ITAT Jodhpur upholds ₹2.23 crore rural bank interest deduction under section 80P(2)(d)

The Income Tax Appellate Tribunal (ITAT) Jodhpur bench confirmed a tax deduction amounting to ₹2.23 crore under section 80P(2)(d) of the Income Tax Act regarding interest earned from rural banks. The dispute centered on whether cooperative societies can claim deductions on income derived from investments placed with cooperative banks or other specified financial institutions under this particular provision. The tribunal evaluated the statutory language and prior judicial interpretations governing inter-cooperative investments and interest earnings. Section 80P(2)(d) of the Income Tax Act provides cooperative societies with a deduction on income earned by way of interest or dividends from investments with other cooperative societies.

In practice, tax authorities frequently disallow such deductions when the investments are held with certain cooperative banks or rural banks, arguing they fall outside the strict definition of cooperative societies under the Act. The old administrative position often resulted in intense litigation and tax additions for cooperative institutions, whereas the judicial position, reinforced by rulings such as this, tends to protect the tax-exempt status of such interest income provided the foundational investment conditions are met. Tax practitioners and chartered accountants should review ongoing assessments and pending appeals for cooperative society clients who have faced disallowances on rural bank interest income.

Practitioners must compile investment ledgers, bank certificates, and relevant statutory proofs demonstrating that the placement of funds satisfies section 80P(2)(d) requirements. Watch for further departmental appeals or jurisdictional nuances regarding rural bank classifications. Bottom line: Ensure your cooperative clients properly document these interest streams to secure their statutory deductions and avoid litigation.