My society earns interest on deposits with a co-operative bank — is that deductible under 80P(2)(d)?
It is genuinely unsettled. 80P(2)(d) allows the whole of the interest or dividend a co-operative society derives from investments with any other co-operative society, and most tribunals and several High Courts hold that a co-operative bank is still a co-operative society, so the deduction stands; the Karnataka High Court line holds otherwise. Separately, section 80AC means that for AY 2018-19 onwards no 80P deduction is allowed at all unless the return was filed by the section 139(1) due date.
The text of 80P(2)(d) is short and generous: the whole of any income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society is deductible. The dispute is entirely about whether a co-operative bank counts as "any other co-operative society".
The argument for the deduction is definitional. A co-operative bank is registered under a State co-operative societies Act and therefore falls within the definition of co-operative society in section 2(19) of the Income-tax Act. Section 80P(4) denies the deduction to the co-operative bank on its own income; it says nothing about a depositor society's income. On that reasoning the Gujarat High Court, and tribunal benches at Mumbai and Rajkot among others, have allowed the deduction. The Mumbai bench in Laburnum Mahindra Gardens Co-Operative Housing Ltd v. ITO followed Pathare Prabhu Co-operative Housing Society and Kaliandas Udyog Bhavan Premises Co-op Society to the same effect.
The argument against is purposive. The Karnataka High Court in Totgars Co-operative Sale Society, reported at 395 ITR 611, took the view that once 80P(4) removes co-operative banks from the section's benefit, a society cannot get through the back door what the bank itself cannot claim, and denied the deduction on interest from co-operative banks. A later Karnataka High Court decision applied the same reasoning to a housing building society for AY 2017-18.
Behind both lines sits a different and older problem under 80P(2)(a)(i). 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 was taxable under section 56 and not deductible — but the Court expressly confined that judgment to the facts of the case and said it was not laying down any law. The Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative distinguished it, holding that "attributable to" is wider than "derived from", so interest on short-term deposits of working capital not immediately required for lending is still attributable to the credit business. The Andhra Pradesh High Court took the same view in CIT v. Andhra Pradesh State Co-operative Bank. The Gujarat High Court in State Bank of India Employees Co-op Credit and Supply Society went the other way, holding investment income did not fall in any 80P(2)(a) category.
So there are really two questions and you should keep them apart. Is the interest attributable to the credit business, so that it falls under 80P(2)(a)(i)? And independently, is it interest from an investment with another co-operative society, so that it falls under 80P(2)(d)? A claim can succeed under the second even if it fails under the first.
The filing condition is the trap that decides many of these cases before the merits are reached. Section 80AC as substituted by the Finance Act 2018 provides that for AY 2018-19 and later, where a deduction is admissible under any provision of Chapter VI-A under the heading "C.—Deductions in respect of certain incomes" — which includes section 80P — no deduction is allowed unless the assessee furnishes the return on or before the due date specified in section 139(1). A belated return, or a return filed in response to a section 148 notice, kills the 80P claim outright. For years before AY 2018-19 the older section 80AC covered only sections 80-IA to 80-IE, so late filing did not affect 80P.
CBDT has given a limited escape route through section 119(2)(b). Circular 13/2023 dated 26 July 2023 authorises Chief Commissioners and Directors General to condone the delay in filing returns claiming 80P for AY 2018-19 to AY 2022-23, where the delay was beyond the society's control — typically a delayed statutory audit under State co-operative law — and directs that applications be disposed of preferably within three months. Circular 14/2024 dated 30 October 2024 extended Circular 13/2023 to AY 2023-24 on the same conditions.
Interest on statutory and surplus deposits is often a large part of a co-operative society's income, and whether it is deductible turns on which High Court's view your bench follows, so the answer changes with geography. Meanwhile section 80AC disposes of a great many claims without anyone reaching the merits, because co-operative societies routinely file late while waiting for the State audit. The CBDT circulars are the only realistic remedy once that has happened, and they are limited to specified assessment years.
The CBDT rejected my condonation application without dealing with my reasons. Can I challenge that?
I got a government incentive that came to me as a higher free sale quota and an excise rebate, and I had to use it to repay my term loans. Is that taxable income?
The AO cites Citizen Co-operative Society to deny my 80P claim. How far does it go?
Our amalgamation was sanctioned long after the deadline for a revised return. Must the department accept revised returns filed to give effect to the scheme?
We are a state-level co-operative agricultural and rural development bank. Does 80P(4) block our deduction?
My society lends to non-members too. Does that wipe out its 80P(2)(a)(i) deduction?
I did not tick s.115BAA in the return and filed Form 10-IC late. Can I still get the concessional rate?
My society invested surplus funds in short-term bank deposits. Is that interest covered by 80P?
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