SHRI GANESH CO OP CREDIT SOC. LTD,MUMBAI vs. ITO, WARD 31(1)(1), MUMBAI

The solitary ground involved in this appeal is the disallowance of claim of deduction u/s. 80P(2)(d) of the Act amounting to Rs. 15,19,506/- towards the interest income earned by the assessee out of the deposits made in co-operative bank.

Briefly stated, the assessee is a co-operative credit society and had filed its return of income dated 31.10.2017, declaring total income at Rs. Nil, after claiming deduction under Chapter VI-A of the Act amounting to Rs. 15,19,506/-. The assessee’s case was selected for complete scrutiny under CASS and notices u/s. 143(2) and 142(1) of the Act were duly issued and served upon the assessee. The learned Assessing Officer ('ld. A.O.' for short) denied the assessee’s claim of deduction u/s. 80P(2)(d) of the Act, for the reason that the assessee has earned interest income on deposits made in co-operative banks alleged to be a commercial bank by relying on the decision of the Hon'ble Apex Court in the case of in Totgar’s cooperative sale society Ltd. V. ITO [2010]322 ITR 283(SC). The ld. AO had passed the assessment order u/s. 143(3) of the Act dated 11.12.2019, determining total income at Rs. 15,19,506/-.

Aggrieved the assessee was in appeal before the first appellate authority challenging the impugned addition/disallowance made by the ld.AO, who then upheld the order of the ld. AO.

The assessee is in appeal before us, challenging the impugned order of the ld. CIT(A).

The learned Authorised Representative ('ld. AR' for short) for the assessee contended that it is a settled position of law that even interest income received by the assessee out of deposits made in co-operative bank are entitled to deduction u/s. 80P(2)(d) of the Act. The ld. AR relied on the following decisions of the Hon’ble High Courts and coordinate benches: i. Shri Ankur Co-op. Hsg. Soc. Ltd. vs. ITO [2025] 171 taxmann.com 44 (Mumbai – Trib.)

Having heard the rival submissions and perused the materials available on record. The only issue that requires adjudication is whether the assessee is entitled to claim deduction u/s. 80P(2)(d) of the Act towards the interest income received from co- operative banks. The revenue has rejected the same by relying on the decision of the Hon’ble High Court of Karnataka and the Hon’ble Apex Court in the case of Totgar’s cooperative sale society Ltd. The assessee on the other hand has relied on a catena of decisions of the Tribunal which has decided this issue in favour of the assessee by relying on the decision of the various Hon'ble High Courts and Hon'ble Apex Court. It is observed that the Hon'ble Karnataka High Court and the Hon'ble Apex Court in the case of Totgar’s cooperative sale society Ltd. has held that the amendment in Section 194A(3)(v) of the Act excludes the co-operative bank from deducting tax at source which was interpreted by the Hon'ble Karnataka High Court that co-operative banks are excluded from the definition of co-operative societies by the said amendment to Section 194A(3)(v) of the Act, vide Finance Act, 2015 which on perusal is that the co-operative banks are liable to deduct TDS for the interest income on securities made by the co- operative society and not for other interest income made by the co-operative societies. Further, the Hon’ble High Court of Gujrat in the case of Principal Commissioner of (A.Y. 2017-18) Shri Ganesh Co-Op. Hsg. Soc. Ltd. Income-tax vs. Shree Madhi Vighag Khand Udyog Sahakari Mandli Ltd. [2025] 171 taxmann.com 22 (Gujarat)[24-12-2024], though it was on the revisional powers u/s. 263 of the Act, has extensively dealt with this issue and has held that the deduction u/s. 80P(2)(d) was available for a co-operative society on interest income received from co- operative bank and had distinguished co-operative banks which function like other commercial banks lending money to members of the public as per Section 5(b) of the Banking Regulation Act, 1949 as held by the Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank vs. CIT [2021] 123 taxamann.com 161 (SC). Further, various decisions of the Tribunal relied upon by the ld. AR has also upheld this view and has held that the interest income derived by a co-operative society from its investment held with co-operative bank is entitled for claiming deduction u/s. 80P(2)(d) of the Act. By respectfully following the proposition laid down in these cases, we deem it fit to allow the ground of appeal