THANE ZILLA VIDYASEVAK SAHAKARI PATPEDHI LTD,MUMBAI vs. ITO, WARD 3(4), MUMBAI

The learned CIT (Appeals) National Faceless Appeal Centre has erred in disallowing the deduction u/s 80P(2)(a)(i) for the Interest income of Rs.94,12,725/- received from Co-operative Societies.

The appellant craves leave to add, alter, amend, and modify the aforesaid grounds of appeal at or any time before the hearing as may be advised from time to time.”

Brief facts of the case are that the assessee is a co-operative society registered under the Maharashtra Co-operative Societies Act 1960. It filed its return declaring Nil income on 30.10.2018 for A.Y. 2018-19. The case was selected for limited scrutiny. Ld. AO observed that the assessee had earned interest income of Rs. 1,06,40,175/- on its deposits. Out of this, Rs. 94,12,725/- was received from investments deposits in co-operative bank. Ld. AO, however, held that the interest on investments/deposits, made with the co-operative bank is not eligible for deduction u/s. 80P(2)(d) of the Act and accordingly added this amount to the income of the assessee. The assessment was finalized at an income of Rs. 94,12,725/- vide order u/s. 143(3) r.w.s 144 dated 20.04.2021. Aggrieved with the order of Ld. AO, the assessee preferred an appeal before the CIT(A). Ld. CIT(A) also agreed with the view taken by the Ld. AO and held that the interest received by the assessee on deposits with the Thane District Central Co-Operative Bank amounting to Rs. 94,12,725/- was not eligible for deduction u/s. 80P(2)(d) of the Act. Aggrieved with the order of Ld. CIT(A), the assessee has now filed an appeal before the Tribunal.

Before us, Ld. AR submitted that the issue regarding deduction u/s. 80P(2)(d) in respect of interest income on deposits with the co-operative banks has been held to be allowable deduction u/s. 80P(2)(d) of the Act by various

On the other hand, ld. DR has strongly relied on the orders of the lower authorities and has argued that the co-operative banks has not covered under the definition co-operative society for the purpose of deduction u/s. 80P(2)(d) of the Act and argued for upholding the order of Ld. CIT(A) in the light of several other decisions in favour of the revenue on this issue.

We have heard the rival submissions and perused the material available on record. We find that this issue has been covered in favour of the assessee in similar cases by numerous decisions of the co-ordinate benches. In this regard the co-ordinate bench in the case of Pathare Prabhu Co-operative Housing Society Vs. ITO, reported in (2023) 202 ITD 464 (Mum-Trib.) has decided the issue after examining the same in detail and this order has been followed in some of the decisions relied upon the assessee as well. The coordinate bench has examined the issue at length the case of Pathare Prabhu Co-operative Housing Society Vs. ITO (supra) and held as under: “"5. We have heard both the parties and perused the material available on record. Admittedly, assessee had claimed deduction u/s.80P(2)(a)(i), which included interest and dividend income earned by it from investments made with cooperative banks. Ld. Assessing Officer disallowed deduction claimed towards interest and dividend income from these investments by holding that these are income from other sources

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:

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 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 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 Cooperative Bank is covered under the provisions of section SOP(4) of the Act. We find that the Hon'ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT (2021) 123 taxmann.com 161/279 Taxman 75/431 ITR 1 while analysing the provisions of section 80P(4) of the Act held that section 80P(4) is a proviso to the main provision contained

As regards the claim of deduction under section SOP(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 Kalandas Udyag Bhavan Premises Co-operative Society Ltd. vs. ITO (2018) 94 taxmann.com 15 (Mum.)/[ITA No. 6547/ Mum./2017, dated 25-4-2018), while dealing with the provisions of section 80P(2)(d) vis-d-vis section 80P(4) of the Act, the coordinate bench of the Tribunal observed as under:

...... 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 1-4-2007, the provisions of sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural society or a primary co-operative agricultural and development bank, but however, are unable to subscribe to their view that the same shall also jeopardise 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 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 other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. 80P(2)(d) would be available. We may herein observe that the term 'co-operative society had been defined under sec. 2(19) of the Act, as under:-

We find that the learned CIT(A) has placed reliance upon the decision of the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sales Society (2017) 83 taxmann.com 140/395 ITR 611, 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. Totagars Co- operative Sale Society (2017) 78taxmann.com 169/392 ITR 74 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 earned from Co-operative Bank. No decision of the Hon'ble juri ictional 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. (1973) 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 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."

Therefore, in the given set of facts, respectfully following the decision of Coordinate Bench of ITAT cited supra, we allow the claim of assessee for deduction u/s. 80P(2)(d) for Rs.25,90,948/-in respect of interest and dividend income earned by it from Cooperative Banks. Accordingly, grounds raised by the assessee are allowed."”

In line with of the aforesaid decision decision of the coordinate bench, we hold that the assessee is entitled to deduction u/s. 80P(2)(d) in respect of interest amounting to Rs. 94,12,725/- received on deposit with the Thane District Central Co-Operative Bank.

In the result, the appeal of the assessee is allowed.