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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI G.S. PANNU, & SHRI SANDEEP SINGH KARHAIL
The present appeals have been filed by the assessee challenging the impugned order dated 10/01/2023, for the assessment year 2018–19 and order dated 18/01/2023, for the assessment year 2017–18, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [―learned CIT(A)‖].
We find that the assessee‟s appeal for the assessment year 2017-18 is time-barred by 32 days, while the appeal for the assessment year 2018-19 is Pathare Prabhu Co–operative Housing Society ITA no.1346/Mum./2023 ITA no.1347/Mum./2023 time-barred by 40 days. The assessee has filed separate affidavits signed by the Secretary of the assessee society seeking condonation of delay in both appeals. In the affidavits, it is submitted that since the assessee is not involved in any business activity, therefore, it has not employed any full-time accountant and staff who would have knowledge of timelines under the Act. It is further submitted that the claim of deduction under section 80P(2)(d) of the Act in dispute in the present appeal has been allowed in other years and the assessee was under a bona fide belief that the impugned orders are rectifiable and therefore there is no need to file the appeal. It is only upon meeting with the auditors to discuss accounts closing and the status of tax litigation, it was clarified to the assessee that it has to file the appeal against the impugned orders. It is further submitted that the delay in filing the present appeal is not deliberate and is only due to a misunderstanding of the law. On the other hand, the learned Departmental Representative (“learned DR‖) did not raise any serious objection against the prayer for condonation of delay in filing the present appeals.
We find that the reasons stated by the assessee for seeking condonation of delay fall within the parameters for grant of condonation laid down by the Hon‟ble Supreme Court in the case of Collector Land Acquisition, Anantnag Vs. MST Katiji and others: 1987 SCR (2) 387. It is well established that rules of procedure are handmaid of justice. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. In the present case, the assessee did not stand to benefit from the late filing of the appeals. In view of the above and having Page | 2
Pathare Prabhu Co–operative Housing Society ITA no.1346/Mum./2023 ITA no.1347/Mum./2023 perused the affidavits, we are of the considered view that there exists sufficient cause for not filing the present appeals within the limitation period and therefore, we condone the delay in filing the appeals by the assessee and we proceed to decide the same on merits.
Since both appeals pertain to the same assessee involving similar issues arising out of a similar factual matrix, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. With the consent of the parties, the assessee‟s appeal for the assessment year 2018-19 is taken up as a lead case. In both appeals, the assessee has raised similar grounds. For reference, the grounds raised by the assessee in the appeal for the assessment year 2018-19 are reproduced as under:-
―1. The learned CIT(A) erred in contending that the income received by the appellant is from co-operative banks and not co-operative societies, without appreciating the fact that the co-operative banks are in the first instance co- operative societies.
2. The learned CIT(A) erred in relying on the Supreme Court's decision in Totgar's Co-operative Sales Society Ltd. which judgment is delivered in the context of sec. 80P(2)(a)(i) and wherein it was held that interest on surplus funds deposited with banks bears the character of income from other sources and not business income, whereas the appellant has claimed deduction under sec. 80P(2)(d) which does not confine the deduction to business income only.
3. The learned CIT(A) failed to appreciate that the mandate of sec. 80P(4) is to deny the benefit of sec. 80P to co-operative banks and not to other co- operative societies investing their funds in co-operative banks.
4. The learned CIT(A) erred in applying the principle of mutuality to the interest income without appreciating that the appellant never claimed that interest is exempt on the principle of mutuality. This interest was offered as income, however, in view of Sec 80P(2)(d) the deduction was claimed. Hence, the application of principle of mutuality is completely erroneous with respect to interest income.
Pathare Prabhu Co–operative Housing Society ITA no.1346/Mum./2023 ITA no.1347/Mum./2023
5. The appellant craves leave to add, alter or amend any of the grounds of the appeal, at any time before or at the time of hearing.‖
The brief facts of the case as emanating from the record are: The assessee is a registered Co-operative Housing Society. For the assessment year 2018-19, the assessee filed its return of income on 27/07/2018, declaring a total income of Rs.NIL. During the year, the assessee earned interest income of Rs. 50,39,861, from the investments made in various Co-operative Banks and claimed the same as a deduction under section 80P(2)(d) of the Act. During the assessment proceedings, the assessee submitted that it is entitled to a 100% deduction in respect of interest earned/received from the Co- operative Banks under the provisions of section 80P(2)(d) of the Act.
The Assessing Officer (“AO”) vide order dated 12/02/2021, passed under section 143(3) read with sections 143(3A) & 143(3B) of the Act did not agree with the submissions of the assessee and held that the deduction under section 80P(2)(d) of the Act cannot be extended to the interest earned from the investment in any Co-operative Bank as sub-section (4) to section 80P excludes Co-operative Banks from the applicability of section 80P of the Act. Therefore, it was held that even the interest earned by the assessee from the deposits with the Co–operative Bank would not be exempted or deductible under section 80P(2)(d) of the Act. The AO further held that Co-operative Bank is a commercial bank and does not fall under the purview of a “Co- operative Society” referred to in section 80P(2)(d) of the Act. Accordingly, the AO disallowed interest income of Rs. 50,39,861, claimed under section 80P(2)(d) of the Act, and added the same to the total income of the assessee.
Pathare Prabhu Co–operative Housing Society ITA no.1346/Mum./2023 ITA no.1347/Mum./2023
The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. The only dispute raised by the assessee is against the disallowance of deduction under section 80P(2)(d) of the Act in respect of interest income received from the Co-operative Banks. The assessee is a registered Co-operative Housing Society and during the assessment year 2018-19 earned interest income of Rs. 50,39,861 from the investments made in various Co-operative Banks.
Before proceeding further, it is relevant to note the provisions of section 80P of the Act under which the assessee has claimed the deduction in the present case. As per the provisions of section 80P(1) of the Act, the income referred to in sub-section (2) to section 80P shall be allowed as a deduction to an assessee being a Co-operative Society. Further, section 80P(2)(d) of the Act, reads as under:
“80P. Deduction in respect of income of co-operative societies. (1) ...... (2) The sums referred to in sub-section (1) shall be the following, namely:– (a) ..... (b) ..... (c) ..... (d) in respect of any income by way of interest or dividends derived by the co- operative society from its investments with any other co-operative society, the whole of such income;‖
Thus, for the purpose of provisions of section 80P(2)(d) of the Act, two conditions are required to be cumulatively satisfied- (i) income by way of interest or dividend is earned by the Co-operative Society from the Page | 5
Pathare Prabhu Co–operative Housing Society ITA no.1346/Mum./2023 ITA no.1347/Mum./2023 investments, and (ii) such investments should be with any other Co-operative Society. Further, the term „co-operative society‟ is defined under section 2(19) of the Act as under:
“(19) "co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ;‖
In the present case, there is no dispute that the assessee is a Co- Operative Housing Society. Thus, if any income as referred to in sub-section (2) to section 80P of the Act is included in the gross total income of the assessee, the same shall be allowed as a deduction. It is pertinent to note that since the assessee is registered under the Maharashtra Co-operative Societies Act, 1960, it is required to invest or deposit its funds in one of the modes provided in section 70 of the aforesaid Act, which includes investment or deposit of funds in the District Central Co-operative Bank or the State Co- operative Bank. Accordingly, the assessee kept the deposits in Co-operative Banks registered under the Maharashtra Co-operative Societies Act and earned interest, which was claimed as a deduction under section 80P(2)(d) of the Act. The AO denied the deduction under section 80P(2)(d) of the Act on the basis that the Co-operative Bank is covered under the provisions of section 80P(4) of the Act. We find that the Hon‟ble Supreme Court in Mavilayi Service Co- operative Bank Ltd. vs CIT, Calicut, [2021] 431 ITR 1 (SC) while analysing the provisions of section 80P(4) of the Act held that section 80P(4) is a proviso to the main provision contained in section 80P(1) and (2) and excludes only Co- operative Banks, which are Co-operative Societies and also possesses a licence from RBI to do banking business. The Hon‟ble Supreme Court further held that Page | 6
Pathare Prabhu Co–operative Housing Society ITA no.1346/Mum./2023 ITA no.1347/Mum./2023 the limited object of section 80P(4) is to exclude Co-operative Banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, we are of the considered view that section 80P(4) of the Act is of relevance only in a case where the assessee, who is a Co-operative Bank, claims a deduction under section 80P of the Act which is not the facts of the present case. Therefore, we find no merits in the aforesaid reasoning adopted by the AO and upheld by the learned CIT(A) in denying deduction under section 80P(2)(d) of the Act to the assessee.
As regards the claim of deduction under section 80P(2)(d) of the Act, it is also pertinent to note that all Co-operative Banks are Co-operative Societies but vice versa is not true. We find that the coordinate benches of the Tribunal have consistently taken a view in favour of the assessee and held that even the interest earned from the Co-operative Banks is allowable as a deduction under section 80P(2)(d) of the Act. In Kaliandas Udyog Bhavan Premises Co- op Society Ltd vs ITO, in Mum./2017, vide order dated 25/04/2018, while dealing with the provisions of section 80P(2)(d) vis-à-vis section 80P(4) of the Act, the coordinate bench of the Tribunal observed as under:
―7. ……Thus, from a perusal of the aforesaid Sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee co- operative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other cooperative society. We though are in agreement with the observations of the lower authorities that with the insertion of Sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a Page | 7
Pathare Prabhu Co–operative Housing Society ITA no.1346/Mum./2023 ITA no.1347/Mum./2023 primary agricultural credit society or a primary co-operative agricultural and rural development bank, but however, are unable to subscribe to their view that the same shall also jeopardise the claim of deduction of a co- operative society under Sec. 80P(2)(d) in respect of the interest income on their investments parked with a co-operative bank. We have given a thoughtful consideration to the issue before us and are of the considered view that as long as it is proved that the interest income is being derived by a co- operative society from its investments made with any other co- operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We may herein observe that the term 'co-operative society' had been defined under Sec. 2(19) of the Act, as under:— '(19) "Co-operative society" means a cooperative society registered under the Co- operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies;' We are of the considered view, that though the co-operative bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but however, as a co-operative bank continues to be a co-operative society registered under the Co- operative Societies Act, 1912 (2 of 1912), or under any other law for the time being enforced in any state for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank, would be entitled for claim of deduction under Sec.80P(2)(d) of the Act.‖
We find that the learned CIT(A) has placed reliance upon the decision of the Hon‟ble Karnataka High Court in Pr.CIT v/s Totagars Co-operative Sales Society, [2017] 395 ITR 611 (Karn.), wherein it was held that interest earned by the assessee, a Co-operative Society, from surplus deposits kept with a Co- operative Bank, was not eligible for deduction under section 80P(2)(d) of the Act. We find that in an earlier decision the Hon‟ble Karnataka High Court in Pr.CIT v/s Totagars Co-operative Sales Society, [2017] 392 ITR 74 (Karn.) held that according to section 80P(2)(d) of the Act, the amount of interest earned from a Co-operative Society Bank would be deductable from the gross income of the Co-operative Society in order to assess its total income. Thus, there are divergent views of the same Hon‟ble High Court on the issue of eligibility of deduction under section 80P(2)(d) of the Act in respect of interest Page | 8
Pathare Prabhu Co–operative Housing Society ITA no.1346/Mum./2023 ITA no.1347/Mum./2023 earned from Co-operative Bank. No decision of the Hon‟ble jurisdictional High Court was brought to our notice on this aspect. We have to, with our highest respect to both the views of the Hon'ble High Court, adopt an objective criterion for deciding as to which decision of the Hon'ble High Court should be followed by us. We find guidance from the judgment of the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd., [1972] 88 ITR 192. In the aforesaid decision, the Hon'ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted".
Therefore, in view of the above, we uphold the plea of the assessee and direct the AO to grant the deduction under section 80P(2)(d) of the Act to the assessee in respect of interest income earned from investment with Co- operative Banks. Accordingly, we set aside the impugned order passed by the learned CIT(A) for the assessment year 2018-19. As a result, grounds raised by the assessee are allowed.
Since similar issues have been raised in the appeal for the assessment year 2017-18, therefore, our aforesaid findings/conclusion shall apply mutatis mutandis. Accordingly, in the assessment year 2017-18 also the AO is directed to grant deduction under section 80P(2)(d) of the Act to the assessee in respect of interest income earned from investment with Co-operative Banks. Accordingly, we set aside the impugned order passed by the learned CIT(A) for the assessment year 2017-18. As a result, grounds raised by the assessee are allowed.
Pathare Prabhu Co–operative Housing Society ITA no.1346/Mum./2023 ITA no.1347/Mum./2023
In the result, appeals filed by the assessee for the assessment years 2017-18 and 2018-19 are allowed. Order pronounced in the open Court on 27/07/2023