ITAT Ahmedabad Ruling: Co-operative Societies Eligible for Tax Deduction on Fixed Deposit Interest from Co-operative Banks

In a significant judicial determination, the Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has clarified the eligibility of co-operative societies to claim deductions on interest income derived from fixed deposits held with co-operative banks. The ruling in the case of Harsiddhi Co. Op. Credit Society Ltd. Vs ACIT underscores the legal interpretation that co-operative banks are fundamentally co-operative societies under the relevant state laws, thereby qualifying the interest generated from them for benefits under Section 80P(2)(d) of the Income Tax Act, 1961.

This comprehensive summary breaks down the factual matrix, the procedural history, and the judicial reasoning that led to the deletion of the additions made by the revenue authorities.

Genesis of the Tax Dispute

The core of the controversy revolved around the treatment of interest income earned by a co-operative society from fixed deposits maintained with various co-operative banks.

Initial Assessment and Declarations

The assessee, operating as a co-operative society, submitted its income tax return for the Assessment Year (A.Y.) 2020-21 on 29 December 2020. In this filing, the assessee declared a total income of nil. To arrive at this computation, the assessee claimed specific statutory deductions:

• A deduction amounting to Rs. 23,99,554 was claimed under Section 80P(2)(a)(i).
• A further deduction of Rs. 10,58,405 was claimed under Section 80P(2)(d).

During the assessment proceedings, which were finalized under Section 143(3) read with Section 144B of the Income Tax Act, 1961, the Assessing Officer (AO) took a divergent view. The AO determined the total income of the assessee to be Rs. 45,31,057.