A Nagpur bench of the Income Tax Appellate Tribunal has reaffirmed that interest earned on bank deposits by co-operative credit societies can qualify for tax relief under Section 80P, marking a significant shift in how these deductions are interpreted amidst expanding favourable rulings.
A Nagpur bench of the Income Tax Appellate Tribunal has once again sided with co-operative credit societies in a dispute over whether interest earned on bank deposits can qualify for relief under Section 80P of the Income-tax Act. The ruling covers appeals by Keshao Nagari Co-operative Path Sanstha Ltd. of Wani, The Pragatisheel Sahkari Pat Sanstha Maryadit of Nagpur and a third co-operative society, all of which had been denied the deduction by tax authorities before succeeding at the tribunal stage.
Section 80P is designed to give tax benefits to certain co-operative societies, including those providing credit facilities to members. According to the Income Tax Department of India’s own explanation of the provision, the deduction is available where the income is derived from eligible co-operative activities, though the exact scope has long been contested when societies place temporary funds in fixed deposits or other bank investments. The Revenue has often treated such interest as taxable under the head “Income from other sources”, while assessees argue that the deposits are a necessary part of the society’s working capital management.
The Nagpur bench said the key question was not simply where the money was parked, but whether the investment was connected to the society’s business. In doing so, it followed a line of Pune tribunal rulings, including the 2024 decision in ITO v. Shri Bhairavnath Multistate Cooperative Credit Society Ltd. and the earlier Nashik Road Nagari Sahkari Patsanstha Ltd. case. The tribunal also distinguished the Supreme Court’s Totgars Co-operative Sale Society Ltd. ruling, which the tax department frequently invokes, on the basis that a credit society’s funds and liquidity requirements are tied closely to its lending activity.
The latest order also fits into a broader run of recent decisions that have favoured co-operative societies. In April 2026, the Mumbai bench of the ITAT granted relief to a society seeking deduction on interest earned from deposits with co-operative banks, a result that reinforced the view that co-operative bank interest can still fall within Section 80P in the right factual setting. Against that backdrop, the Nagpur ruling is another reminder that these cases turn heavily on the character of the funds, the purpose of the deposit and the nature of the society’s operations, rather than on any automatic rule against deduction.
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