Section 80P(2)(d) Deduction Allowed on Interest Earned from Co-operative Bank — Ahmedabad ITAT Rules in Favour of Co-operative Society

Overview of the Ruling

The Ahmedabad Bench of the Income Tax Appellate Tribunal has delivered a significant ruling in the case of Baroda District Cooperative Milk Producers Union Limited Vs ACIT (ITAT Ahmedabad) for Assessment Year 2022-23, holding that interest income earned by a co-operative society from deposits placed with a co-operative bank is fully deductible under Section 80P(2)(d) of the Income Tax Act, 1961. The disallowance of ₹68,33,529 made by the Assessing Officer was deleted in its entirety.

This ruling carries substantial significance for co-operative societies across India that routinely park surplus or statutory funds with co-operative banks and claim deduction on the resulting interest income.

Background and Procedural History

The assessee, Baroda District Co-operative Milk Producers Union Limited, had earned interest of ₹68,33,529 from deposits maintained with Baroda District Co-operative Central Bank Limited. This interest income was claimed as a deduction under Section 80P(2)(d), which permits a co-operative society to exclude from its total income the whole of any interest or dividend income derived from investments made with any other co-operative society.

The Assessing Officer rejected the claim on the ground that Baroda District Co-operative Central Bank was operating as a full-fledged bank offering banking services to the general public and, therefore, was a co-operative bank — not a co-operative society — for the purpose of Section 80P(2)(d). The disallowance of ₹68,33,529 was accordingly made.

The CIT(A) upheld the disallowance, relying principally on the following decisions:

  • PCIT v. Totgars Co-operative Sale Society Ltd. (2017) 395 ITR 611 (Karnataka)
  • Totgars Co-operative Sale Society Ltd. v. ITO (2010) 322 ITR 283 (SC)
  • State Bank of India v. CIT (2016) 389 ITR 578 (Gujarat)

The matter had initially been disposed of by the Tribunal vide order dated 08-07-2025. Thereafter, the Revenue filed Miscellaneous Application No. 138/Ahd/2025 seeking rectification on the ground that the Tribunal had not adequately addressed the Revenue's objections regarding Section 80P(2)(d). The Tribunal accepted this contention and, vide order dated 29/06/2026, recalled the earlier order for limited re-adjudication on the Section 80P(2)(d) claim. The matter was then heard afresh and decided on 25/08/2026.

The core question before the Ahmedabad ITAT was:

Whether interest earned by a co-operative society from deposits placed with a co-operative bank qualifies for deduction under Section 80P(2)(d), or whether Section 80P(4) — which denies Section 80P benefits to co-operative banks — also operates to deny deduction to the investing co-operative society?

Arguments Advanced by Both Sides

Revenue's Position

The Senior Departmental Representative placed strong reliance on the decisions of both the CIT(A) and the lower authorities. The Revenue's core contention was that Section 80P(4), introduced by the Finance Act, 2006 with effect from 01.04.2007, excludes co-operative banks from the benefit of Section 80P. Consequently, once the entity paying interest is a co-operative bank, the interest received from it cannot qualify for deduction under Section 80P(2)(d) in the hands of the recipient co-operative society either.

Reliance was placed on:

  • PCIT v. Totgars Co-operative Sale Society Ltd. (2017) 395 ITR 611 (Karnataka), which denied deduction on interest received from a co-operative bank
  • Totgars Co-operative Sale Society Ltd. v. ITO (2010) 322 ITR 283 (SC)

Assessee's Position

The Authorised Representative for the assessee drew the Tribunal's attention to the jurisdictional Gujarat High Court's ruling in PCIT v. Ashwinkumar Urban Co-operative Society Ltd. (2024) 168 taxmann.com 314 (Gujarat). The assessee contended that Section 80P(4) is a provision that operates exclusively against the co-operative bank itself — denying the bank its own deduction under Section 80P. It does not, however, strip a co-operative bank of its fundamental character as a co-operative society. Therefore, when another co-operative society earns interest from such a bank, the deduction under Section 80P(2)(d) remains available to the investor society without any restriction.