Section 80P Deduction for Credit Co-operative Societies: Complete Legal Update
Section 80P(2) empowers co-operative credit societies to claim a 100% deduction on profits and gains, including interest income-if directly attributable to their credit business. Here’s a comprehensive update on eligibility of such deductions, specifically for interest earned from nationalised or scheduled bank deposits.
Favorable Judgments by High Courts & Tribunals:
1. IT Appeal No. 307 of 2014 – Tumkur Merchants Souharda Credit Co-op Ltd. v. ITO, Karnataka HC (Oct 28, 2014): Held that interest from short-term deposits in scheduled banks is incidental to credit operations, thus deductible under Sec 80P(2)(a)(i).
2. Nawanshahar Central Co-op Bank Ltd. v. CIT, Punjab & Haryana HC (2007) / Supreme Court confirmation: Upheld deduction for interest on statutory/reserve deposits in nationalised banks under Sec 80P(2)(a)(i), later confirmed by the Supreme Court.
3. Vavveru Co-op Rural Bank Ltd. v. CIT, AP/Telangana HC: Ruled interest from nationalised bank deposits is deductible under Sec 80P(2)(a) if arising from business surplus.
4. ITA No. 644/PUN/2024 – Yashwant Nagari Sahakari Patsanstha Maryadit v. ITO, ITAT Pune (June 4, 2024): Allowed deductions under 80P(2)(a)(i) and 80P(2)(d) on interest from surplus deposits in scheduled banks.
5. ITA No. 122/Nag./2023 – Ismailia Urban Co-op Society Ltd. v. ITO (Nagpur ITAT, June 18, 2024): Held that interest earned from bank deposits is business income, eligible for deduction under 80P(2)(a)(i) and 80P(2)(d).
3. ITA No. 64/Nag./2024 – Rajarshi Shahu Multistate Co-op Credit Society Ltd. (Nagpur ITAT, Aug–Sep 2024): Followed Ismailia, reaffirming eligibility of surplus-bank interest for Section 80P deduction.
Opposing Rulings:
Gujarat HC, ITAT Ahmedabad, Calcutta HC, UP ITAT, Chennai ITAT: Interest from nationalised bank deposits treated as “other income”, emphasizing Totgars’ Co-op Sale Society (322 ITR 283 SC) precedent.
Comparative Summary:
Karnataka HC – Tumkur Merchants Credit Co-op Society: Deduction Allowed – Deposits incidental to credit activity
Punjab & Haryana HC: Deduction Allowed – Statutory deposits in nationalised banks
AP/Telangana HC – Vavveru Credit Co-op Society: Deduction Allowed – Business surplus requirement
ITAT Pune – Yashwant Nagari Credit Co-op Society: Deduction Allowed – Surplus deposits test
ITAT Nagpur – Ismailia Credit Co-op Society and Sewa Shri Credit Co-op Society: Deduction Allowed – Bank interest as business income.
Gujarat HC / ITAT Ahmedabad et al.: Deduction Not Allowed – Treated as other income; reliance on Totgars’ SC
SEO Keywords Included:
Section 80P deduction, interest from nationalised bank deposits, credit co-operative society, Tumkur Merchants Souharda, Ismailia Urban ITAT Nagpur, Yashwant Nagari ITAT Pune, Vavveru Co-operative Rural Bank, Nawanshahar SC-confirmed case, Section 80P(2)(a)(i) & 80P(2)(d)
Practical Strategy for Societies:
1. Cite favorable decisions from Karnataka HC, Punjab & Haryana HC (SC-backed), AP/TS HC, ITAT Pune, and Nagpur benches.
2. Frame interest income as “business income”, and make the surplus-fund nexus argument.
3. Prepare counters for adverse Gujarat/other rulings, referencing the broader judicial trend.
4. Highlight SC validation of Punjab & Haryana HC in Nawanshahar to strengthen appeals.
Conclusion:
Credit co-operative societies across India can legitimately claim deductions under Section 80P on nationalised/scheduled bank interest – provided it’s incidental to core credit business, and stems from business surplus. This is strongly supported by rulings from Nagpur, Pune, Karnataka, Punjab & Haryana, AP/Telangana-despite contrary views from Gujarat and some ITAT benches.
