Interest Income from Co-op Banks Deductible U/S 80P(2)(d) for Housing Societies: ITAT Mumbai - 2025-06-28

Co-op Housing Society's Interest from Co-op Banks Qualifies for 80P Deduction, Rules ITAT

Mumbai: The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has ruled that a co-operative housing society is entitled to claim a deduction under Section 80P(2)(d) of the Income Tax Act, 1961, on interest income earned from its investments in co-operative banks. The bench, comprising Judicial Member Shri Rahul Chaudhary and Accountant Member Shri Omkareshwar Chidara , set aside the orders of lower tax authorities, clarifying the scope of Section 80P(4) of the Act.

The Tribunal allowed the appeal filed by Gold Coin Apartments Co-operative Housing Society Ltd., permitting a deduction of ₹3,15,256 for the Assessment Year 2021-2022.

Background of the Case

Gold Coin Apartments, a co-operative housing society, had claimed a deduction of ₹3,15,256 under Section 80P(2)(d) on interest income received from SVC Co-operative Bank Limited and The Maharashtra State Co-operative Bank Ltd. The Centralized Processing Center (CPC) disallowed this claim in an intimation under Section 143(1), a decision which was later upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

The CIT(A) reasoned that the insertion of Section 80P(4) by the Finance Act, 2006, excluded co-operative banks from the benefits of Section 80P, thus making any interest derived from them ineligible for deduction. The society subsequently appealed to the ITAT.

Arguments of the Parties

The appellant society argued that while Section 80P(4) bars a co-operative bank from claiming deductions under Section 80P, it does not change the fundamental character of the co-operative bank as a "co-operative society" registered under the relevant state laws. Therefore, a co-operative society investing in another co-operative society (in this case, a co-op bank) remains eligible for deduction under Section 80P(2)(d).

The Income Tax Department (Revenue) contended that the interest income was not in the nature of 'Profits and Gains of Business'. It further argued that Section 80P(4) effectively prohibits any deduction under Section 80P related to income from a co-operative bank.

Tribunal's Analysis and Legal Precedents

The ITAT conducted a detailed analysis, distinguishing key legal provisions and relying on several high-court and Supreme Court judgments.

Distinction Between S. 80P(2)(a) and S. 80P(2)(d)

The Tribunal noted a critical distinction between different sub-sections of Section 80P. It observed that the Supreme Court's decision in Totgars Cooperative Sale Society Ltd. vs. ITO (2010) , often cited by the Revenue, was related to Section 80P(2)(a)(i), which uses the phrase "profits and gains of business." In contrast, Section 80P(2)(d) uses the broader term "any income by way of interest or dividends" derived by a co-operative society from its investments with "any other co-operative society."

The ITAT held that for a deduction under Section 80P(2)(d), the classification of income as 'business profit' or 'income from other sources' is irrelevant.

The True Intent of Section 80P(4)

The Tribunal emphasized that Section 80P(4) was introduced to deny tax benefits to co-operative banks that function like commercial banks, not to penalize other co-operative societies investing in them. It cited the Supreme Court's ruling in Mavilayi Services Co-operative Bank Limited Vs. CIT (2021) , which clarified:

"...the limited object of section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of the public."

The Tribunal reinforced that as long as the investor society itself does not hold a banking license, the source of its interest income (a co-operative bank) does not disqualify it from the deduction. It highlighted that a co-operative bank, despite losing its own 80P benefit, remains a "co-operative society" under law.

The judgment quoted a key passage from a previous Mumbai Tribunal order in Kaliandas Udyog Bhavan Premises vs. ITO (2018) :

"We are of the considered view, that though the co-operative bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but however, as a co-operative bank continues to be a co-operative society... the interest income derived by a co-operative society from its investments held with a co-operative bank, would be entitled for claim of deduction under Sec.80P(2)(d) of the Act."

Final Decision

In light of the consistent legal position established by higher courts and its own benches, the ITAT concluded that the assessee society was entitled to the deduction. It noted that the same society had been allowed a similar claim for a previous assessment year (2014-2015).

The Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to allow the deduction of ₹3,15,256. The appeal of the assessee was, therefore, allowed.