JAGRUTI CO OP HSG SOC LTD ,MUMBAI vs. ITO WARD (197)(6), MUMBAI

On the contrary, the Ld. DR refuted the claim of the Assessee by submitting that Ld. Addl/Joint Commissioner has rightly dismissed the delay application filed by the Assessee, as there is an inordinate delay and therefore Assessee is not entitled for any leniency.

Heard the parties and perused the material available on record. Recently, the Hon’ble Co-ordinate Bench of the Tribunal in the case of Vishva Villa Co-operative Housing Society Ltd. V. ITO ward 19(3)(1) (ITA No. 682, 683, 684/MUM/2024) decided on 27.06.2024 also considered the identical facts and circumstances and inordinate delay of nearly 8 years and ultimately condoned the M/s. Jagruti Co op HSG SOC Ltd. delay in filing of the first appeal before the Ld. CIT(A) by observing and holding as under: “We heard both the parties and also peruse the relevant material based on record. First of all, the Assessee has explained the reason for delay in filing of the first appeal before CIT(A) that earlier CA of the Assessee had filed rectification application u/154 before the AO/CPC, then Assessee was under bonafide belief that the adjustment would get rectified and even CA also did not advice the society to file an appeal when application was disposed of for certain period. It is later on when demand notice was issued then Assessee was advised to file an appeal. Thus, looking to the fact that Assessee is cooperative housing society and it was under a bonafide belief that it has filed a rectification which was not disposed of till date, therefore delay in filing of first appeal cannot be held to latches on part of the Assessee. Thus, delay in filing appeal before the first appellate authority is condoned.”

This Court also observe that recently the coordinate bench of the Tribunal in the case of Palmera Co-op Housing Society Ltd. V. DCIT Circle 19(1)(ITA No. 2900 and 2899) decided on 30.08.2024 has also dealt with the identical issue and the inordinate delay and ultimately by following the judgement referred to above, condoned the delay of 3685 days and consequently allowed the appeal of the Assessee. Thus, considering the peculiar facts and circumstances of the case and as it is also mandate of law as enshrined in the limitation Act, if the party has prosecuted the litigation before a wrong forum but with due diligence and in good faith, then time spent in that proceedings is liable to be excluded as prescribed in the provision of section 14 of the limitation Act 1962, which are reproduced as under: (1) In computing the period of limitation for any suit the time during which the plaintiff has been prosecuting with due diligence another civil proceeding whether in the court of first instance all of appeal for revision, against the defended shall be excluded, where the proceeding relates to the same matter in issue and is prosecuted in good faith in court which, from M/s. Jagruti Co op HSG SOC Ltd. defect of jurisdiction or other cause of like manner, is unable to entertain it. (2) In computing the period of limitation for any application, the time during which the applicant has been prosecuting with the due diligence another civil proceeding, whether in the court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such proceeding is prosecuted in good faith in a court which, from defect of jurisdiction or any cause of a like manner.

Though the provisions of section 14 of the limitation Act are not strictly applicable to the instant case, as there was no defect of jurisdiction or any case of like nature, in entertaining the claim of the Assessee by the AO, however, considering the true spirit of the provisions, as the Assessee has acted with due diligence and in good faith and continued with the proceedings u/s. 154 of the Act, which otherwise has not yielded any result, therefore, the Assessee is entitled for the leniency. Thus, considering peculiar facts and circumstances in totality and the judgements referred to above, this Court is inclined to condone the delay, as involved in this case, however, subject to deposit of a token cost of Rs. 11,000/- in the Revenue Department under “other head”, so that the Assessee in future, will become more wise and vigilant.

Coming to the merits of the case, this court observe that admittedly the issue involved in the instant case is squarely covered in favor of the Assessee by various Courts including by the Coordinate Bench of the Tribunal in the case of Pathare Prabhu Co- operative Housing Society Ltd. V. ITO (ITA no. 1346 and 1347/MUM/2023) decided on 27.07.2023 (2023) 153 taxmann.com 714 (Mum.-Trib), wherein the Hon’ble Tribunal by considering the relevant provisions of the law and judgement concerning the issue, M/s. Jagruti Co op HSG SOC Ltd. ultimately allowed the identical deduction claimed u/s. 80P(2)(d) of the Act, by observing and holding as under: “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)……………. (b)……………. (c)............ (d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society, the whole of such income;"

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 Cooperative 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 Co-operative Bank is covered under the provisions of section 80P(4) of the Act. We find that the Hon'ble Supreme Court in Mavilayi Service Cooperative Bank Ltd. vs CIT, Calicut, [2021] 431 ITR 1 (SC) while analyzing 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 Cooperative 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 Co-operative Banks that function at par with other commercial banks 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.

As regards the claim of deduction under section 80P(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 Kaliandas Udyog Bhavan Premises Coop Society Ltd vs ITO, in Mum./2017, vide order dated 25/04/2018, while dealing with the provisions of section 80P(2)(d) vis-à-vis M/s. Jagruti Co op HSG SOC Ltd. section 80P(4) of the Act, the coordinate bench of 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 cooperative 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 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, but however, are unable to subscribe to their view that the same shall also jeopardize 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 of the considered view that as long as it is proved that the interest income is being derived by a cooperative society from its investments made with any other cooperative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly 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 Cooperative 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 Cooperative Societies Act, M/s. Jagruti Co op HSG SOC Ltd. 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 co-operative bank, would be entitled for claim of deduction under Sec. 80P(2)(d) of the Act.

We find that the learned CIT(A) has placed reliance upon the decision of the Hon'ble Karnataka High Court in Pr.CIT v/s Totagars Co-operative Sales Society, (2017) 395 ITR 611 (Karn.), wherein it was held that interest earned by the Assessee, a Co- operative Society, from surplus deposits kept with a Cooperative 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/s Totagars Co-operative Sales Society, [2017) 392 ITR 74 (Karn.) held that according to section 80P(2)(d) of the Act, the amount of interest earned from a Co-operative Society Bank would be deductible 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., [1972] 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

In the result, the appeal by the Assessee stands allowed.