ITAT Nagpur allows 80P Deduction on Interest received by co-operative societies from Nationalised Bank
In a significant relief to cooperative credit societies, the Nagpur Bench of the Income Tax Appellate Tribunal (SMC) has held that interest earned on deposits kept with banks qualifies for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.
Case Background
The assessee, Jalsampda Karmchari Sahakari Patsanstha Maryadit, Wardha, is a cooperative society consisting of employees of the Irrigation Department, Government of Maharashtra. It filed its return of income declaring NIL income after claiming deduction of ₹2.12 crore under section 80P.
During assessment, the Assessing Officer disallowed:
• ₹9,02,984 – interest earned from deposits with Bank of India and Axis Bank, holding it ineligible for deduction under section 80P(2)(d).
• ₹14,831 – claimed as donation, for want of supporting evidence.
The CIT(A) upheld the disallowances, following which the assessee approached ITAT.
Assessee’s Argument
The assessee contended that:
• Deposits with banks were made out of operational funds to maintain liquidity for repayment of member deposits.
• The issue was squarely covered by various ITAT and High Court decisions, including CIT vs. Solapur Nagri Audyogik Sahakari Bank Ltd. (182 Taxman 231), which held that interest on surplus/operational funds kept in deposits is part of banking business income and hence eligible for deduction under section 80P(2)(a)(i).
• Similar claims had been allowed in earlier years under scrutiny assessments.
Tribunal’s Findings
• The Tribunal noted that the funds invested were not surplus but operational in nature, maintained for liquidity.
• Relying on a catena of decisions, including Ismailia Urban Co-op. Society vs. ITO (ITA 122/Nag/2023) and jurisdictional High Court rulings, it held that such interest income forms part of the society’s business income and is deductible under section 80P(2)(a)(i).
• Accordingly, the disallowance of ₹9,02,984 was deleted.
• However, on the issue of donation of ₹14,831, since no evidence was produced, the disallowance was upheld.
Key Takeaways
1. Operational fund deposits with commercial banks, if made to maintain liquidity for credit society activities, remain eligible for deduction under section 80P(2)(a)(i).
2. The distinction drawn in Totgars Co-op. Sale Society Ltd. case does not apply where funds are not surplus but linked to the society’s core operations.
3. Claims without supporting evidence, like donations, will not withstand scrutiny.
Conclusion
The ITAT Nagpur order reiterates that cooperative credit societies cannot be denied 80P deduction on bank interest merely because deposits are placed with commercial banks, provided the funds are part of operational requirements. This ruling will bring clarity and relief to many such societies facing similar disputes.
