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Facts
The assessee, a cooperative housing society, claimed a deduction under Section 80P(2)(d) for interest income earned from deposits with cooperative banks. The Assessing Officer disallowed this deduction, and the CIT(A) confirmed the disallowance. The assessee appealed the order.
Held
The Tribunal held that cooperative banks are considered cooperative societies under Section 2(19) of the Income Tax Act, and interest income earned by a cooperative society from deposits with cooperative banks is eligible for deduction under Section 80P(2)(d). The Tribunal set aside the order of the CIT(A) and directed the AO to allow the deduction.
Key Issues
Whether interest income earned by a cooperative society from deposits with cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
Sections Cited
80P(2)(d), 250, 143(2), 142(1), 270A, 263, 143(3), 139(1), 80P(4), 80P
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order dated 21.11.2024of Learned Commissioner of Income Tax (Appeals), Addl./JCIT (A), Panji[hereinafter referred to as the “CIT(A)”],passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for the Page | 1 A.Y. 2017-18 wherein the appeal of the assessee against disallowance of interest amount earned by the assessee for depositing in cooperative bank has been dismissed and addition of Rs. 15,16,378/- made by AO on account of disallowance of deduction u/s 80P(2)(d) of the Act was confirmed.
The brief facts of the case are that, the assessee is a registered Cooperative Housing Society. The assessee filed the return of income on 27.03.2018 for AY 2017-18 declaring total income at Rs. 4,76,600/- after claiming deduction u/s 80)(2)(d) of the entire interest totaling Rs. 15,16,378/- received on their fixed deposits and saving bank from the MSC Bank, ShamroVithal Cooperative Bank, Citizen Credit Bank and Saraswat Bank. The case was selected for scrutiny under CASS by issuing notice u/s 143(2) dated 09.08.2018 and another notice u/s 142(1) was issued on 26.08.2019 asking the details. In response, the assessee filed the submission through his CA. After considering the submission of the assessee, the AO was not satisfied and has disallowed the deduction claimed u/s 80P(2)(d) of the Act to the extent of Rs. 15,16,378 and added to the total income of the assessee.
3. Aggrieved by the order of AO, assessee preferred the appeal before the Ld. CIT(A) who dismissed the appeal of the assessee and confirmed the order of AO.
4. Aggrieved with the order of Ld. CIT(A) assessee preferred the present appeal before us by raising the following grounds as under:
The learned CIT(A) has erred in confirming the disallowance of deduction under Section 80P(2)(d) of the Income-tax Act, 1961, amounting to 15,16,378, without duly appreciating that the interest income was received from Co- operative Banks, which are inherently Co-operative Societies.
2. The CIT(A) failed to consider binding judicial precedents such as:
Greater Bombay Co-operative Bank Ltd. v. United Yarn Tex Pvt. Ltd. &Ors. [(2007) 6 SCC 236] - holding that Co-operative Banks are primarily Co- operative Societies.
Mavilayi Service Co-op. Bank Ltd. v. CIT [(2021) 431 ITR 1 (SC)] - reaffirming eligibility for deduction under Section 80P, barring cases under Section 80P(4).
Tumkur Merchants Souharda Credit Co-op. Ltd. v. ITO [(2015) 230 Taxman 309 (Karn)].
CIT v. Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd. [(2017) 395 ITR 185 (Raj)].
CIT v. Karnataka State Co-operative Apex Bank Ltd. ((2004) 267 ITR 34 (SC)] -stating that interest from other co-operative societies is deductible. Page | 3
The reliance on Totgars Co-op Sale Society Ltd. v. ITO [(2010) 322 ITR 283 (SC)] by the CIT(A) is misplaced, as clarified in PCIT v. Totgars Co-operative Sale Society [(2017) 395 ITR 611 (Karnataka HC)] applicable to societies engaged in marketing agricultural produce, not credit societies.
The appellant prays that the deduction under Section 80P(2)(d) be allowed and the demand raised by the Assessing Officer be deleted.
5. It is brought to our notice that the present appeal has been filed with a delay of 164 days. An application is moved seeking condonation of delay on the ground that the delay occurred because the intimation of Ld. CIT(A) order was received on the registered email ID of the society, but the accountant handling the matter failed to bring the same to the attention of society’s management. The society became aware of the order only when it subsequently load into the income tax portal for other compliance purposes. It was submitted by the ld. AR that sufficient cause for condonation of delay has been shown and the appeal be admitted for hearing. The Ld. DR has opposed the condonation of delay stating that the explanation is not satisfactory.
6. After considering the contents of the application seeking condonation of delay as noted above, we are of the considered view that the end of justice requires that the delay is no inordinate and the same needs to be condoned. We order accordingly. The appeal is admitted for hearing on merit.
We have heard Ld. AR and Ld. DR. At the outset, Ld. AR submitted that the entire income was earned from the deposit of the member’s amount with the assessee in the cooperative banks which are primary registered as cooperative societies. It is further argued that the said interest income is eligible to claim the deduction u/s 80P(2)(d) of the Act and the order of AO has been illegally confirmed by the Ld. CIT (A) in the impugned order notwithstanding that various judgments of the Jurisdictional Mumbai Tribunal has already decided in favour of the assessee. He further argued that various benches of ITAT throughout India has already taken view that the interest income earned by the Cooperative Society from Cooperative Banks is eligible to be exempted u/s 80P(2)(d) of the Act. He further relied on the following judgments in support of his arguments, which are as under:-
& 1049/Mum/2024 for AY 2015-16 & 2018-19 dated 23.08.2024 in the case of The St. Sebastian Homes Cooperative Society Ltd. Vs. ITO (Mumbai Tribunal) for AY 2018-19 dated 14.07.2023 in the case of ITO vs. Casa Grande Cooperative Housing Society (Mumbai Tribunal) Page | 5 & 1079/Mum/2024 for AY 2016-17 & 2017-18 in the case of Su Prabhat Cooperative Housing society Ltd. Vs. ITO (Mumbai Tribunal).
On the other hand, Ld. DR supported the order of lower authorities stating that the disallowance has been rightly made because the interest income was not earned from deposits with cooperative societies.
9. We have considered the rival submissions made by the parties and perused the material placed on record. We find that the Ld. AO has dismissed the submission of the assessee and disallowed the deduction of the interest amount by observing as under:-
5.2.8 To summarise, the interest income earned by the co-operative societies on the interest Income earned on the deposits placed with the Co-operative banks is not eligible for the deduction u/s. 80P (2)(d) in view of the following facts:
(1) S. 80P(2)(d) does not contain the word "Bank", Its scope is limited to only the "Co-operative societies". Further, the exemption and the deduction clauses of the Act cannot be interpret liberally.
(ii The clear definition of the Co-operative societies u/s. 2(19) of the Income Tax Act 1961 does not include the word "Bank". Only exception is provided in respect of a regional rural bank to which provisions of the Regional Rural Bank Act, 1976 apply. The urban Co-operative Banks such as ShamraoVitthal Co-operative bank are neither "Co-operative society" nor a "Regional Rural Bank"
(iii) The legislative intent is to distinguish the Co-operative banks from the Co- operative societies for the purpose of benefits u/s.80P of the Act.
(iv) The urban Co-operative Banks such as ShamraoVitthal Co-operative bank does not operate on the principle of mutuality with respect to the assessee.
5. 2.9 Also, an investment of any funds or idle funds in bank, which is not the specified activity of the society, is not qualified for deduction u/s. 80P.
5.2.10 In view of the above, it is clear that a co-operative bank is a commercial bank and does not fall under the purview of a "Co-operative Society" referred in section 80P(2)(d) of the Income tax Act, 1961 and thus deduction claimed u/s. 80P(2)(d) of the Act, of Rs.15,16,378/- is not an allowable deduction. AccordinglyRs. 15,16,378/- is added to total income of assessee denying the deduction claimed. Penalty proceedings are initiated under Section 270A of the Income tax Act, 1961, for concealment of particulars of such income.
10. On appeal, the Ld. CIT(A) has confirmed the order of AO by simply referring the judgment of Hon’ble Supreme Court case ofTotgars Co- operative Sale Society vs. ITO (2010) 322 ITR 283 (SC). The issue involved in the present case is covered by the decision of Coordinate Bench of ITAT in the case of Ramas Tower Co-Operative Housing Society vs. ITO (ITA No. 4770/Mum/2024) dated 06.11.2024 wherein the Coordinate Bench has held as under:-
We heard the parties and perused the record. We notice that the CPC appears to have rejected the claim for deduction u/s 80P(2)(d) of the Act for the reason that the return of income was not filed within the time allowed u/s 139(1) of the Act. We also noticed that the Ld CCIT has condoned the delay in filing return of income and hence the claim of the assessee should be allowed.
However, the Ld CIT(A) has taken a different stand and rejected the claim for deduction u/s 80P(2)(d) of the Act by applying the provisions of sec.80P(4) of the Act.
The question as to whether a co-operative society is entitled for deduction u/s 80P(2)(d) of the Act in respect of interest earned on deposits kept with co- operative bank is no more res integra. We notice that an identical issue has been decided by the Hon’ble Madras High Court in the case of Thorapadi Urban Co-op Credit Society Ltd (2023) (156 taxmann.com 419)(Mad) in favour of the assessee. The relevant observations made by Hon’ble Madras High Court are extracted below:
“8. The main issue is to decide in the present case is as to whether the petitioner Co-operative Society is entitled for a deduction for the interest income received from the Co-operative Bank? 9. It would be appropriate to extract hereunder the relevant portion of Section80P(2)(d). “80 P. Deduction in respect of income of cooperative societies:
(1) ……… ………. ………
(2) The sums referred to in sub-section (1) shall be the following, namely :— (a) to (c) ……. ……. ……
(d) “in respect of any income by way of interest or dividends derived by the co-operative society from its investment with any other co-operative society, the whole of such income”
9.1 A reading of the above said provision makes it clear that in the event if any Co-operative Society derived income by way of interest from investment made in any other Co-operative Society the whole such interest is eligible for deduction. Now the issue is as to whether the Cooperative Bank would fall within the purview of the term „Co- operative Society‟. In the present case, the petitioner produced a document to show that the Co-operative Bank, where they have made investments was registered under the Tamil Nadu Co-operative Societies Act, 1983 on 20.5.2003. In this regard, he also produced a copy of the Certificate of Incorporation of the said Co-operative Bank. Therefore, it is clear that the investment made by the petitioner is a Co-operative Bank registered under the Co-operative Societies Act. The Income Tax Act, 1961 has also defined „Co-operative Society‟ under Section 2(19) as follows:
“2(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.”
10. A reading of the above definition would make it clear that „Co- operative Society‟ means a Co-operative Society registered under Co- operativeSocieties Act,1912. Thus, a Co-operative Society referred therein is only a co-operative society as defined under the Act, be it a Co- operative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Co-operative bank.”
7. Following the above said decision of the Hon’ble Madras High Court, this Bench of Tribunal has held in the case of Back bay Premises Co-op. Society Ltd (ITA Nos. 4144 & 4146/Mum/2023 dated 14.06.2024) that the interest income earned by a co-operative society from co-operative banks are eligible for deduction u/s 80P(2)(d) of the Act.
8. In view of the above discussions, we are of the view that the Ld CIT(A) was not justified in denying deduction u/s 80P(2)(d) of the Act in respect of interest income earned by the assessee from deposits kept cooperative banks. The delay in filing return of income has already been condoned by Ld CCIT. Hence, the assessee is entitled for deduction u/s 80P(2)(d) of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction u/s 80P(2)(d) to the assessee on the interest income earned from deposits kept with co-operative banks.
In the result, the appeal filed by the assessee is allowed
Further the issue whether the interest earned by a cooperative society from the investment in a cooperative bank would be entitled to the exemption u/s. 80P(2)(d) or not, has arisen before the Coordinate Bench recently in the case of ITAT Pune Bench “SMC”, titled Shree Parashar Vividh Kary Kari Sahakari Vikas Sanstha Maryadit Vs. Income Tax Officer Ward -1, Maharashtra, [2024] 206 ITD 663/161 taxmann.com 208 (Pune-Trib.), dated 20.03.2024. The Ld. Coordinate Bench has duly considered all the aspects of the issue and the relevant portion of the finding is reproduced as under:
“We find 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 cooperative banks pursuant to the insertion of subsection (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a cooperative 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 in force 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.
9. In so far the judicial pronouncements that have been relied upon by the ld. A.R are concerned, we find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a co-operative bank is covered in favour of the assessee in the following cases:
(i) M/s Solitaire CHS Ltd. v. Pr. CIT, dated 29.11.2019 (ITAT "G" Bench, Mumbai);
(ii) MajalgaonSahakariSakharKarkhana Ltd. v. ACIT, Circle- 3, Aurangabad, ITA No, 308/Pun/2018 (ITAT Pune)
(iii) Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. v. ITO , 21(2)(1), Mumbai
We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. v. Totagars Cooperative Sale Society [2017] 78 taxmann.com 169/392 ITR 74 (Karnataka) and Hon'ble High Court of Gujarat in the case of State Bank Of India v. CIT [2016] 72 taxmann.com 64/290 CTR 129/389 ITR 578/241 Taxman 163 (Gujarat), had held, that the interest income earned by the assessee on its investments with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006 also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the co-operative banks which were functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act.
Although, in all fairness, we may herein observe that the Hon'ble High Court of Karnataka in the case of Pr. CIT v. Totagars co-operative Sale Society [2017] 83 taxmann.com 140/297 CTR 158/395 ITR 611 (Karnataka), as had been relied upon by the ld. D.R before us, had held, that a co-operative society would not be entitled to claim deduction under Sec. 80P(2)(d); but then, the Hon'ble High Court in the case of Pr. Commissioner of Income Tax and Anr. v. Totagars Cooperative Sale Society [2017] 78 taxmann.com 169/392 ITR 74 (Karnataka) and Hon'ble High Court of Gujarat in the case of State Bank Of India v. CIT [2016] 72 taxmann.com 64/290 CTR 129/389 ITR 578/241 Taxman 163 (Gujarat), had observed, that the interest income earned by a co- operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2) (d) of the Act. Backed by the aforesaid conflicting judicial pronouncements, we may herein observe, that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. v. Siemens India Ltd. and Anr [1983] 36 CTR 197/[1985] 156 ITR 11/[1983] 15 Taxman 594 (Bombay), where there is a conflict between the decisions of non-jurisdictional High Court's, then a view which is in favour of the assessee is to be preferred as against that taken against him. Accordingly, taking support from the aforesaid judicial pronouncement of the Hon'ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. v. Totagars Cooperative Sale Society [2017] 78 taxmann.com 169/392 ITR 74 (Karnataka) and that of the Hon'ble High Court of Gujarat in the case of State Bank Of India v. CIT [2016] 72 taxmann.com 64/290 CTR 129/389 ITR 578/241 Taxman 163 (Gujarat), wherein it was observed that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.
Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and allowed the assessee's claim for deduction under Sec. 80P(2)(d) on the interest income earned on its investments/deposits with co-operative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 of the Act for dislodging the same. Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263 of the Act, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we set-aside his order and restore the order passed by the A.O under Sec. 143(3), dated 07.03.2016."
In our considered view, the finding of the Ld. Coordinate Bench is mutatis mutandis applicable to the facts and circumstances of the case in hand before us. With due respect to their Lordships, the facts and circumstances of the case of the Hon'ble Supreme Court in the case ofTotgars Co-operative Sale Society vs. ITO (2010) 322 ITR 283 (SC)relied by the Ld. CIT are distinguishable from the facts in issue before us and therefore the reliance by the Ld. CIT on the said judgment seems to be misplaced.
Thus in view of the above discussions and observations, we are of the considered opinion that the assessee is eligible for deduction u/s 80P(2)(d) of the Act in respect of interest income earned from Cooperative Banks, therefore the order of Ld. CIT(A) is hereby set aside and the grounds in appeal are allowed.The AO is directed to verify the registration of Page | 13 Cooperative banks concerned as cooperative society and thereafter delete the addition made on account of disallowance of the interest earned from the cooperative banks to the tune of Rs. 15,16,378/-.
In the result, appeal filed by the assessee is allowed for statistical purposesin above terms.
Order pronounced in the open court on 23.09.2025