The Income Tax Appellate Tribunal, Pune, has definitively affirmed that primary credit cooperative societies are entitled to claim deduction under Section 80P(2)(d) of the Income Tax Act for interest income earned from deposits with other cooperative banks. This ruling resolves a long-standing ambiguity and aligns with binding precedents from the Supreme Court and the Bombay High Court, providing clarity for thousands of cooperative societies across India.
Background & Facts
The Dispute
The appellant, Shri Parshuram Nagri Sahkari Patsanstha Maryadit, is a primary credit cooperative society registered under the Maharashtra State Cooperative Societies Act. It provides credit facilities exclusively to its members. During the financial year 2014-15, the society made substantial deposits with other cooperative banks and earned interest income thereon. In its return of income for Assessment Year 2015-16, filed on 22.08.2023, the assessee claimed deduction under Section 80P(2)(d) for this interest income. The Assessing Officer denied the claim, holding that such income was not eligible for deduction, and assessed the total income at Rs. 2,51,427/- under Section 147 read with Section 144B.
Key Facts
- The assessee is a primary credit cooperative society, not a bank, registered under the Maharashtra State Cooperative Societies Act
- It received interest income from deposits with other cooperative banks during FY 2014-15
- The return for AY 2015-16 was filed belatedly on 22.08.2023 after issuance of notice under Section 148
- The Assessing Officer relied on the Non-Filing of Return (NMS) data to initiate reassessment proceedings
- The assessee submitted detailed financial statements and explanations regarding the nature of deposits and the source of interest income
- The CIT(A) upheld the AO’s denial of deduction under Section 80P(2)(d)
Procedural History
- 2014-15: Financial year in which interest income was earned from cooperative bank deposits
- 2015-16: Assessment year under dispute; return not filed on time; notice under Section 148 issued
- 22.08.2023: Assessee filed return disclosing income of Rs. 9,41,319/- and claiming deduction under Section 80P(2)(d)
- 14.03.2024: Assessing Officer passed order under Section 147 r.w.s. 144B denying deduction and assessing income at Rs. 2,51,427/-
- Date unspecified: Appeal filed before CIT(A) under Section 250
- Date unspecified: CIT(A) dismissed the appeal, upholding the AO’s order
- 16.05.2026: Appeal filed before ITAT Pune (ITA No. 1659/PUN/2026 for AY 2015-16)
- 01.07.2026: Hearing before ITAT Pune; delay of 34 days condoned on affidavit
- 02.07.2026: Judgment pronounced
Relief Sought
The assessee sought: (1) setting aside of the CIT(A) order dated 14.03.2024; (2) allowance of deduction under Section 80P(2)(d) for interest income earned from cooperative banks; and (3) consequential relief in the form of refund or adjustment of tax liability.
The Legal Issue
The central question was whether a primary credit cooperative society is entitled to claim deduction under Section 80P(2)(d) of the Income Tax Act for interest and dividend income earned from deposits with other cooperative banks, or whether such income is excluded under Section 80P(4) as income from a cooperative bank.
Arguments Presented
For the Appellant
The assessee, though unrepresented, relied on the legal position established in prior tribunal and judicial decisions. The core contention was that the assessee is a primary credit cooperative society, not a cooperative bank as defined under the Banking Regulation Act, 1949. Therefore, its income from deposits with other cooperative societies falls squarely within the scope of Section 80P(2)(d). The assessee relied on the binding precedent of the Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT and the Bombay High Court in Anna Saheb Patil Mathadi Kamgar Sahkari Pathpedhi Ltd., both holding that such societies are not banks and are entitled to the deduction.
For the Respondent
The Department, represented by Shri Manish Mehta, JCIT, Sr.DR, supported the orders of the AO and CIT(A). The contention was that any entity receiving interest from cooperative banks should be treated as deriving income from a banking activity, thereby falling under the exclusion in Section 80P(4). The Department argued that the nature of the transaction - earning interest from deposits - was akin to banking, regardless of the legal status of the depositor.
The Court's Analysis
The Tribunal conducted a detailed review of the statutory framework under Section 80P and the judicial interpretation of the term "cooperative bank." It emphasized that Section 80P(2)(d) grants deduction to primary credit cooperative societies for interest and dividend income earned from other cooperative societies, while Section 80P(4) excludes income from cooperative banks.
The critical distinction lies in the legal definition of "cooperative bank" under the Banking Regulation Act, 1949. The Tribunal noted that the Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT had clearly held that "merely giving credit to its own members cannot be said to be the activity of a cooperative bank." The Court further observed that banking activities under the Banking Regulation Act involve services extended to the public at large, which primary credit societies do not provide.
"There is a vast difference between the credit societies giving credit to their own members only and the Banks providing banking services including the credit to the public at large also."
The Tribunal also relied on its own coordinate bench decisions in Gurudatta Gramin Bigersheti, Pune Jila Madhyawarti Sahakari Bank Sevakanchi Sahkari Patsanstha Maryadit, and Sharadchandra Nagari Sahakari Patsanstha Maryadit, all of which had allowed the deduction. It held that the Supreme Court’s decision in Mavilayi had settled the issue beyond doubt and that the Revenue could not re-litigate the same question.
The Tribunal rejected the Department’s argument that the source of income (interest from cooperative banks) should determine eligibility. It held that the nature of the assessee - being a primary credit cooperative society - is the decisive factor, not the identity of the payor. The deduction is available to the society as long as it is not itself a cooperative bank.
The Verdict
The appeal filed by the assessee is allowed. The order of the CIT(A) dated 14.03.2024 is set aside. The Assessing Officer is directed to allow the deduction under Section 80P(2)(d) for interest and dividend income earned from cooperative banks in respect of Assessment Years 2015-16 and 2017-18. The tax liability shall be recalculated accordingly, with consequential refund or adjustment. The decision applies mutatis mutandis to both appeals.
What This Means For Similar Cases
Primary Credit Societies Are Not Cooperative Banks
- Practitioners representing cooperative societies must now assert that eligibility under Section 80P(2)(d) depends on the legal status of the assessee, not the nature of the payor
- Any attempt by the Department to deny deduction on the ground that the interest was received from a "cooperative bank" is legally unsustainable
Section 80P(4) Exclusion Does Not Apply by Default
- The exclusion under Section 80P(4) applies only if the assessee itself is a cooperative bank as defined under the Banking Regulation Act
- Merely transacting with a cooperative bank does not convert a credit society into a bank for tax purposes
Precedent Is Binding and Final
- The Supreme Court’s ruling in Mavilayi Service Co-operative Bank Ltd. v. CIT is now the definitive authority on this issue
- Revenue authorities must cease initiating reassessments or denying deductions on this ground
- Appeals pending before lower forums on identical issues must be withdrawn or allowed in light of this judgment
