Deduction Under Section 80P(2)(d) Allowed on Co-operative Bank Income: ITAT Pune Analysis

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has delivered an important ruling in the case of Pune Zilla Sahakari Dudh Utpadak Sangh Maryadit Vs DCIT (ITAT Pune), clarifying the availability of deduction under Section 80P(2)(d) in respect of interest and dividend income earned from co-operative banks and other co-operative societies.

This decision, covering Assessment Years (AY) 2017-18 and 2018-19, directly addresses a recurring controversy: whether a co-operative bank can be treated as a “co-operative society” for the purposes of claiming deduction under Section 80P(2)(d) of the Income Tax Act 1961.

The Tribunal, relying on key High Court precedents, has held that such interest and dividend from co-operative banks is indeed eligible for deduction under Section 80P(2)(d), and has rejected the Revenue’s contention to the contrary.

Background of the Case

Status of the Assessee and Nature of Activities

  • The assessee is a federal co-operative society registered under the Maharashtra State Co-op Societies Act, 1960.
  • It functions as a district-level milk federation, with various primary co-operative milk societies of Pune District as its members.
  • The assessee’s main activity consists of collecting milk from member co-operative societies and selling it:
    • Partly to Government agencies,
    • Partly to Mahananda dairy, Mumbai, and
    • Partly in the open market.

Returns of income were filed for AY 2017-18 and AY 2018-19, and both years were selected for scrutiny under CASS. Separate assessments were framed under Section 143(3) of the Income Tax Act 1961 for each year.

Disallowance of Section 80P(2)(d) Deduction by Assessing Officer

Income in Dispute – AY 2017-18

During the scrutiny assessment for AY 2017-18, the Assessing Officer (AO) noticed that the assessee had earned the following incomes:

  • Interest from PDCC Bank, Pune: Rs. 1,18,71,993/-
  • Dividend from PDCC Bank: Rs. 3,80,001/-
  • Dividend from Other Co-operative Society: Rs. 24,39,000/-

Total interest and dividend income claimed under Section 80P(2)(d): Rs. 1,46,90,994/-

The assessee had claimed deduction under Section 80P(2)(d) on the entire above sum.

Stand of the Assessing Officer

The AO denied the deduction claimed under Section 80P(2)(d) on the following basis:

  • PDCC Bank was treated as a co-operative bank, not as a generic co-operative society for the purpose of Section 80P(2)(d).
  • According to the AO, income from investments with a co-operative bank does not satisfy the condition of being “with any other co-operative society”.
  • Consequently, the entire amount of Rs. 1,46,90,994/- was assessed as taxable income without deduction under Section 80P(2)(d).

Order of the CIT(A) (NFAC)

The assessee challenged the AO’s disallowance before the Commissioner of Income Tax (Appeals) [NFAC].

Reasoning of the CIT(A)

The CIT(A) sustained the disallowance by:

  • Following the decision of the Hon’ble Supreme Court in:
    • Totagar’s Co-operative Society Ltd., 322 ITR 283 [2010], and
  • Also relying on:
    • Mavilayi Service Co-operative Bank Ltd. Vs. CIT, 431 ITR 1 [2021].

On this basis, the CIT(A) concluded that the interest and dividend from PDCC Bank were not eligible for deduction under Section 80P(2)(d).

The assessee carried the matter further to the ITAT, resulting in the present appeals.

Core Question Before ITAT Pune

The key issue before the Tribunal was:

Whether interest and dividend income received by a co-operative society from PDCC Bank and from other co-operative societies is eligible for deduction under Section 80P(2)(d) of the Income Tax Act 1961?

Resolution of this question turned on: