The order was passed in the case of Horizon Co-operative Housing Society Ltd. Worli, for Assessment Years 2013-14 and 2018-19.

The Core Issue

The dispute revolved around whether interest income earned by a co-operative housing society from fixed deposits kept with co-operative banks qualifies for deduction under Section 80P(2)(d).

The Assessing Officer had denied the deduction, arguing that:

• Section 80P(4) excludes co-operative banks from the benefit of Section 80P.
• Therefore, interest earned from co-operative banks should not qualify for deduction.

The CIT(A), NFAC, upheld the disallowance, relying on certain judicial precedents.

What the Tribunal Held

The ITAT disagreed with the lower authorities and ruled in favour of the assessee.

The Bench observed:

• Section 80P(2)(d) allows deduction for interest income earned by a co-operative society from investments made with “any other co-operative society”.
• A co-operative bank is still legally registered as a co-operative society under the relevant State Co-operative Societies Act.
• Section 80P(4) only restricts co-operative banks from claiming deduction on their own income.
• It does not remove their status as a co-operative society for the purpose of Section 80P(2)(d).

The Tribunal emphasized that reading Section 80P(4) as restricting 80P(2)(d) would amount to adding a limitation that the legislature never intended.

Consistency in Earlier Decisions

The Bench also noted that:

• In the assessee’s own case for AY 2017-18, the Tribunal had already allowed similar deduction.
• Multiple coordinate benches have consistently held that interest from co-operative banks is eligible for deduction under Section 80P(2)(d).
• In case of conflicting judicial views, the interpretation favourable to the assessee must be adopted (as per Supreme Court principle in Vegetable Products case).

Accordingly, the ITAT directed the Assessing Officer to delete the disallowance and allow the deduction for both assessment years.

Why This Matters for Housing Societies

This ruling is particularly important because:

• Most housing societies park surplus maintenance funds in co-operative bank FDs.
• Interest income often becomes a taxable dispute area.
• The decision provides clarity that such interest can qualify for full deduction under Section 80P(2)(d), subject to facts.

For co-operative housing societies across Mumbai and Maharashtra, this judgment could significantly reduce tax exposure on interest income from co-operative bank deposits.

Outcome

Both appeals filed by the assessee were allowed.
Order pronounced on 25 February 2026.

Also Read: Metros continue to dominate residential real estate market in CY22 over other cities

The post Big Relief for Housing Societies: ITAT Mumbai Allows Deduction on Interest from Co-operative Banks appeared first on Square Feat India.

A recent ruling by the Income Tax Appellate Tribunal (ITAT) Mumbai has given a clear answer — and it’s good news for housing societies.

What Was the Case About?

The case involved Valencia Co‑Operative Housing Society Limited, located in Hiranandani Gardens, Mumbai.

The society had earned about ₹10 lakh as interest from deposits kept with co-operative banks.

When it filed its income tax return, it claimed a deduction under Section 80P(2)(d) — a provision that allows co-operative societies to claim tax relief on certain income.

However, the tax department’s automated processing system disallowed the deduction and added that interest income back to taxable income.

As a result, the society received a tax demand of roughly ₹4 lakh.

The society challenged this — and the dispute eventually reached the tribunal.

What Is Section 80P Deduction (Simple Explanation)

Think of Section 80P as a special tax benefit meant for co-operative societies.

It allows them to exclude certain income from tax, provided the income falls under eligible categories.

One such category is:

Interest earned from investments made with another co-operative society.

This rule exists to encourage co-operative institutions to financially support each other.

The Core Legal Question

The main issue before the tribunal was simple but important:

If a housing society earns interest from deposits placed in a co-operative bank, can it claim deduction under Section 80P(2)(d)?

What the Tribunal Decided

The ITAT ruled clearly:

Yes — a housing society can claim the deduction.

The judges explained:

• The law allows deduction if interest is earned from another co-operative society
• A co-operative bank is legally also treated as a co-operative society
• Therefore, interest earned from deposits in such banks qualifies

The tribunal ordered:

The disallowance must be removed
The deduction must be granted
The tax demand must be withdrawn

Why the Tax Department’s Action Was Rejected

The tribunal also criticised how the deduction was denied.

It noted:

• The return was processed automatically
• The claim was rejected without proper examination
• Even during appeal, authorities relied on information not shown to the society

Because of this procedural lapse, the earlier order was held invalid.

Why This Ruling Matters for Housing Societies

This judgment is significant because many societies:

• Keep maintenance funds in bank deposits
• Earn interest as their main income
• Don’t carry out business activities

Without this deduction, societies would have to pay tax on interest income — which ultimately could mean higher maintenance charges for residents.

When Can a Society Claim This Deduction?

A housing society can claim deduction if:

It is registered as a co-operative society
The income is interest or dividend
The investment is with another co-operative society (including co-operative banks)

When Deduction May Not Apply

The benefit may not be available if:

Interest is earned from a regular commercial bank
The society is not legally registered
The income is not from qualifying investments

Practical Benefit for Residents

For most societies, rulings like this mean:

• Lower tax liability
• More funds available for repairs and upgrades
• Less pressure to raise maintenance charges

In simple terms:
Tax savings for the society = financial relief for residents.

Final Takeaway

The tribunal’s decision confirms a crucial principle:

Housing societies can claim tax deduction on interest earned from co-operative banks because such banks are legally considered co-operative societies.

This clarity allows societies to plan investments confidently without fear of unexpected tax demands.

Also Read: Full Payment to Builder Is NOT a Pre-Condition for Society Membership

The post Can a Housing Society Claim Tax Deduction on Interest from Co-operative Banks? appeared first on Square Feat India.