Vividoddeshagala Prathamika Grameena Krishi Sahakari Sanga Vs ITO (ITAT Panaji)
Panaji ITAT: Interest Earned by Co-operative Society on Deposits With Co-operative Banks Eligible for Section 80P(2)(d) Deduction
The assessee, a Primary Agricultural Co-operative Society registered under the Karnataka Co-operative Societies Act, 1959, claimed deduction under Section 80P, including ₹15,95,955 of interest earned on deposits with BDCC Bank. The AO denied deduction under Section 80P(2)(d) on the ground that the interest was not derived from the assessee’s business of providing credit facilities. The CIT(A) upheld the disallowance.
The Panaji ITAT allowed the assessee’s claim, observing that the issue of deduction under Section 80P(2)(d) in respect of interest earned by a co-operative society from deposits with co-operative banks was no longer res integra, there being several coordinate-bench decisions in favour of assessees.
The Tribunal followed its earlier decision in Goa PWD Staff Co-operative Credit Society v. ITO, which held that Section 80P(2)(d) essentially requires that the recipient/claimant and the payer of interest or dividend should both possess the character of co-operative societies. The payer’s classification as a co-operative bank does not by itself destroy the recipient society’s entitlement to deduction. Further, Section 80P(4) operates to exclude a claimant that is itself a co-operative bank; it does not generally deny Section 80P(2)(d) deduction to an ordinary co-operative society merely because its investment is with a co-operative bank.
The precedent relied upon also distinguished the Karnataka High Court ruling in PCIT v. Totagars Co-operative Sale Society in light of the subsequent Supreme Court jurisprudence, particularly Mavilayi Service Co-operative Bank Ltd., observing that Section 80P(4) is aimed at excluding co-operative banks functioning at par with commercial banks.
Accordingly, the ITAT reversed the CIT(A)’s finding and directed the AO to allow the entire deduction of ₹15,95,955 under Section 80P(2)(d) on interest earned from deposits held with co-operative banks. The assessee’s appeal was allowed.
