Cooperative Housing Societies Can Claim 80P Deduction on Interest from Coop Banks: ITAT

Moneylife Digital Team 22 December 2025

Economy & Nation

The Mumbai bench of the income tax appellate tribunal (ITAT) has allowed a cooperative housing society (CHS)’ claim for deduction on interest income earned from fixed deposits (FDs) placed with a cooperative bank, reiterating that such income qualifies for relief under Section 80P(2)(d) of the Income Tax Act.

In its order dated 27 November 2025, the SMC bench of ITAT, comprising judicial member Narender Kumar Choudhry, ruled in favour of Shree Raj Crystal Cooperative Housing Society Ltd for the assessment year (AY)21–22, setting aside the disallowance made by the tax department.

The dispute arose after the CHS earned interest income of ₹485,800 from FD receipts maintained with Saraswat Cooperative Bank. The CHS claimed this amount as a deduction under Section 80P(2)(d), which allows cooperative societies to deduct interest or dividend income earned from investments with other cooperative societies. However, the claim was disallowed at the processing stage under Section 143(1) by centralised processing centre (CPC) and the disallowance was later upheld by national faceless appeal centre (NFAC).

Challenging these orders, the CHS approached the tribunal, arguing that the issue was no longer res integra and had been consistently decided in favour of cooperative housing societies by various courts and benches of ITAT. After hearing both sides and examining the record, the tribunal agreed with the CHS’ contention.

The bench noted that there was no dispute on facts: the CHS was a registered cooperative housing society and the interest income was earned from deposits with a cooperative bank. The tribunal observed that identical issues had already been decided in favour of assessees, including by coordinate benches of ITAT, most notably in the case of Pathare Prabhu Cooperative Housing Society Ltd.

Relying on settled legal principles, the tribunal held that for the purposes of Section 80P(2)(d), what is material is whether the interest income is derived from investments made with another cooperative society. It reiterated that while Section 80P(4) excludes cooperative banks from claiming deductions under Section 80P, this restriction applies only when the assessee itself is a cooperative bank. It does not disentitle a cooperative housing society from claiming a deduction on interest earned from deposits with a cooperative bank.

The order also took note of the Supreme Court’s ruling in Mavilayi Service Cooperative Bank Ltd, which clarified the limited scope of Section 80P(4) and held that it does not override the substantive benefits available to cooperative societies under Section 80P(2).

Addressing the tax department’s reliance on certain High Court (HC) judgements denying such deductions, the tribunal pointed out that there were divergent views even within the same HC on this issue. In such circumstances, it applied the principle laid down by the Supreme Court in Vegetable Products Ltd, holding that where two reasonable interpretations of a taxing provision are possible, the one favourable to the assessee must be adopted.

On this basis, ITAT concluded that the CHS’ claim for deduction of ₹485,800 under Section 80P(2)(d) was legally tenable. It directed the assessing officer (AO) to allow the deduction, subject to verification, and allowed the appeal filed by the CHS.

(ITA No5769/Mum/2025 Date: 27 November 2025)

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