INCOME TAX OFFICER WARD 20 . 2 . 1 MUMBAI, MUMBAI vs. NEW SATARA ZILLA NAGRIK MULTISTATEMULTIPURPOSE COOPERATIVE SOCIETY LTD, MUMBAI

The Revenue is aggrieved by the action of the learned CIT(A) in allowing deduction under section 80P(2)(d) of the Act in respect of interest income earned by the assessee from investments/deposits made with co-operative banks. The case of the Revenue is that such interest income is not eligible for deduction under section 80P(2)(d), inter alia, on the reasoning that a co-operative bank stands on a different footing and, therefore, the deduction contemplated under the said provision ought not to be extended.

Briefly stated, the facts borne out from the record are that the assessee is a co-operative credit society engaged in providing credit facilities to its members. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had earned interest income from deposits placed with various co-operative banks and had claimed deduction under section 80P(2)(d) of the Act. According to the Assessing Officer, such interest income could not be said to be eligible for deduction and accordingly the same was brought to tax. The learned CIT(A), however, after examining the statutory framework as well as the judicial precedents on the issue,

At the outset, the learned counsel for the assessee submitted that the issue involved in the present appeal stands squarely covered in favour of the assessee by the order of the Co-ordinate Bench of the Tribunal passed in assessee’s own case for earlier assessment years, wherein identical controversy had arisen. It was submitted that the Tribunal, after detailed examination of the provisions of section 80P(2)(d) and section 80P(4), has categorically held that interest income earned by a co-operative society from deposits with co-operative banks is eligible for deduction under section 80P(2)(d). The learned counsel submitted that the facts for the year under consideration are identical and there is no distinguishing feature whatsoever brought on record by the Revenue. The relevant portion of the Tribunal’s order is reproduced hereunder:

Briefly stated, the assessee is a co-operative credit society engaged in providing credit facilities to its members. During the

The learned CIT(A) has denied deduction under section 80P(2)(a)(i) on the ground that such interest income is not directly arising from the activity of providing credit facilities to members. However, the learned CIT(A) has simultaneously recorded a finding that the deposits were made out of funds required to be maintained for liquidity and business purposes and were not entirely surplus in nature. 16. The allowability of deduction under section 80P(2)(a)(i) depends upon whether the income is attributable to the business of providing credit facilities to members. The expression “attributable to” is of wider import and would include income having a proximate nexus with the business activity. In the present case, though the learned CIT(A) has observed that the deposits were made for business and liquidity requirements, no specific finding has been recorded as to whether such deposits form part of the circulating capital or are integrally connected with the business operations of the assessee. 17. The coordinate bench in the case of Jagannath Co-operative Credit Society Ltd. (supra) has held that where deposits are made out of business necessity, the interest income would be eligible for deduction under section 80P(2)(a)(i). However, such determination is essentially fact-specific. 18. In the absence of clear factual findings on the nexus between the deposits and the business activity, we deem it appropriate to restore this issue to the file of the Assessing Officer for fresh examination. 19. The Assessing Officer shall verify whether the deposits made with scheduled banks are out of business necessity, including statutory or liquidity requirements, and whether such funds form part of the circulating capital of the assessee. If it is found that the deposits are integrally connected with the business of providing credit facilities to members, the assessee shall be entitled to deduction under section 80P(2)(a)(i) in respect of the interest income.

Since identical issues are involved in the other assessment years, our findings hereinabove shall apply mutatis mutandis to those appeals also. 21. In the result, the appeals of the Revenue are dismissed and the appeals of the assessee are partly allowed for statistical purposes.”

Per contra, the learned CIT-DR relied upon the order of the Assessing Officer. However, he fairly admitted that the issue involved in the present appeal is identical to the issue adjudicated by the Tribunal in assessee’s own case for the earlier years.

We have heard the rival submissions, perused the orders of the authorities below and the material placed on record. We find that the solitary issue involved in the present appeal pertains to the allowability of deduction under section 80P(2)(d) in respect of interest income earned by the assessee from deposits with co-operative banks. It is an undisputed position before us that an identical issue had come up for consideration before the Co-ordinate Bench of the Tribunal in assessee’s own case for earlier assessment years and the Tribunal, after elaborate consideration of the statutory provisions and judicial precedents, has decided the issue in favour of the assessee.

The Tribunal in the aforesaid order had, inter alia, examined the scope and ambit of section 80P(2)(d), which provides deduction in respect of any income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society. The Tribunal has categorically held that a co-operative bank continues to retain the character of a co-operative society within the meaning of section 2(19) of the Act and, therefore, interest income earned by a co-operative society from deposits with co-operative banks would be eligible for deduction under section 80P(2)(d). The Tribunal further observed that the exclusion contemplated under section 80P(4) merely disentitles a co-operative bank from claiming deduction under section 80P in its own hands and does not operate as a restriction upon another co-operative society claiming deduction in respect of interest received from such co- operative bank. The learned CIT(A), while granting relief to the assessee, has followed the aforesaid settled legal position and we do not find any infirmity in the conclusion drawn by him. The Revenue has also not brought on record any distinguishing feature in the facts of the year under consideration nor cited any contrary binding judicial precedent warranting a different view.

Thus, respectfully following the decision of the Co-ordinate Bench in assessee’s own case for the earlier assessment years, and considering the parity of facts and circumstances involved in the year under consideration, we uphold the order of the learned CIT(A) allowing deduction under section 80P(2)(d) to the assessee in respect of interest income earned from co-operative banks. Consequently, the grounds raised by the Revenue stand dismissed.

In the result, appeal filed by the Revenue stands dismissed.