Our employees' credit society earns interest from the District Co-operative Bank and also from the treasury. The Commissioner (Appeals) refused s.80P(2)(d) on both. Where does the Kerala High Court stand?
The Kerala High Court quashed the appellate orders so far as they refused the deduction, holding that the entitlement to deduct interest received by a co-operative society from its investments with other co-operative societies is settled in the assessee's favour by its own Division Bench decision in Pr. CIT v Peroorkada Service Co-operative Bank Ltd. (2022) 442 ITR 141 (Ker). Interest from a District Co-operative Bank was therefore deductible; interest from the treasury was not, and the year in which treasury interest was received was sent back for re-examination.
Decided by the High Court (Ziyad Rahman A. A. J) on 2025-05-23, reported as W.P.(C) No. 19502 of 2023; neutral citation 2025:KER:35488 (High Court of Kerala at Ernakulam). It bears on section 80P(2)(d), section 80P, section 2(19), section 56 of the Income Tax Act 1961, in Co-operative Societies and Deductions & Disallowances matters.
This is the Kerala side of a question the High Courts are genuinely divided on: whether a co-operative bank counts as 'any other co-operative society' so that interest from it falls within s.80P(2)(d). Kerala, on this decision, treats interest from a District Co-operative Bank as within the clause, and so do the Gujarat High Court in Pr. CIT v Rajkot Lodhika Sahakari Kharid Vechan Sangh, the Madras High Court in Thorapadi Urban Co-operative Credit Society (2023) and a Karnataka Bench in Pr. CIT v Totagars Co-operative Sale Society of 5 January 2017. The decision the other way is the Karnataka High Court's coordinate Bench judgment of 16 June 2017 in the same assessee's case, which declined to follow the January 2017 judgment and held that interest on investments with a co-operative bank is not deductible under clause (d); special leave petitions against it are pending. No Supreme Court decision resolves it; Mavilayi and Kerala State Co-operative Agricultural and Rural Development Bank are both on s.80P(2)(a)(i) and s.80P(4) and decide nothing under clause (d). The other half of the decision is the harder half for taxpayers: the payer must itself be a co-operative society, so treasury interest, and by the same logic interest from a nationalised or scheduled bank, is outside clause (d) whichever side of the split you are on.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner is an employees' credit co-operative society. It challenged appellate orders of the Commissioner (Appeals) for assessment years 2016-17, 2017-18 and 2020-21, which had rejected its claim to deduction under s.80P(2)(d) on interest and dividends derived from investments with other co-operative societies. The total demand was Rs 8,75,71,175. On the Court's direction the society filed an affidavit dated 3 July 2023 giving the details: for 2016-17 the interest was received only from the Trivandrum District Co-operative Bank; for 2017-18 from that bank and from the Kerala State Co-operative Consumer Federation, both co-operative societies; and for 2020-21 from the District Co-operative Bank and also from the treasury, the treasury interest being Rs 46,18,307 and the bank interest Rs 4,79,05,393. The Revenue then filed a statement accepting that on the ratio of the Division Bench decision in Pr. CIT v Peroorkada Service Co-operative Bank Ltd. the society was not entitled to the deduction on the treasury interest, and submitting that the findings for 2016-17 and 2017-18 be modified to allow the deduction as claimed, and that for 2020-21 the deduction be allowed only on the interest from the District Co-operative Bank.
The writ petition was disposed of. The appellate orders were quashed to the extent that they declined the deduction claimed under s.80P(2)(d) (para 9(i)). For assessment years 2016-17 and 2017-18, since it was admitted that the society received interest only from co-operative societies, no fresh assessment was necessary (para 9(ii)). For assessment year 2020-21 the Assessing Officer was directed to pass a reassessed order within three months after examining the documents and hearing the society, in the light of the observations in the judgment and of Peroorkada Service Co-operative Bank Ltd. (para 9(iii)).
The Court proceeded on the footing that the legal position on the entitlement of a co-operative society to deduct interest received from its investments with other co-operative societies is settled in the assessee's favour by the Court's own decision in Pr. CIT v Peroorkada Service Co-operative Bank Ltd. (2022) 442 ITR 141 (Ker), and that to that extent the petitioner was entitled to relief (paras 4 and 8). On the facts disclosed by the affidavit and accepted in the Revenue's statement, there was no dispute for 2016-17 and 2017-18 that the interest came only from co-operative societies, which brought it within s.80P(2)(d); the only dispute concerned the portion received from the treasury in 2020-21, which required re-examination by the assessing authority (para 7).
As the legal position with regard to the entitlement of the petitioner to get the deduction of the income by way of interest received by the co-operative society from its investment with other cooperative societies is settled in favour of the petitioner, to that extent, the petitioner is entitled to get the relief.
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Handle my notice → Ask a CA on WhatsAppThe Kerala High Court quashed the appellate orders so far as they refused the deduction, holding that the entitlement to deduct interest received by a co-operative society from its investments with other co-operative societies is settled in the assessee's favour by its own Division Bench decision in Pr. CIT v Peroorkada Service Co-operative Bank Ltd. (2022) 442 ITR 141 (Ker). Interest from a District Co-operative Bank was therefore deductible; interest from the treasury was not, and the year in which treasury interest was received was sent back for re-examination. This was decided by the High Court (Ziyad Rahman A. A. J) and bears on section 80P(2)(d), section 80P, section 2(19), section 56 of the Income Tax Act 1961. It is reported as W.P.(C) No. 19502 of 2023; neutral citation 2025:KER:35488 (High Court of Kerala at Ernakulam). This is the Kerala side of a question the High Courts are genuinely divided on: whether a co-operative bank counts as 'any other co-operative society' so that interest from it falls within s.80P(2)(d). Kerala, on this decision, treats interest from a District Co-operative Bank as within the clause, and so do the Gujarat High Court in Pr. CIT v Rajkot Lodhika Sahakari Kharid Vechan Sangh, the Madras High Court in Thorapadi Urban Co-operative Credit Society (2023) and a Karnataka Bench in Pr. CIT v Totagars Co-operative Sale Society of 5 January 2017. The decision the other way is the Karnataka High Court's coordinate Bench judgment of 16 June 2017 in the same assessee's case, which declined to follow the January 2017 judgment and held that interest on investments with a co-operative bank is not deductible under clause (d); special leave petitions against it are pending. No Supreme Court decision resolves it; Mavilayi and Kerala State Co-operative Agricultural and Rural Development Bank are both on s.80P(2)(a)(i) and s.80P(4) and decide nothing under clause (d). The other half of the decision is the harder half for taxpayers: the payer must itself be a co-operative society, so treasury interest, and by the same logic interest from a nationalised or scheduled bank, is outside clause (d) whichever side of the split you are on. If it applies to you, the first step is this: Break the interest down payer by payer before you argue anything, and be ready to file an affidavit of the figures — the Court called for exactly that here, and the affidavit is what produced the concession.
The petitioner is an employees' credit co-operative society. It challenged appellate orders of the Commissioner (Appeals) for assessment years 2016-17, 2017-18 and 2020-21, which had rejected its claim to deduction under s.80P(2)(d) on interest and dividends derived from investments with other co-operative societies. The total demand was Rs 8,75,71,175. On the Court's direction the society filed an affidavit dated 3 July 2023 giving the details: for 2016-17 the interest was received only from the Trivandrum District Co-operative Bank; for 2017-18 from that bank and from the Kerala State Co-operative Consumer Federation, both co-operative societies; and for 2020-21 from the District Co-operative Bank and also from the treasury, the treasury interest being Rs 46,18,307 and the bank interest Rs 4,79,05,393. The Revenue then filed a statement accepting that on the ratio of the Division Bench decision in Pr. CIT v Peroorkada Service Co-operative Bank Ltd. the society was not entitled to the deduction on the treasury interest, and submitting that the findings for 2016-17 and 2017-18 be modified to allow the deduction as claimed, and that for 2020-21 the deduction be allowed only on the interest from the District Co-operative Bank. The matter was decided on 2025-05-23 by the High Court (Ziyad Rahman A. A. J). On those facts the High Court held as follows. The writ petition was disposed of. The appellate orders were quashed to the extent that they declined the deduction claimed under s.80P(2)(d) (para 9(i)). For assessment years 2016-17 and 2017-18, since it was admitted that the society received interest only from co-operative societies, no fresh assessment was necessary (para 9(ii)). For assessment year 2020-21 the Assessing Officer was directed to pass a reassessed order within three months after examining the documents and hearing the society, in the light of the observations in the judgment and of Peroorkada Service Co-operative Bank Ltd. (para 9(iii)).
The Court proceeded on the footing that the legal position on the entitlement of a co-operative society to deduct interest received from its investments with other co-operative societies is settled in the assessee's favour by the Court's own decision in Pr. CIT v Peroorkada Service Co-operative Bank Ltd. (2022) 442 ITR 141 (Ker), and that to that extent the petitioner was entitled to relief (paras 4 and 8). On the facts disclosed by the affidavit and accepted in the Revenue's statement, there was no dispute for 2016-17 and 2017-18 that the interest came only from co-operative societies, which brought it within s.80P(2)(d); the only dispute concerned the portion received from the treasury in 2020-21, which required re-examination by the assessing authority (para 7). In the words reproduced by the source cited on this page: "As the legal position with regard to the entitlement of the petitioner to get the deduction of the income by way of interest received by the co-operative society from its investment with other cooperative societies is settled in favour of the petitioner, to that extent, the petitioner is entitled to get the relief." The decision followed or applied Pr. Commissioner of Income Tax v. Peroorkada Service Co-operative Bank Ltd., (2022) 442 ITR 141 (Ker) — followed; not read for this entry.
It was decided by the High Court on 2025-05-23 and is reported as W.P.(C) No. 19502 of 2023; neutral citation 2025:KER:35488 (High Court of Kerala at Ernakulam). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 80P(2)(d), section 80P, section 2(19), section 56, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The writ petition was disposed of. The appellate orders were quashed to the extent that they declined the deduction claimed under s.80P(2)(d) (para 9(i)). For assessment years 2016-17 and 2017-18, since it was admitted that the society received interest only from co-operative societies, no fresh assessment was necessary (para 9(ii)). For assessment year 2020-21 the Assessing Officer was directed to pass a reassessed order within three months after examining the documents and hearing the society, in the light of the observations in the judgment and of Peroorkada Service Co-operative Bank Ltd. (para 9(iii)). It arises in Co-operative Societies and Deductions & Disallowances matters, on section 80P(2)(d), section 80P, section 2(19), section 56 of the Income Tax Act 1961, and was decided by Ziyad Rahman A. A. J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For each payer, establish that it is registered as a co-operative society under a State enactment; that is what brings it within 'any other co-operative society'. Concede the treasury and commercial bank interest, or at least segregate it, rather than defending the whole claim. The Revenue's own statement here conceded the co-operative bank interest once the affidavit was on record. For the segregated non-society interest assessed under s.56, run the s.57 cost of funds claim as a separate alternative. In a jurisdiction that has gone the other way on clause (d) — in Karnataka, ask which of the two Pr. CIT v Totagars judgments the officer is relying on, the January 2017 one or the June 2017 one — say so and argue clause (d) in the alternative to s.80P(2)(a)(i); do not present the two as the same claim.
High Courts differ on this point. The conflict on whether a co-operative bank is 'any other co-operative society' for s.80P(2)(d) runs between High Courts, and also inside one. Allowing the deduction on interest from a co-operative bank: the Kerala High Court here, following its Division Bench in Peroorkada Service Co-operative Bank Ltd. (2022) 442 ITR 141 (Ker); the Gujarat High Court in Pr. CIT v Rajkot Lodhika Sahakari Kharid Vechan Sangh; the Madras High Court in Thorapadi Urban Co-operative Credit Society Ltd. v. ITO (10 October 2023); and a Karnataka Bench in Pr. CIT v Totagars Co-operative Sale Society of 5 January 2017, which held 'co-operative society' to be the genus and 'co-operative bank' a species necessarily covered by it. Refusing it: the Karnataka High Court's coordinate Bench of 16 June 2017 in Pr. CIT v Totagars Co-operative Sale Society, which declined to follow the January 2017 judgment of its own Court, and which the Gujarat High Court applied in Katlary Kariyana Merchant Sahkari Sarafi Mandali in January 2022. Special leave petitions against the June 2017 judgment — SLP(C) Nos. 26314-26321 of 2017, SLP(C) No. 26817 of 2017 and SLP(C) Nos. 553-569 of 2018 — were listed for final disposal on 19 February 2025 and no disposal has been traced; check their status before advising. All of those decisions are already in the library and are not restated here. No Supreme Court decision on clause (d) was located: Mavilayi Service Co-operative Bank (2021) and Kerala State Co-operative Agricultural and Rural Development Bank (2023) are both decided under s.80P(2)(a)(i) and s.80P(4). Later treatment of this particular judgment was not checked, and the underlying Peroorkada Division Bench judgment was not read. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment runs to nine numbered paragraphs, with the operative directions as sub-clauses (i) to (iii) of paragraph 9. It gives no independent reasoning on the s.80P(2)(d) question and rests entirely on the Division Bench decision in Pr. CIT v Peroorkada Service Co-operative Bank Ltd. (2022) 442 ITR 141 (Ker), which was not opened for this entry; nothing is stated here about that decision's own reasoning. One inconsistency in the report: paragraph 2 and the reliefs sought refer to Exts. P4, P6 and P8 as the appellate orders under challenge, while the operative direction at paragraph 9(i) quashes Exts. P2, P5 and P7 to the extent they decline the s.80P(2)(d) relief. The affidavit reproduced at paragraph 5 leaves the figure of interest received from the Trivandrum District Co-operative Bank for assessment year 2020-21 blank in the printed text before giving the treasury figure of Rs 46,18,307; the Rs 4,79,05,393 figure appears later in the same passage. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The writ petition was disposed of. The appellate orders were quashed to the extent that they declined the deduction claimed under s.80P(2)(d) (para 9(i)). For assessment years 2016-17 and 2017-18, since it was admitted that the society received interest only from co-operative societies, no fresh assessment was necessary (para 9(ii)). For assessment year 2020-21 the Assessing Officer was directed to pass a reassessed order within three months after examining the documents and hearing the society, in the light of the observations in the judgment and of Peroorkada Service Co-operative Bank Ltd. (para 9(iii)).
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