SHI vs. HAKTI APARTMENTS CO-OPERATIVE HOUSING SOCIETY LTD. ,MUMBAIVS.ITO WARD 32(2), MUMBAI

Brief facts are that the assessee is a co-operative housing society engaged in maintenance of residential apartments at Andheri (West), Mumbai. It filed its return of income on 25.08.2017 declaring Nil income after, inter alia, claiming deduction of ₹12,64,948 under section 80P(2)(d). During the course of assessment proceedings, the Assessing Officer noticed that the assessee had earned interest from fixed deposits and savings bank accounts maintained with Bharat Co-operative Bank Ltd. and The Saraswat Co-operative Bank Ltd. The gross interest amounted to ₹12,78,068, comprising ₹10,43,121 from fixed deposits with Bharat Co-operative Bank Ltd., ₹1,05,361 from fixed deposits with The Saraswat Co-operative Bank Ltd. and ₹1,16,166 by way of savings bank interest. After excluding ₹13,120 pertaining to the subsequent period, the assessee claimed deduction of the net amount of ₹12,64,948 under section 80P(2)(d).

The Assessing Officer denied the deduction principally on the ground that after insertion of sub-section (4) to section

Before us, the learned counsel submitted that the issue stands consistently decided in favour of co-operative housing societies by various decisions of the coordinate Benches of the Tribunal. He submitted that section 80P(4) merely excludes a co-operative bank from claiming deduction under section 80P in respect of its own income and does not alter its legal character as a co-operative society for the purpose of section 80P(2)(d). Reliance was placed, inter alia, upon the decisions in Bhag Co-operative Housing Society Ltd. v. ACIT-CPC, Palm Court M Premises Co-operative Society Ltd. v. PCIT, Petit

We have heard the rival submissions and perused the material placed on record. Section 80P(2)(d), in plain and unambiguous terms, provides for deduction of any income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society. Thus, for applicability of clause (d), what is material is that the recipient of the income should be a co-operative society and that the interest or dividend should have been derived from its investment with another co-operative society. Unlike section 80P(2)(a), clause (d) does not predicate the deduction upon the income being attributable to any specified business or activity carried on by the assessee. The expression employed by the Legislature is “any income by way of interest or dividends” derived from investments with “any other co- operative society”, which is materially wider in its formulation.

Section 2(19) defines a “co-operative society” to mean a co- operative society registered under the Co-operative Societies Act, 1912 or under any other law for the time being in force in any State for registration of co-operative societies. It is not in

The principal reasoning adopted by the authorities below proceeds upon section 80P(4). In our view, the said provision has been applied in an altogether different context. Sub- section (4) provides that the provisions of section 80P shall not apply “in relation to any co-operative bank” other than the specified categories mentioned therein. The provision was inserted to exclude co-operative banks functioning substantially at par with commercial banks from claiming deduction under section 80P in computation of their own taxable income. It does not provide that a co-operative bank ceases to be a co-operative society for every other purpose under the Act, nor does it contain anything which curtails or qualifies the expression “any other co-operative society” occurring in section 80P(2)(d). The Hon’ble Supreme Court in

This distinction has consistently been recognised by the coordinate Benches of the Tribunal. In Petit Towers Co- operative Housing Society Ltd., as also in Bhag Co-operative Housing Society Ltd., Palm Court M Premises Co-operative Society Ltd. and Bombay Catholic Co-operative Housing Society Ltd., it has been held that although, consequent upon section 80P(4), a co-operative bank may itself stand disentitled to deduction under section 80P, it nevertheless continues to be a co-operative society registered under the relevant co-operative societies legislation. Consequently, interest derived by another co-operative society from investments or deposits maintained with such a co-operative bank falls within the ambit of section 80P(2)(d). The same view continues to be followed by the coordinate Benches, and

The reliance placed by the learned CIT(A) upon Totgars Co- operative Sale Society Ltd. v. ITO, 322 ITR 283 (SC), does not advance the case of the Revenue. The issue before the Hon’ble Supreme Court therein arose in the context of section 80P(2)(a)(i) and concerned the character of interest earned upon surplus funds and whether such income could be regarded as profits and gains attributable to the activity specified in that clause. The present claim, on the contrary, arises specifically under section 80P(2)(d), which operates upon interest or dividend income derived from investments with another co-operative society and employs materially different statutory language. The eligibility under clause (d) does not depend upon whether the interest is assessable as business income or income from other sources. Similarly, the observations of the Assessing Officer regarding the principle of mutuality are wholly extraneous to the issue before us, because the assessee has not claimed exclusion of the interest income on the principle of mutuality but has claimed a specific statutory deduction under section 80P(2)(d).

We also find that the assessee had been allowed deduction under section 80P(2)(d) on corresponding interest income of ₹8,48,867 in the immediately preceding assessment

Accordingly, when the statutory scheme is read as a whole, the distinction is quite clear. Section 80P(4) determines whether a co-operative bank can claim the benefit of section 80P in computation of its own income; whereas section 80P(2)(d) determines the entitlement of a co-operative society in respect of interest or dividend income derived from investments with another co-operative society. The former does not obliterate the legal character of a co-operative bank as a co-operative society so as to render clause (d) otiose in the hands of the investing society. Accepting the interpretation adopted by the authorities below would amount to importing into section 80P(2)(d) an exclusion which the Legislature itself has not enacted.

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