Part of our society's fixed deposits are with a nationalised bank. Can we claim that interest under 80P(2)(d) along with the co-operative bank interest?
No. Clause (d) allows the whole of interest or dividends 'derived by the co-operative society from its investments with any other co-operative society', and a scheduled or nationalised commercial bank is not a co-operative society. That limb is closed for those deposits whatever view is taken of the co-operative bank dispute. The only route left for them is 80P(2)(a)(i) — that the interest is attributable to the business of providing credit facilities to members — and on that the High Courts are split.
Two claims get argued together and should not be. Section 80P(2)(d) is a source test: it asks who the investment is with. Section 80P(2)(a)(i) is an activity test: it asks whether the profit is attributable to the eligible business. A deposit with a nationalised bank fails the first outright and can only be argued under the second.
The words of clause (d) are 'in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income'. The phrase is 'any other co-operative society'. That is why the co-operative bank dispute exists at all — a co-operative bank is registered under a State co-operative societies Act and is arguably a co-operative society within s.2(19), so it can at least be argued into the clause. A nationalised bank, a private scheduled bank or the State Bank cannot: it is a banking company, not a society registered under any co-operative societies law. The Tribunal has put it flatly — interest earned from investments made in any bank, not being a co-operative society, is not deductible under s.80P(2)(d). Do not put nationalised bank interest into a (2)(d) claim; it weakens the co-operative bank part of the same claim.
So the argument for those deposits has to be made under 80P(2)(a)(i), and that is the older and harder fight. In Totgars Co-operative Sale Society Ltd v. ITO (2010) 322 ITR 283 the Supreme Court held that interest earned by a society on surplus funds deposited with banks fell under s.56 and was not deductible — but the Court expressly confined the judgment to the facts of that case and said it was not laying down any law.
Later benches have confined it in three ways. The first is on the character of the funds. In Totgars the amounts deposited were retained sale proceeds due to members — a liability of the society — and the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative distinguished the case on that footing, holding that where the deposit is of working capital not immediately required for lending, the interest is still attributable to the credit business, 'attributable to' being wider in import than 'derived from'. The Calcutta High Court took the same route in August 2025 in The West Bengal State Co-operative Agriculture & Rural Development Bank Ltd v. DCIT, Circle-54, Kolkata, where the surplus arose because NABARD released funds in two instalments while the society lent them out in a hundred: the Court held the amount deposited 'was not an amount due to the members and it was not the liability of the society to the members', so Totgars did not govern.
The second is on the nature of the society. The Panaji Tribunal in Akshaya Co-op Credit Society Ltd v. ITO drew the line between a credit society, where short-term deposits with commercial banks are business income attributable to the credit business, and a multipurpose society parking genuine surplus, where the interest is income from other sources.
The third is the contrary line, and you have to know it. The Gujarat High Court in the State Bank of India employees' co-operative credit society case, reported at 74 taxmann.com 64, held that interest on bank deposits does not fall within any sub-clause of 80P(2)(a) and rejected the Karnataka reading of Totgars. The Andhra Pradesh High Court in CIT v. Andhra Pradesh State Co-operative Bank Ltd went with Karnataka, treating the income as ancillary and incidental.
If the interest is held to be other-sources income, the claim does not disappear entirely — it becomes a s.57 question. Direct and indirect costs of earning that interest, including the cost of the funds, are deductible against it, so the exposure is on the net figure rather than the gross. That fallback should be pleaded in the alternative in the same reply, not saved for the Tribunal.
Societies routinely file a single 80P(2)(d) claim covering every fixed deposit they hold, co-operative and commercial alike. The commercial bank part of that claim is not arguable on the words of the clause, and including it invites the officer to reject the whole claim as misconceived rather than to engage with the co-operative bank part where the law is genuinely split. Splitting the two heads at the reply stage, and pleading s.57 netting in the alternative for whatever falls out, is what changes the number.
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