• Notification Date: 25-01-2023
• Notification No: N/A

Interest Income earned by Co-operative Societies Eligible for Income Tax Deduction

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held in a recent ruling that interest income earned by Co-operative Societies is eligible for Income Tax Deduction. Amore Commercial Premises Co-Op Society Ltd., the appellant challenged the impugned order dated 14.09.2022 passed by the National Faceless Appeal Centre (NFAC). It has confirmed the disallowance of the deduction of Rs 6,96,725/- under section 8OP (2)(d) of the Income-tax Act, 1961 (Act), in respect of interest received from deposits kept in co-operative banks. Without appreciating it, the co-operatives banks are registered under the Co-Operatives Societies Act, 1912 with a license to undertake banking activities. 

The assessee being a Co-Operative Society has claimed disallowance/deduction u/s. 80P (2)(d) in respect of the interest of Rs. 6,96,725/- for parking its funds with Saraswat Co-Operative Bank, Sham Vithal Rao Co-Operative Bank and district central Cooperative Bank. However, the centralized processing centre (CPC)/ Assessing Officer has disallowed the deduction Claimed by the assessee u/s 143(1). The CIT(A) confirmed the addition by dismissing Appeals. A Coram comprising of Shri Kuldip Singh, Judicial Member & S Rifaur Rahman, Accountant Member observed that the interest income derived by a cooperative society from its investments held with a co-operative bank would be entitled to claim of deduction under Sec.80P (2)(d) of the Act.   

It was viewed that the High Court of Karnataka in the case of Pr. CIT & Anr. Vs. Totgar’s Co-operative Sale Society Ltd. (2017) and the Gujarat High Court in the case of State Bank of India vs. CIT (2016) had held that interest income earned by a co-operative society on its investment held with the cooperative bank would be eligible for claim of deduction under section 80P(2)(d) of the Income Tax Act. In light of the judicial precedents, the Tribunal held that the assessee society has earned an amount of Rs. Rs. 6,96,725/- from its investment of surplus funds with cooperative banks is entitled to deduction under section 80P(2)(d) of the Act. 

While allowing the appeal of the assessee, the Tribunal held that the CIT(A) has erred in upholding the denial of deduction by the AO to the assessee under section 80P(2)(d) of the Act and directed the AO to delete the same.