MANICKPUR URBAN CO-OP CREDIT SOC.LTD.,,VASAI vs. ITO WARD-4(1),, THANE

In this appeal, the assessee has raised the following grounds: –

The Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in confirming action of Ld AO of disallowing the deduction claimed u/s 80P(2)(d) of Rs.4,52,17,289/-.

The brief facts of the case are: The assessee is a society registered under Maharashtra Co-operative Societies Act, 1960 carrying on the credit business. Its business involves accepting deposits from members and advancing credit facility to them. Any amount which could not be advanced to members, out of deposits and accumulated profit and reserves, has to be invested as per the guidelines issued by Maharashtra Co-operative Societies Act and rules framed thereunder. During the year under consideration, the assessee filed its return of income on 27/09/2018, declaring income at Rs.Nil, after claiming deduction under Chapter-VIA of the Act. The entire income of Rs.4,52,17,289, earned by the assessee from its investment with co-operative banks, was claimed as deduction under section 80P(2)(d) of the Act. Similarly, the interest earned from credit facility provided to its members was claimed under section 80P(2)(a) of the Act. The Assessing Officer vide order dated 03/02/2021, passed under section 143(3) r/w sections 143(3A) and 143(3B) of the Act did not agree with the submissions of the assessee and held that under section 80P(2)(d) of the Act only income by way of interest or dividend derived from the investment with any other co-operative society is allowable as deduction and the provision of the Act does not extend the deduction in respect of interest received from investments made with the co-operative

The learned CIT(A) vide impugned order dismissed the appeal filed by the assessee and held that deduction under section 80P(2)(d) of the Act is not allowable in respect of interest earned from deposits kept in a co-operative bank. 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 grievance of the assessee is against the denial of deduction under section 80P(2)(d) of the Act in respect of interest income received from various co-operative banks. 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 deduction to an assessee being a co-operative society. Further, section 80P(2)(d) of the Act, reads as under:

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 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:

In the present case, there is no dispute that assessee is co-operative society and thus if any income referred to in sub-section (2) to section 80P of the Act is included in gross total income of the assessee, the same shall be allowed as deduction. Since the assessee is registered under the Maharashtra Co-operative Societies Act, 1962, 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 and earned interest, which was claimed as deduction under section 80P(2)(d) of the Act. The Revenue denied the deduction under section 80P(2)(d) of the Act on the basis that the interest income earned from co- operative bank is not covered under the aforesaid provisions and the said provision only grants deduction in respect of interest earned from co-operative society. In this regard, it is 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 Page | 4

As regards the decision of the Hon‟ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs CIT, Calicut, [2021] 431 ITR 1 (SC), on which reliance has been placed by the learned CIT(A) as well as by the learned DR, we find that the said decision only clarifies the aspect that section 80P(4) is a proviso to the main provision and excludes only co-operative banks, which are co-operative societies and also possesses a licence from RBI to do banking business. After perusal of the aforesaid decision, we are of the considered view that the aforesaid decision 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. However, such is not the facts of the present case.

Therefore, in view of the above and respectfully following the decision of the coordinate bench, we uphold the plea of the assessee and direct the AO 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). As a result, ground No. 1 raised by the assessee is allowed.

In view of our aforesaid findings, ground No. 2, raised in assessee‟s appeal, is rendered academic and is accordingly dismissed as infructuous.

In the result, the appeal by the assessee is partly allowed. Order pronounced in the open Court on 27/02/2023