Section 80P(2)(d) Deduction Allowed on Interest & Dividend From Co-op Banks: ITAT Delhi

National Federation of Cooperative Sugar Factories Limited Vs ITO (ITAT Delhi)

The appeals before the ITAT Delhi arose from separate orders of the National Faceless Appeal Centre (NFAC) for Assessment Years 2017-18, 2018-19 and 2020-21 involving an identical issue relating to deduction under Section 80P(2)(d) of the Income-tax Act, 1961. The assessee, a co-operative society, had claimed deduction on interest earned from fixed deposits with Delhi State Cooperative Bank Ltd. and Saraswati Cooperative Bank Ltd., along with interest received from employees. The Assessing Officer disallowed the deduction, holding that the interest on surplus funds deposited with banks constituted income from other sources and was not eligible for deduction under Section 80P(2)(d). The NFAC upheld the disallowance.

Before the Tribunal, the assessee relied on decisions of the Gujarat High Court and various coordinate benches of the Tribunal, contending that a co-operative bank is also a co-operative society for the purposes of Section 80P(2)(d), and therefore interest and dividend received from such banks qualify for deduction. The assessee also relied on earlier Tribunal decisions allowing similar claims under identical facts.

The Revenue argued that the issue stood concluded by the Supreme Court’s decision in Totgar’s Co-operative Sale Society Ltd. v. ITO, submitting that interest earned on surplus funds is taxable under the head “Income from Other Sources” and is not eligible for deduction under Section 80P. It was also contended that co-operative societies do not possess banking licences and are not authorised by the RBI to carry on banking business.

The Tribunal rejected the Revenue’s contentions. It noted that the interest and dividend income had been earned from deposits with co-operative banks and followed the decisions of the coordinate bench in The Janta Adarsh Cooperative Thrift & Credit Society Ltd. and Deoband Cooperative Cane Development Union Ltd., wherein it had been held that a co-operative bank is a species of co-operative society for the purposes of Section 80P(2)(d). The Tribunal observed that the Supreme Court’s decision in Totgar’s was distinguishable on facts since that case involved deposits with commercial banks and not co-operative societies. Accordingly, the Tribunal held that the authorities below had incorrectly applied the ratio of Totgar’s.

Following the earlier coordinate bench decisions, the Tribunal held that the assessee was entitled to deduction under Section 80P(2)(d) on the interest and dividend income earned from co-operative banks. As the facts in the remaining appeals for Assessment Years 2018-19 and 2020-21 were identical except for the figures involved, the same decision was applied mutatis mutandis. Consequently, all three appeals filed by the assessee were allowed.

FULL TEXT OF THE ORDER OF ITAT DELHI

These appeals by the assessee are directed against the order of the National Faceless Appeal Centre (NFAC) Delhi / Commissioner of Appeals [hereinafter referred to as “Ld. NFAC)”] vide separate orders all dated 06-10-2025 pertaining to A.Y. 2017-18, 2018-19 & 2020-21 respectively arising out the separate assessment orders passed under section 143(3) read with sections 143(3A) & 143(3B) of the Income-tax Act, 1961, (in short ‘the Act’). Since all the three assessees’ appeals involved identical issues, hence the same were heard together and disposed of by this common order for the sake of convenience, by dealing with ITA NO. 8641/ Del/2025 (A.Y.2017-18) being the lead case.

2. The assessee has raised the single ground in appeal as under:-

1. That under the facts and circumstances both the lower authorities grossly erred in law as well as on merits in rejecting the claim of deduction of RS. 95,93,698/- u/s 80P(2) (d) for the following receipts:-

3. The brief facts of the case are that the assessee is a Co-operative credit society and filed it return of income on 28-10-2017 declaring total income of Rs. 15,710/-. The case of assessee was selected for complete scrutiny under CASS. A notice under section 143(2) dated 29-09-2018 was issued to the assessee. Further notices under section 142(1) of the act were issued to the assessee. It was noticed by the Assessing Officer that the assessee had claimed deduction of INR 95,93,698/- under section 80P of the Act. The Assessing Officer was of the view that such deduction is not allowable as the income is not from the business activities of the assessee. But in this case, the assessee had deposited its surplus fund with banks and earned interest income thereon which in the opinion of the Assessing Officer from other sources. The Assessing Officer did not accept the submissions of the assessee and proceeded to make additions. The Assessing Officer after considering the submission submitted by the assessee completed the assessment after making the additions of Rs.95,93,698/-and assessed the income of the assessee at INR 96,09,408/-under section 143(3) of the Act vide assessment order dated 30-12-2019 after making disallowances of deduction claimed under section 80P(2)(d) of the Act.

4. Aggrieved against this, the assessee preferred appeal before the Ld. NFAC who after considering the submissions, sustained this addition and dismissed the appeal of the assessee. Being aggrieved the order of the Ld. NFAC the assessee is in appeal before this Tribunal.

5. The Ld. AR of the assessee re-iterated the submissions as made in the synopsis. He further submitted that under the identical facts the Co-ordinate Bench of the Tribunal has allowed the deduction claimed similarly situated the assessee. In support of the contention, the assessee has placed reliance on the decision of the Hon’ble High Court of Gujarat in the case of PCIT v. Rajkot Lodhika Sahakari Kharid Vechan Sangh Ltd. [2025] 176 com 71 (Gujarat) the Hon’ble High Court held that tribunal findings that cooperative bank is a co-operative society and therefore, assessment was not erroneous allowing deduction of section 80P(2)(d).

6. Further, in the case of Principal Commissioner of Income-tax1 v. Ashwinkumar Arban Co-operative Society Ltd. [2024]168 taxmann.com314 Gujarat, the Hon’ble High Court held as under:-

33. In view of the above dictum of law as well as the provisions of the Act which are considered we are of the opinion that the provisions of section 80P(2)(d) would be applicable in the facts of the case and the PCIT was not justified in invoking revisional powers under section 263 of the Act which is rightly reversed by the Tribunal holding that the cooperative bank is a cooperative society registered under the Gujarat State Cooperative Societies Act and in view of the various decisions of the court, the Tribunal after following the same has come to the conclusion that the assessment was not erroneous allowing deduction of section 80P(2)(d) of the Act which is in consonance with the various decisions of the court as a twin condition invoking section 263 as to the assessment being erroneous and prejudicial to the interest of the revenue are not being fulfilled.

7. Reliance also placed on the following decisions:

I. Deoband Cooperative Cane Development Union Ltd. v. AO NFAC ITA No. 6638/Del/2025 dated 20-03-2026

II. The Janta Adarsh Cooperative Thrift & Credit Society Ltd. v. ITO Ward -52(1) ITA No.3692 & 3693/Del/2023 dated 28-06-2024

III. ITO vs. Shri Bhairavnath Multistate Cooperative Credit Society Ltd. [2024]164 com 382(Pune-Trib)

8. The Ld. AR of the assessee also submitted that similar interest income was there for A.Y.2021-22 to 2024-25 deduction u/s 80P(2)(d) were allowed in intimation under section 143(1) of the Act.

9. On the other hand, Ld. Sr. DR for the Revenue opposed these submissions and supported the orders of the authorities below. He submitted that the issue of chargeability of interest has been decided by the Hon’ble Supreme Court in the case of Totgar’s Co-operative Sale Society Ltd. v. ITO (188Taxman 282) and held that interest earned on surplus funds must be characteristically taxed under section 56 as “income from other Sources” rendering it ineligible for section 80P of the Act deductions. He further submitted that Co-operative Societies do not possess banking license and are formed with the object of promotion of economic interest of its members. The Reverse Bank of India issued the press released informing the members of the public that societies have neither been issued any licence under B.R. Act, 1949 nor are they authorized by the R.B.I. for doing banking business. He further submitted that the assessee is not intitled for deduction under section 80(P) of the Act.

10. We have heard the parties and perused the material available on record. The undisputed facts are that the interest on term deposits was received by the assessee from Delhi State Cooperative Bank Ltd. and Saraswati Cooperative Bank Ltd. The Ld. Assessing officer taxed this amount on the basis that the amount was not out of business income whereas the income was derived from other sources. Ld. CIT(A) sustained the findings of the Assessing officer. In the case of The Janta Adarsh Co­operative Thrift & Credit Society Ltd. the Co-ordinate bench Delhi distinguished the judgement of Hon’ble Supreme Court rendered in the case of Totgar’s Cooperative Sale Society Ltd. vs, ITO. (Supra), allowed the deduction of the interest and dividend received from the Co-operative Bank to the assessee under section 80P of the Act. In this case the coordinate bench held as under:

13. In the present case, the interest and dividend income has been earned by the assessee from Delhi State Co-operative Bank Ltd. There is no dispute that the assessee is a Co-operative society and it has earned interest and dividend income by making deposits with the Delhi State Co-operative Bank Ltd. which is registered under Co-operative Societies Act and the Division Bench of this Tribunal after considering the binding precedents, held that Co-operative Bank is primarily a Co­operative Society. Therefore, for the purpose of section 80P(2)(d) of the Act, the assessee would be entitled for deduction u/s 80P(2)(d) of the Act. In the light of the decision of the Co-ordinate Bench of the Tribunal wherein it has been held that the Co­operative Bank is a society. Therefore, the deduction would be allowable u/s 80P(2)(d) of the Act. The judgement of Hon’ble Supreme Court rendered in the case of Totgar’s Co-operative Sale Society Ltd. vs ITO (supra), would not be applicable since the facts are clearly distinguishable wherein surplus of the funds was not deposited with any Co operative Society but were deposited to the Commercial banks. Therefore, authorities below mis-directed itself in applying the ratio of the Hon’ble Supreme Court in the case of Totgar’s Co-operative Sale Society Ltd. vs ITO (supra). I therefore, hold that the assessee would be eligible for deduction u/s 80P(2)(d) of the Act. The grounds raised are allowed in terms indicated herein above.

11. We find no merit in the Revenue’s arguments. The Co­ordinate bench in the case of Deoband Cooperative Cane Development Union Ltd. v. AO NFAC ITA No. 6638/Del/2025 dated 20-03-2026 allowing the appeal of the assessee and held as under:

5. We find no merit in the Revenue’s instant vehement arguments in light of (2024) 164 taxmann.com 382 (Pune Tribu.) ITO Vs. Shri Bhairavnath Multistate Cooperative Credit Society Ltd. rejecting the very stand as under:

“5. We heard the rival submissions and perused the material on record. We find this issue is no more res integra by virtue of catena of decisions passed by the Coordinate Benches of this Tribunal. In the present case, we find that admittedly the interest income was earned from the investments out of surplus funds made with cooperative banks/socieites, the cooperative bank is also a specie of cooperative society, therefore, the interest income earned by the cooperative society from the cooperative banks qualifies for deduction u/s.80(P)(2)(d) of the Act. Such interest also qualifies for exemption u/s.80P(2)(a)(i) as held by the Co-ordinate Bench of Pune Tribunal in the case of Nashik Road Nagari Sahkari Patsanstha Ltd. v. ITO [IT Appeal No. 1700 (Pune) of 2017, dated 27-12-2021], wherein the Tribunal held as under:-

“9. We heard the rival submissions and perused the material on record. Admittedly, the appellant is a Cooperative society formed under the provisions of Maharashtra Cooperative Societies Act, 1960 with the objective of accepting deposits and lending money to its members. The money which is not immediately required for the purpose of lending to the members is deposited with Bank of Baroda in the form of Fixed Deposit. The question is whether the interest so earned qualifies for exemption u/s. 80P(2)(a)(i) of the Act. The AO as well as the CIT(A) were of the opinion that the interest earned from third parties or nonmembers does not quality for exemption u/s.80P. It is an admitted position that the interest so earned should be taxed as ‘income from other sources’ There is a cleavage of judicial opinion among several High Courts on the issue of eligibility of this kind of income for exemption u/s. 80P(2)(a)(i) of the Act. The Hon’ble Punjab & Haryana High Court in the case of CIT v. Punjab State Cooperative Federation of Housing Building Societies Ltd. [2011] 11 taxmann.com 448 (Punjab & Haryana) , the Hon’ble Gujarat High Court in the case of State Bank of India v. CIT [2016] 72 taxmann.com 64/241 Taxman 163/389 ITR 578 (Gujarat), the Hon’ble Delhi High Court in the case of Mantola Cooperative Thrift & Credit Society Ltd. v. CIT [2014] 50 taxmann.com 278/229 Taxman 68 (Delhi), the Hon’ble Punjab & Haryana High Court in the case of CIT v. Punjab State Cooperative Agricultural Development Bank Ltd. [2017] 77 taxmann.com 308/245 Taxman 125/389 ITR 68 (Bombay) and the Hon’ble Kolkata High Court in the case of CIT v. Southern Eastern Employees Cooperative Credit Society Ltd. [2016] 73 taxmann.com 123/390 ITR 524 (Calcutta) took a view that the income arising on the surplus invested in short term deposits and securities cannot be attributed to the activities of the society and, therefore, not eligible for exemption u/s.80P(2)(a)(i) of the Act. However, the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO (2015) 230 taxmann 309 (Kar.) and the Hon’ble Telangana and Hon’ble Andhra Pradesh High Court in the case of Vaveru Co-operative Rural Bank Ltd. v. CIT [(2017) 396 ITR took a view that such interest income is attributable to the activities of the society and, therefore, eligible for exemption u/s.80P(2)(a)(i) of the Act. The Coordinate Bench of Pune Benches in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit v. ITO (ITA Nos.559/560/PUN/2018, dated 11-122018) has taken view in favour of the assessee following the judgment of Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Respectfully following the decision of the Coordinate Bench, we hold that the interest income earned on the investment of surplus money with banks is also eligible for exemption u/s.80P(2)(a)(i) of the Act. Thus, the grounds of appeal No. 1 & 2 stands allowed.”

6. Thus, the order passed by the ld.CIT(A) is in conformity with the settled position of law by virtue of the above discussion. Therefore, we affirm the impugned order directing the Assessing Officer to allow the claim of exemption u/s.80P(2)(a)(i)/80P(2)(d) on the interest income earned on investments made out of surplus funds made with Cooperative banks, Cooperative Societies and Nationalized banks.”

6. We adopt the foregoing detailed discussion mutatis mutandis to accept the assessee’s instant sole substantive ground in very terms. Necessary computation shall follow as per law.

7. This assessee’s appeal is allowed in above terms.

12. In the present case the interest and dividend income has been earned by the assessee form the Co-operative Banks therefore respectfully following the judgement of the Co-ordinate Bench we hold that the assessee would be eligible for deduction under section 80P(2)(d) of the Act. The ground raised by the assessee is allowed in terms indicated herein above and accordingly, the appeal No. 8641/Del/2025 (AY 2017-18) stand allowed.

13. Facts of the others appeals are also identical and similar as involved in ITA No 8641/Del/2025 (AY 2017-18) except difference in figures. Thus, the decision taken in ITA No. 8641/Del/2025 would apply mutatis mutandis in the other appeals nos. 8642 & 8643/Del/2025 (Ayrs. 2018-19 & 2020-21) filed by the assessee, resultantly the same are also allowed on the similar lines, as aforesaid.

14. In the result, all the three appeals of the assessee are allowed.

Order pronounced in the open court 24.06.2026.