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Facts
The assessee, BSNL Employees Junior Co-operative Credit Society Ltd., filed an appeal against an order disallowing deduction under Section 80P(2)(d) of the Income Tax Act for interest and dividend income earned from co-operative banks. The appeal was filed beyond the limitation period, but the delay was condoned.
Held
The Tribunal held that income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society is eligible for deduction under Section 80P(2)(d) of the Act. The previous decisions of co-ordinate benches were followed.
Key Issues
Whether interest and dividend income earned by a co-operative society from investments in other co-operative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
Sections Cited
250, 143(3), 263, 144B, 80P, 80P(2)(d), 80P(2)(a)(i), 2(19), 70, 80P(4)
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Income Tax Appellate Tribunal, “K(SMC
Before: SHRI NARENDRA KUMAR BILLAIYASHRI SANDEEP SINGH KARHAIL
Date of Hearing – 23/06/2025 Date of Order - 26/06/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The assessee has filed the present appeal against the impugned order dated 23/11/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2018-19.
The present appeal is delayed by 108 days. Along with the appeal, the assessee has filed an affidavit of its Secretary seeking condonation of delay in filing the present appeal. It is the plea of the assessee that the appeals on a similar issue were pending before the learned CIT(A) for various assessment years, and on 12.11.2024, the assessee received orders of the learned CIT(A) for all the years, including the year under consideration. Since these years pertained to a similar issue and were worded identically, the staff of the assessee, due to inadvertence, forwarded only the order for the assessment year 2020-21 to the consultant for taking necessary steps for filing the appeal before the Tribunal. It is further submitted that later on, the assessee came to know of the order passed by the learned CIT(A) for the year under consideration, and thereafter, necessary steps were taken to file the present appeal. Accordingly, the assessee submitted that due to the aforesaid reasons, the present appeal could not be filed within the statutory limitation period. Having considered the submissions of the assessee, we are of the considered view that there was sufficient cause which prevented the assessee from filing the present appeal within the prescribed limitation period. Accordingly, we condone the delay in filing the present appeal and proceed to decide the same on merit.
In this appeal, the assessee has raised the following grounds: - “
1. The Learned A.O. has erred in reopening the case u/s. 263 on the directions of the CIT when the original Assessment was us 143(3) & then the order was passed after duly considering the allowability of the section 80P.
2. The learned CIT (Appeals) National Faceless Appeal Centre failed to appreciate that the Interest and dividend received by the Appellant Society from other co-operative societies of Rs. 16,96,255/- is eligible for deduction u/s. 80P(2)(d).
3. The learned CIT (Appeals) National Faceless Appeal Centre has erred in disallowing the deduction u/s 80P(2)(a)(i) for the Interest and dividend income of Rs. 15,43,655/- and Rs. 1,52,600/- respectively , received from Co- operative Societies.”
4. Ground No.1 raised in assessee’s appeal was not pressed during the hearing. Accordingly, the same is dismissed as not pressed.
5. The issue arising in Ground No.2, raised in assessee’s appeal, pertains to the disallowance of deduction claimed under section 80P(2)(d) of the Act on interest and dividend income earned by the assessee from Co-operative Banks.
During the hearing, at the outset, the learned Authorized Representative (“learned AR”) submitted that the Co-ordinate Bench of Tribunal in assessee’s own case for the assessment year 2020-21 decided the similar issue in favour of the assessee and allowed claim of deduction under section 80P(2)(d) of the Act on interest and dividend income earned by the assessee from the Co-operative Banks.
On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the order passed by the lower authorities.
The brief facts of the case are that the assessee is an Employees Co- operative Society, wherein the employees of BSNL are its members. The membership of the society is restricted only to employees of BSNL. The deposits in the society are generated through deductions from salary and advances, which are strictly given to the members. There is no dispute that the assessee is registered under the Maharashtra Co-operative Societies Act, 1960. During the year under consideration, the assessee earned interest income/dividend income from its deposits and investments in the Co- operative Banks, the details of which are as follows: - “Particulars Amount Interest on FD with Saraswat Co-operative Bank Rs.5,54,071/- Interest on FD with Mumbai District Co-operative Bank Rs.9,89,584/- Total (A) Rs.15,43,655/- Dividend on shares of Mumbai District Co-operative Bank Rs.1,52,500/- Dividend on shares of Maharashtra State Housing Federation Rs.100 Total (B) Rs.1,52,600/- Total (A) + (B) Rs.16,96,255/-”
9. The Assessing Officer (“AO”) vide order dated 01.03.2024 passed under section 143(3) r.w. section 263 r.w. section 144B of the Act disallowed the deduction claimed by the assessee under section 80P(2)(a)(i) of the Act. In its appeal before the learned CIT(A), the assessee raised an alternative ground and also claimed deduction under section 80P(2)(d) of the Act. However, the learned CIT(A), vide impugned order, disallowed the deduction claimed by the assessee under section 80P(2)(a)(i) as well as under section 80P(2)(d) of the Act. Being aggrieved, the assessee is in appeal before us.
We find that while deciding a similar issue pertaining to claim of deduction under section 80P(2)(d) of the Act in respect of interest and dividend income earned by the assessee, the Co-ordinate Bench of the Tribunal in assessee’s own case in BSNL Employees Junior Co-operative Credit Society Ltd. vs. ITO in for the assessment year 2020- 21, vide order dated 25.02.2025, following the decision of Co-ordinate Bench in Pathare Prabhu Co-operative Housing Society vs. ITO, reported in (2023) 202 ITD 464 (Mum-Trib.), observed as follows: - “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 and not business income of the assessee. Assessee has contended alternatively that these incomes are allowable u/s. 80P2(d), since there is no dispute of earning of this income from cooperative banks. The issues before us is no longer res integra, as we find that while deciding similar issue, Coordinate Bench of ITAT, Mumbai in the case of Pathare Prabhu Co-operative Housing Society v. ITO, [2023] 202 ITD 464 (Mum-Trib), held that interest income earned from investment with Co- operative Bank eligible for deduction under section 80P(2)(d) of the Act. The relevant findings of the Coordinate Bench, in the aforesaid decision, are reproduced as follows: - "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.
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) ** ** ** (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 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 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 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 80P(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 in section 80P(1) and (2) and excludes only Co-operative 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 Cooperative Banks that function at par with other commercial banks i.e. which lend 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.
12. 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 8OP(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: 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 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. 8OP, 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:- (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 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 Co-operative 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 cooperative 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. 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 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. (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".
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."
6. 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.”
We find that in Pr.CIT vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., reported in (2023) 150 taxmann.com 173 (SC), the Hon’ble Supreme Court held that a co-operative credit society is entitled to exemption under section 80P(2) of the Act.
Further, we find that the decision of the Hon’ble Karnataka High Court in Pr.CIT vs. Totagar Co-operative Sales Society, reported in (2017) 395 ITR 611 (Kar), placed reliance upon by the learned DR, was duly considered by the Co-ordinate Bench of the Tribunal in Pathare Prabhu Co-operative Housing Society (supra), which was followed by the Co-ordinate Bench of the Tribunal in assessee’s own case for the assessment year 2020-21. Therefore, respectfully following the aforesaid decisions, we uphold the plea of the assessee of claiming deduction under section 80P(2)(d) of the Act in respect of interest and dividend income earned by it from Co-operative Banks. Accordingly, Ground No.2 raised in assessee’s appeal is allowed.
Since the claim of the assessee under section 80P(2)(d) has been allowed, the Ground No.3 raised by the assessee claiming deduction under section 80P(2)(a)(i) of the Act has become academic, and therefore, is left open.
In the result, the appeal by the assessee is partly allowed. Order pronounced in the open Court on 26/06/2025