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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY
O R D E R
Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Assessee against the order dated 14.03.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2020-21.
These cases are having involved identical issues, therefore for the sake of brevity the same are heard together and being disposed of by this composite order by considering the fact involved in pertain to A.Y. 2018-19, as a lead case and result
Coming to the instant case i.e. it is observed that the assessee during the A.Y. under consideration has earned interest income of Rs.5,26,038/- from co-operative banks and other financial institutions detailed below:
S.NO NAME & ADDRESS OF BANK/BRANCH ACCOUNT NO. 1 Mumbai District Central Co-Op Bank Ltd, Shop No. 15 Ambika CA-0041 11 06000063 Towers, Rajmata Jijabai Road, Andheri (East), Mumbai 93. 2 Mumbai District Central Co-Op Bank Ltd, Shop No. 15 Ambika OD-0041 1806000004 Towers, Rajmata Jijabai Road, Andheri (East), Mumbai 93 3 Federal Bank Ltd Andheri East Branch CA-1 8290200001 375 4 Axis Bank Ltd Andheri East Branch Ambika Tower CHS Ltd Shop CA-91 4020008766364 No. 5,6,7,8 Jijabai Road, Andheri (East), Mumbai 93
And claimed the same as exempt u/s 80P2(a)(i) of the Act, by filling return of income declaring total income at Rs.”Nil”, which was considered by the AO, who ultimately disallowed the said interest income treating as income from other sources u/s 56 of the Act, vide assessment order dated 17.03.2023 u/s 147 r.w.s. 144B of the Act.
Thus, the Assessee, being aggrieved, challenged the said addition made on account of disallowance of interest income earned from fixed deposits/bank accounts, maintained with the following banks:
SI. Name of the Bank Amount of Deposit No. (Rs.) 1 Mumbai District Central co-op bank 25,10,134 ltd. 2 Federal Bank ltd. 34,07,328 3 Axis Bank ltd. 11,18,107 5. The Ld. Commissioner ultimately held that such interest income earned by investment made with co-operative societies is available for deduction only but not with co-operative/scheduled M/s. Sukhsagar Co-operative Credit Society Ltd banks, as per judgment of the Hon’ble Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd. vs. ITO (Karn.). The Ld. Commissioner therefore on the aforesaid reason, dismissed the appeal of the assessee.
Having heard the parties and giving thoughtful considerations to the peculiar facts and circumstances of the case, this Court observed that the issue qua deduction claimed u/s 80P2(d) of the Act on account of interest income earned from co-operative banks has been tested by various Courts including by the Tribunal in Pathare Prabhu Co-operative Housing Society Ltd. vs. ITO (ITA No.1346 & 1347/M/2023 decided on 27.07.2023) (2023) 153 taxmann.com 714 (Mum. – Trib.), wherein the Hon’ble Bench by considering the relevant provisions of the law and judgments concerning the issue, ultimately allowed the identical deduction claimed u/s 80P(2)(d) of the Act, by observing and holding as under:
“8. 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.
9. 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) ......
M/s. Sukhsagar Co-operative Credit Society Ltd (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 cooperative society from its investments with any other co-operative society, the whole of such income;”
10. 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: “(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; 11. 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 Cooperative 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 Cooperative Bank Ltd. vs CIT, Calicut, [2021] 431 ITR 1 (SC) while analyzing 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 Cooperative 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 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 M/s. Sukhsagar Co-operative Credit Society Ltd 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 Coop 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 cooperative 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 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 jeopardize the claim of deduction of a cooperative 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 cooperative society from its investments made with any other cooperative 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 M/s. Sukhsagar Co-operative Credit Society Ltd 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 Cooperative 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 Cooperative 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.”
13. 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 Cooperative 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 deductible 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 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".
14. 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 Cooperative 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.”
As the assessee has admittedly earned part of the interest income as claimed from Mumbai District Central Co-operative Bank Ltd. on the deposited amount of Rs.25,10,134/- and therefore the assessee as per aforesaid judgment is entitled to get the relief on account of interest income earned from Mumbai District Central Co- operative Bank, however subject to verification by AO. Thus, the AO is directed accordingly.
Coming to the interest income earned from other nationalized bank such as Federal Bank Ltd. and Axis Bank Ltd. on the amount of deposits of Rs.34,07,328/- and Rs.11,18,107/- respectively made. The Ld. Counsel for the assessee alternatively claimed that if the aforesaid income be excluded for the purpose of deduction u/s 80P2(d)(a)(i) of the Act then the AO be directed to exclude the same net of the proportionate expenditure attributable to the same. As the alternate ground emanates from the documents already available on record and does not requires any independent adjudication of the case and therefore the same may be allowed to be raised.
This court found force in the alternative claim of the Assessee and therefore the alternative claim is allowed to be raised.
The Assessee has submitted the chart containing the details of the loans advanced to members and interest earned and deposits taken from members and salary paid to staff, operating expenses and miscellaneous expenses and depreciation and the expenditure attributable to interest on FD with banks. For brevity and ready reference, the chart submitted by the assessee is reproduced herein below:
Particulars Amount (Rs.) Interest on loan advanced to Members 1,41,50,379 Other Income 26,11,360 Total Income (Except interest on FD) (A) 1,67,61,739 Interest on FD with Banks (B) 6,27,561 Total Credits to P&L A/c (A+B) = (C) 1,73,89,300 Percentage of (B) to (C) = (D) 3.61%
Interest on deposits taken from Members 66,69,585 Interest to Bank 3,30,407 Salary to Staff 10,28,915 Operating Expenses 78,66,431 Miscellaneous Expenses & Depreciation 9,38,962 Total Expenditure (E) 1,68,34,300 Expenditure attributable to interest on FD with Banks 6,07,532 (D)X(E) = (F) Net Income after deduction towards Expenses (B) - (F) 20,029
Thus, considering the peculiar facts and circumstances of the case this Court deem it appropriate to direct the AO to verify the M/s. Sukhsagar Co-operative Credit Society Ltd aforesaid figures, as depicted in the chart from the financials of the assessee and relevant documents and grant the relief claimed by the Assessee by excluding the same net of the proportional expenditure attributable for the interest income earned on fixed deposit kept with other/nationalized bank. Thus, the AO is directed accordingly.
Thus, the appeal of the assessee is allowed in the aforesaid terms. it is observed that the assessee in this case has earned the total income of Rs.6,27,561/- being interest income received from bank deposit and fixed deposit respectively to the tune of Rs.3,30,814/- & Rs.2,96,747/- from Mumbai District Central Co-operative Bank, South India Bank Ltd. and the Federal Bank Ltd.
As in the aforesaid appeal No.4336/M/2025 this Court has allowed the deduction claimed on account of interest income earned from Mumbai District Central Co-operative Bank and therefore following the said decision, the interest income earned in this case from District Co-operative Bank is also allowed in the same terms subject to verification by the AO.
Coming to the remaining part of the interest income earned from South Indian Bank and the Federal Bank Ltd., as claimed u/s 80P(2) (a)(i) of the Act, this Court deem it appropriate to direct the Assessee to file the similar chart, as filed in before the AO, who shall verify the figures in the chart and accordingly exclude the same net of the proportional expenditure attributable to the earning of interest income.
Thus, both the appeals filed by the assessee are allowed in the same terms.
Order pronounced in the open court on 21.11.2025.