The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has allowed the appeal holding that interest income earned by the cooperative housing society from deposits maintained with cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income-tax Act, 1961.
The Bench of Challa Nagendra Prasad (Judicial Member) and Makarand Vasant Mahadeokar (Accountant Member) has observed that interest income earned from cooperative banks, which are essentially cooperative societies carrying on banking business, was deductible under Section 80P(2)(d).
The principal issue before the Tribunal was whether the cooperative housing society could claim deduction under Section 80P(2)(d) in respect of interest income earned from cooperative banks. The Tribunal answered the issue in favour of the society, directing the Assessing Officer (AO) to allow the deduction.
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The Co-operative Housing Society had challenged the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (CIT(A)-NFAC), Delhi, dated January 15, 2026. The appellate authority had denied the deduction claimed by the society under Section 80P(2)(d) of the Income-tax Act for AY 2020-21.
Before the ITAT, the society argued that the issue had already been decided in its favour in its own earlier assessment years. The authorised representative relied particularly upon the Tribunal’s orders for AY 2021-22 and AY 2013-14, where the Tribunal had allowed the deduction in respect of interest earned from cooperative banks.
The society also pointed out that, in its earlier proceedings for AY 2020-21, the Tribunal had followed the Supreme Court’s decision in Mavilayi Services Cooperative Bank Ltd., reported in 431 ITR 1 (SC), while allowing the deduction.
The department however, relied upon the orders of the lower authorities and opposed the claim.
The Tribunal noted that the only issue requiring adjudication was whether the society was entitled to deduction under Section 80P(2)(d) on interest income earned from cooperative banks.
Section 80P(2)(d) provides a deduction in respect of interest or dividend income derived by a cooperative society from its investments with another cooperative society. The controversy in cases such as the present one concerns whether a cooperative bank falls within the expression “co-operative society” for purposes of this provision.
The Tribunal noted that the issue had already been considered in the society’s own case for AY 2021-22. In that proceeding, the coordinate Bench had examined the society’s earlier orders as well as several judicial precedents and ultimately deleted the addition arising from denial of the Section 80P(2)(d) deduction.
The Tribunal placed considerable reliance on its earlier decision in the society’s own case for AY 2013-14.
In that matter, the society had earned income through subscriptions and service charges from its members as well as interest income from savings and fixed deposits maintained with various banks. It claimed that interest earned from cooperative banks was eligible for deduction under Section 80P(2)(d).
The Assessing Officer had rejected the claim on the reasoning that Section 80P(4) had withdrawn the deduction under Section 80P for cooperative banks and, consequently, the society could not claim a deduction for interest received from cooperative banks. The CIT(A) had also confirmed the position.
The Tribunal, however, examined the distinction between a cooperative bank and the cooperative society receiving interest income from such a bank.
The earlier Tribunal proceedings had considered conflicting judicial views on the issue.
One of the decisions examined was the Karnataka High Court’s ruling in PCIT v. Totagars Co-operative Sale Society, reported in 392 ITR 74. In that decision, the cooperative bank was treated as a species of the broader genus of cooperative societies. On that reasoning, interest earned from a cooperative bank was considered eligible for deduction under Section 80P(2)(d).
However, the Karnataka High Court subsequently took a different view in another decision involving the same assessee. It held that interest earned by a cooperative society from a cooperative bank was not eligible for deduction under Section 80P(2)(d).
The Tribunal also considered the decision of the Himachal Pradesh High Court in CIT v. Kangra Cooperative Bank Ltd., where the court held that a cooperative bank was also a cooperative society and therefore interest income from investments in such a cooperative society could qualify for deduction under Section 80P(2)(d).
Several Mumbai Tribunal decisions were also referred to, including decisions concerning Murude Sahakari Parsanstha Maryadid and Lands End Co-operative Housing Society Ltd.
The Tribunal’s earlier reasoning assumed particular significance because it recognised that there were divergent judicial views on the availability of the deduction.
The Tribunal noted that while the Karnataka High Court had taken a view against allowing the deduction on interest received from cooperative banks, the Himachal Pradesh High Court had taken a view favourable to the taxpayer.
In this context, the Tribunal referred to the Supreme Court’s decision in Vegetable Products Ltd., reported in 88 ITR 192, for the principle that where two reasonable constructions of a taxing provision are possible, the construction favourable to the assessee should be adopted.
The Tribunal’s order for AY 2021-22 had also taken note of the Supreme Court’s decision in Mavilayi Services Cooperative Bank Ltd., reported in 431 ITR 1 (SC). The society had specifically relied on that precedent while arguing that the deduction should be allowed.
The Mumbai Bench also noted that the society’s earlier cases and various coordinate Bench decisions had consistently addressed the same legal controversy. In the AY 2021-22 proceedings, the Tribunal had relied on the Supreme Court ruling as well as several decisions concerning Section 80P(2)(d).
The Mumbai Bench found that there were no distinguishing facts for the assessment year under consideration.
The Tribunal therefore followed the decisions rendered in the society’s own case and directed the Assessing Officer to allow the deduction under Section 80P(2)(d) in respect of interest income earned from cooperative banks.
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