN/2024 dt. 12/02/2025] whereby interest earned by co-operative society on its investment with GSCBL was held as deductible u/s 80P(2)(d) of the Act. The relevant adjudication laid in para 6 to 15 from the order is reproduced herein as;
6. First of all, we are mindful to state that, the allowability of deduction u/s 80P(2)(d) of the Act against the interest on deposits & dividend from shares held by one co-operative society with another co-operative society is no-more res-integra. Secondly the provisions of s/s (4) of section 80P of the Act applies to claimant assessee which is co-operative bank as defined in Part V of the Banking Regulation Act, 1949 [‘BRA’ hereafter].
7. Now coming to allowability of deduction u/s 80P(2)(d) of the Act is concerned, a bare perusal said provision of the Act clearly hint sites that an interest & dividend income derived by one co-operative society from its investment (irrespective of nature) held with other co-operative society is eligible for deduction u/s 80P(2)(d) of the Act. The constructive analysis of provision reveals that, an assessee’s entitlement for deduction u/s 80P(2)(d) of the Act prima-facie is subject to satisfaction of twofold pivotal conditions viz; (1) a recipient assessee vis-à-vis claimant of deduction must be a co- operative society within the meaning of section 2(19) of the Act AND (2) a payer of income must also be a co-operative society as defined u/s 2(19) of the Act. The conjoint reading of section 80P(2)(d) and section 2(19) of the Act necessitates that, a recipient and a payer of interest/dividend both must be co-operative society registered either under Central Co-operative Societies Act, 1912 or under any other law for the time being in force in any state. This stipulation fastened is compiled the moment both recipient & payer of interest/dividend Goa PWD Staff Co-operative Credit Society Limited Vs ITO, Goa are registered either under; (a) Co-operative Society Act, 1912 or (b) State Co-operative Societies Act in force. Thus, where a recipient cum claimant assessee as well as a payer of interest/dividend income both are registered societies then in our considered view noting can preclude an assessee from claiming such interest/dividend as deductible u/s 80P(2)(d) of the Act. This continues to hold the field irrespective of class within which such recipient assessee society or a payer society is registered. What is indispensable for clause (d) of s/s (2) of section 80P of the Act is the statutory/legal establishment of recipient & payer and not the class within which they fall or registered.
8. Conversely, where an assessee is a co-operative society & is not a co-operative bank within the meaning of explanation (a) to section 80P(4)of the Act and a payer of interest/dividend is also a co-operative society then in our considered view irrespective of status of a payer falling within the meaning assigned to it in Part V of BRA as to co-operative bank or not, a recipient assessee society’s right to deduction u/s 80P(2)(d) of the Act cannot infringed by application of s/s (4) thereof. Going a step further it is also mindful to note here that, the language of s/s (4) of section 80P of the Act unambiguously capable of suggesting that it only comes into play when a claimant assessee falls within the meaning of ‘Co-operative bank’ as assigned under Part V of BRA (supra) and not otherwise.
9. In the present case, the appellant admittedly is a co-operative society registered under the State Co-operative society Act, thus at the outset absolutely fulfils the first condition so as to entitle for deduction u/s 80P(2)(d) of the Act. Now in vouching the fulfilment of second condition, we note that, the GSCBL is also a society registered u/s 5 of Goa State Co-operative Societies Act, vide registration No BNK-(a)-1/Goa dt. 07/11/1963. In terms of section 10 (supra) the GSCBL is granted registration under ‘class-3 as co- operative bank with sub class as central Bank’. These findings de- facto sufficient to establish that, the payer of interest i.e. the GSCBL is also a registered co-operative society, thus slakes the second condition fastened on the assessee for claim of deduction u/s 80P(2)(d) of the Act. On the other hand, the appellant co-operative Goa PWD Staff Co-operative Credit Society Limited Vs ITO, Goa society is neither a co-operative bank within the meaning assigned in Part V of BRA nor holding any banking license. The payer of interest income to the assessee society i.e. GSCBL although is a co-operative bank in common parlance but not a co-operative bank strictly within the meaning assigned in Part V of BRA. Therefore, the denial of deduction by implication of s/s (4) of section 80P is untenable. In view of these clinching factual matrix, in our considered view there remains much less merits in application of s/s (4) of section 80P of the Act and in denying the 80P(2)(d) deduction to the appellant.
10. A similar view can also be traced in the adjudication of Ld. Co-ordinate bench in ‘Alaknanda Sahakari Gruharachana Sanstha Maryadit Vs ITO’ [2024, TaxPub(DT) 4845 (Pune-Trib)] wherein the claim for deduction u/s 80P(2)(d) of the Act was denied to the assessee by implication of s/s (4) of section 80P of the Act against interest received by the assessee on its investment from Pune District Central Co-operative Bank.
11. In our considered view, once the claimant assessee falls outside the ambit of explanation (a) to section 80P(4) of the Act then denial of 80P(2) deduction would be contra-legem. This find fortified in case of ‘PCIT Vs Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd.’ [2023, 454 ITR 117 (SC)], where the assessee was a cooperative credit society engaged in the business of providing credit facilities to its members. The assessee claimed deduction u/s 80P(2) of the Act, but the Assessing Officer disallowed the deduction holding that the assessee is a cooperative bank and hence not eligible to claim deduction as per Section 80P(4) of the Act. The first and second appellate authority and the Hon’ble Jurisdictional High Court held in favour of assessee holding that assessee is a co-operative society and not a cooperative bank, hence eligible for deduction u/s 80P(2) of the Act.
12. On the contrary there is much less material placed on record by the Revenue in establishing that the payer GSCBL is a ‘co- operative bank’ within the meaning of explanation (a) to section 80P(4) of the Act, therefore in view of the decision of Hon’ble Apex Court in ‘Kerala State Co-Operative Agricultural and Rural Goa PWD Staff Co-operative Credit Society Limited Vs ITO, Goa Development Bank Ltd. (KSCARDB)’ Vs TAO’ [2023 INSC 830 (SC)], the denial of 80P(2)(d) deduction to the assessee and the impugned action of the respondent Revenue has no legal sanctity.
13. Before departure, we further find that the Hon’ble Supreme Court in case of Mavilayi Service Co-operative Bank Ltd.(supra) while analysing the provision of Section 80P(4) of the Act has categorically held that Section 80P(4) is a proviso to the main provision contained in Section 80P(1) and 80P(2) and excluded only cooperative banks which are cooperative society and also possesses a licence from RBI to do banking business. Their Hon’ble Lordships have further held that, the limited object of section 80P(4) is to exclude Co-operative Banks that function at par with other commercial banks, therefore Section 80P(4) is relevant only where the claimant assessee is a cooperative bank and which claims a deduction u/s 80P(2) of the Act which is not the facts of the present case. The decision of the Hon’ble Karnataka High Court ‘PCIT Vs Totagars Co-operative Sale Society‘ (supra) is distinguishable and in any case, the later decision of Hon’ble Supreme Court in case of ‘Mavilayi Service Co-operative Bank Ltd’. (Supra) wherein the correct legal preposition has been laid down by the Hon’ble Supreme Court has to be followed.
14. In view of the aforestated discussion and respectfully following judicial precedents (supra) we hold that section 80P(4) of the Act does not jeopardise the claim of deduction to the assessee co- operative society u/s 80P(2)(d)in respect of interest/dividend income from investments/share held with other co-operative society (payer) irrespective of its (payer) classification and status as to whether it attracted disqualification u/s 80P(4) of the Act or not.
15. In consequence we hold that, the views adopted by the tax authorities below in the present case, in our considered opinion are not in conformity with aforestated legal position and binding judicial precedents (supra), hence vacated. Resultantly, we set- aside the impugned order and reverse the denial of 80P(2)(d) deduction in entirety. The grounds accordingly stands adjudicated.
(Emphasis supplied)
6. In the absence of anything contrary brought to our notice by the respondent Revenue or convincing us effectively with sufficient reasons for diverting from former judicial precedents, as a matter of consistency, adopting equi-reasoning, we set-aside the impugned order and reverse the disallowance holding that, the interest on investment made with GSCBL Bank qualifies for deductions u/s 80P(2)(d) of the Act as it satisfies twofold conditions laid therein for the year under consideration. The substantive & solitary ground raised in the present appeal thus stands allowed.”
7. Our view is further fortified by the judgment of Hon’ble Kerala High Court in the case of PCIT vs. Percoorkada Service Co. Bank Ltd.(2022) 442 ITR 141 (Kerala) dated 01.11.2021, wherein one of the question before the Hon’ble High Court was, whether the interest income earned from deposits with the banks is eligible for deduction u/s 80P(2). The Hon’ble Kerala High Court has also considered the judgment of Hon’ble Supreme Court in the case of Totagars Cooperative Societies Ltd. 322 ITR 323, wherein the Hon’ble High Court has held that interest income earned from district cooperative bank or state cooperative bank, come within the ambit of section 80P(2)(d), therefore the income constitutes income from other sources and it is eligible for deduction covered u/s 80P(2)(d) of the Act. Respectfully following the judicial precedent referred above, we allow the deduction claimed u/s.80P(2)(d) of the Act for the interest earned from Cooperative Banks for the impugned assessment years.
8. So far as the interest income earned from investments held with Nationalised Bank namely Union Bank of India, we find that the deposits made with Union Bank of India are majorly for maintaining liquidity norms generally applicable to such type of Credit Cooperative Societies, safety of the funds of Members, for operational requirements i.e. to work from multiple locations and to smoothly carry the business. It is not a case of deposit of surplus funds with Nationalised Banks, therefore, interest earned from Union Bank of India for the impugned Assessment Year(s) being a business income is eligible for deduction u/s.80P(2)(a)(i) of the Act.
9. Thus, to conclude, the impugned orders of ld.CIT(A) are set aside and the grounds of appeal raised by the assessee in these three appeals are allowed.
10. In the result, all the three appeals of the assessee are allowed.
Order pronounced on 07th October 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963.
