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Facts
The assessee, Samarth Surksha Rakshak Co-op Credit Society Ltd., a cooperative society, claimed deductions under Section 80P(2)(a)(i) and Section 80P(2)(d) for interest income from cooperative banks and other banks. The Assessing Officer and CIT(A) disallowed these deductions, treating the assessee as a cooperative bank not eligible for Section 80P benefits or considering the income not attributable to the society's business.
Held
The Tribunal held that the assessee, being a cooperative credit society, is entitled to claim deductions under Section 80P(2)(d) for interest/dividends received from investments with other cooperative societies. It further held that the assessee is eligible for deduction under Section 80P(2)(a)(i) for interest income on deposits with other banks, as these funds are temporarily deployed to meet statutory requirements and are part of the business of providing credit facilities.
Key Issues
1. Eligibility of deduction under Section 80P(2)(d) for interest/dividend income earned by a cooperative society from investments with other cooperative banks. 2. Eligibility of deduction under Section 80P(2)(a)(i) for interest income on deposits with nationalized/other banks.
Sections Cited
143(3), 144B, 80P, 80P(2)(a)(i), 80P(2)(d), 80P(4), Section 5(i)(ccv) of the Banking Regulations Act, 1949
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Income Tax Appellate Tribunal, “SMC” BENCH MUMBAI
Before: SHRI PAWAN SINGH & SHRI GIRISH AGRAWAL
O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: These two appeals filed by assessee are against the orders of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide order nos. ITBA/NFAC/S/250/2024-25/1067951490(1) and ITBA/NFAC/S/250/2024-25/1067951817(1) dated 24.09.2024 passed against the assessment orders by National e-Assessment Centre, New Delhi, u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 31.03.2021 for Assessment Year 2018-19 and u/s. 143(3) r.w.s. 144B of the Act, dated 19.09.2022 for Assessment Year 2020-21.
Grounds taken by the assessee are reproduced as under:
“1. That orders passed are bad in law and factually incorrect as interest received Rs. 11,88,400 from MDCC Bank (Mumbai District Central Co-operative Bank) is not considered for deduction u/s 80P (2)(d) and being founded on the reasons which are solely based on wrong interpretation of the judicial pronouncements and accordingly are void ab initio.
2. That orders passed are bad in law as it has erred in not allowing deduction of Rs. 89,346/- for interest on Deposits from Union Bank of India u/s. 80P (2) (a) (i) of I.T. Act, 1961”.
“1. That orders passed are bad in law and factually incorrect as interest received Rs. 20,13,573 from MDCC Bank(Mumbai District Central Co-operative Bank) is not considered from deduction u/s80P (2)(d) and being founded on the reasons which are solely based on wrong interpretation of the judicial pronouncements and accordingly are void ab initio.
2. That orders passed are bad in law as it has erred in not allowing deduction of Rs. 9,13,182/-(Dividend on shares of co-operative Bank Rs. 6,52,763/- and Interest on deposits in Union Bank Rs. 2,60,419/-) u/s. 80P(2)(i) of I.T. Act, 1961.”.
2.1 Assessee has also raised additional grounds in vide application dated 17.03.2025, which are reproduced as under. According to the assessee these grounds relate to legal issues and goes to the root of the matter. There being no objection from the other side on the admission of these grounds, the same are admitted.
“1. Without prejudice to the ground raised along with Form 36 with regards to allowability of deduction under section 80P(2)(a)(i) of the Act on dividend received from Co-op. Bank, it is submitted that the same, alternatively, is eligible for deduction under section 80P(2)(d) of the Act.
2. The Appellant craves leave to add, alter, delete or modify all or any the above ground at the time of hearing.”
It is stated before us that issue involved in both the appeals is common relating to deduction claimed u/s.80P. Accordingly, we take up both the appeals together by passing this consolidated order. For and 5497/MUM/2024 Samarth Surksha Co-op Credit Soc Ltd., AYs 2018-19 and 2020-21 drawing facts of the case, we refer to the appeal for Assessment Year 2018-19. Our observations and findings shall accordingly apply mutatis mutandis to the appeal for Assessment Year 2020-21.
Brief facts of the case as culled out from records are that assessee is a cooperative society registered under Maharashtra Cooperative Societies Act, 1960 as a Cooperative Credit Society extending credit facilities to its members. Assessee filed its return of income on 24.10.2018 reporting total income of Rs. Nil after claiming deduction of Rs. 1,04,01,489/- u/s. 80P(2)(a)(i) and 80P(2)(d) of the Act. Ld. Assessing Officer treated assessee as a cooperative bank and denied deduction u/s. u/s. 80P(2)(a)(i) and 80P(2)(d) of the Act. Ld. Assessing Officer passed an order u/s.143(3) of the Act, disallowing deduction u/s. 80P amounting to Rs. 12,77,746/- [Rs.11,88,400/- u/s. 80P(2)(d) and Rs.89,346/- u/s. 80P(2)(a)(i)] and adding it to the returned income of NIL. Aggrieved, assessee went in appeal before the ld. CIT(A), who confirmed the disallowance. Aggrieved, assessee is in appeal before the Tribunal.
The points before us is in respect of eligibility of deduction claimed u/s.80P(2)(d) in respect of interest income earned by the assessee from Co-operative Banks which according to the authorities below is not a cooperative society and allowing deduction towards interest on deposits with Union Bank of India u/s. 80P(2)(a)(i) being part its business income.
In this respect, we note that ld. CIT(A) has observed that Cooperative Bank is not a cooperative society but a multistate scheduled cooperative bank having RBI license. Therefore, interest income earned from a cooperative bank is not eligible for deduction and 5497/MUM/2024 Samarth Surksha Co-op Credit Soc Ltd., AYs 2018-19 and 2020-21 u/s. 80P(2)(d) which allows deduction only in respect of receipts from cooperative society. For the interest on FD with Union Bank for claim u/s. 80P(2)(a)(i), ld. CIT(A) held that it is not the interest earned from the members of the assessee society and therefore not attributable to the business of the assessee society. He treated the same as ‘other income’.
On the above stated facts, both the issues before us are no longer res integra. Issue in respect of deduction u/s. 80P(2)(d) is extensively dealt by Hon'ble High Court of Karnataka in case of the PCIT vs. Totagar Cooperative Sales Society Limited [2017] 392 ITR 74 / 78 taxmann.com 169 (SC). Relevant findings given in para 7 to 12 are as under: "7. However, the contention being taken by the learned counsel is untenable. For the issue that was before ITAT, was a limited one,namely whether for the purpose of Section 80P(2)(d) of the Act, a Co-operative Bank should be considered as a Co-operative Society or not? For, if a Co-operative Bank is considered to Co-operative Society, then any interest earned by the Co-operative Society from a Co-operative Bank wo necessarily be deductable under Section SOP(I) of the Act.
The issue whether a Co-operative Bank is considered to be a Co- operative Society is no longer res integra. For the said issue has been decided by the ITAT itself in different cases. Moreover, the word "Co-operative Society" are the words of a large extent, and denotes a genus, whereas the word "Co-operative Bank" is a word of limited extent, which merely demarcates and identifies a particular species of the genus Co-operative Societies. Co- Operative Society can be of different nature, and can be involved in different activities; the Cooperative Society Bank is merely a variety of the Co-operative Societies. Thus the Co- operative Bank which is a species of the genus would necessarily be covered by the word "Co-operative Society".
9. Furthermore, even according to Section 56(i)(ccv) of the Banking Regulations Act, 1949, defines a primary Co-operative Society bank as the meaning of Co- Operative Society. Therefore, a Co-operative Society Ban. would be included in the words 'Co- operative Society'. 10. Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank Therefore, according to Sec. 80P(2)(d) of the IT. Act, the said amount of interest earned from a Co-operative Society Bank would be deductable from the gross income of the Co-operative Society inorder to assess it: total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assesse respondent. and 5497/MUM/2024 Samarth Surksha Co-op Credit Soc Ltd., AYs 2018-19 and 2020-21 11.The learned counsel has relied on the case of Totgars Co- operative Sale Society Ltd. v. IΠΟ (2010) 322 ITR 283/188 Taxman 282 (SC). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the I.T. Act. For, in the present case the interpretation that is required is of Section SOP(2)(d) of the L.T. Act and not Section S * 0P(2)(a)(i) of the IT. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of la canvassed by the learned counsel for the Revenue even arise it is the present case.
12. For the reasons stated above, this Court does not find any merit in the present appeal. Hence, the appeal is dismissed.”
7.1. From the above, we understand that the provisions of section 80P(2)(d) of the Act are very clear and assessee is entitled for deduction u/s.80P(2)(d) of the Act in respect of interest or dividends received from investments made with any other cooperative societies. The decision on which the Ld.CIT(A) placed reliance i.e. The Totagar Cooperative Sales Society Limited v. ITO 322 ITR 283 (SC), is not on the issue of whether the assessee is entitled for exemption u/s. 80P(2)(d) of the Act vis-a-vis the interest income earned by the cooperative society from investments in other cooperative societies. Hence the decision of Hon'ble Supreme Court in the case of The Totagar Cooperative Sales Society Limited v. ITO has no application to the facts of the present case.
7.2. From the above extraction, we also note that the Hon'ble High Court held that the word ‘cooperative society’ are the words of the large extent and denotes a genus, whereas the word ‘cooperative bank’ is a word of limited extent, which merely de-markets and identifies a particular species of the genus ‘cooperative societies’. Thus, a cooperative bank is merely a variety of the cooperative societies which can be of a different nature and can be involved in different activities. and 5497/MUM/2024 Samarth Surksha Co-op Credit Soc Ltd., AYs 2018-19 and 2020-21 8. 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, since 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 cooperative societies, therefore, the interest and dividend income derived by a cooperative 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 also find that the issue before us of whether a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) for the interest income derived from its investments held with a cooperative bank or not, is covered in favour of the assessee not only by the decision of Hon’ble High Court of Karnataka referred above but also in plethora of cases including few of the following cases: (i) Land and Cooperative Housing Society Ltd. v. ITO (2017) 46 CCH 52 (Mum) (ii) C. Green Cooperative Housing and Society Ltd. v. ITO 21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 (iii) Marvwanjee Cama Park Cooperative Housing Society Ltd. v. ITO Range- 20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017.
9.1. In the decision by the coordinate bench of ITAT Mumbai in the case of Ashok Tower “D” Co. Op. Housing Society Ltd. vs. ITO [2024] 161 taxmann.com 518 (Mumbai - Trib.), this has been dealt with extensively. Relevant extracts are as under: “We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. v. Totagars Cooperative Sale Society and 5497/MUM/2024 Samarth Surksha Co-op Credit Soc Ltd., AYs 2018-19 and 2020-21 [2017] 78 taxmann.com 169/392 ITR 74 (Karnataka) and Hon'ble High Court of Gujarat in the case of State Bank of India v. CIT [2016] 72 taxmann.com 64/290 CTR 129/389 ITR 578/241 Taxman 163 (Gujarat), had also held that the interest income earned by the assessee on its investments held with a co- operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, as had been relied upon by the ld. A.R, also makes it clear beyond any scope of doubt, that the purpose behind enactment of sub-section (4) of Sec. 80P was to provide that the cooperative banks which are functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. We are of the considered view that the reliance placed by the CIT(A) on the judgment of the Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. v. ITO (2010) 322 ITR 283 (S.C) being distinguishable on facts, thus, had wrongly been relied upon by him. The adjudication by the Hon'ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a co-operative society towards deduction under Sec. 80P(2)(d) on the interest income on the investments parked with a cooperative bank. We further find that the reliance place by the ld. D.R on the order of the ITAT "F" bench, Mumbai in the case of M/s Vaibhav Cooperative Credit Society v. ITO -15(3)(4)(ITA No. 5819/Mum/2014, dated 17.03.2017 is also distinguishable on facts. We find that the said order was passed by the Tribunal in context of adjudication of the entitlement of the assessee cooperative bank towards claim of deduction under Sec.80P(2)(a)(i) of the Act. We find that it was in the backdrop of the aforesaid facts that the Tribunal after carrying out a conjoint reading of Sec. 80P(2)(a)(i) r.w. Sec. 80P(4) had adjudicated the issue before them. We are afraid that the reliance placed by the ld. D.R on the aforesaid order of the Tribunal being distinguishable on facts, thus, would be of no assistance for adjudication of the issue before us. Still further, the reliance placed by the Ld. D.R on the order of the ITAT "SMC" Bench, Mumbai in the case of Shri Sai Datta Cooperative Credit Society Ltd. v. ITO (ITA No. 2379/Mum/2015, dated 15.01.2016, would also not be of any assistance, for the reason that in the said matter the Tribunal had set aside the issue to the file of the assessing officer for fresh examination. That as regards the reliance placed by the ld. D.R on the judgment of the Hon'ble High Court of Karnataka in the case of Pr. CIT v. Totagars co-operative Sale Society [2017] 83 taxmann.com 140/297 CTR 158/395 ITR 611 (Karnataka), the High Court had concluded that a co- operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). We however find that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. v. Siemens India Ltd. and Anr [1983] 36 CTR 197/[1985] 156 ITR 11/[1983] 15 Taxman 594 (Bombay), where there is a conflict between the decisions of non-jurisdictional High Court's, then a view which is in favour of the assessee is to be preferred as against that taken against him. Thus, taking support from the aforesaid judicial pronouncement of the Hon'ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. v. Totagars Cooperative Sale Society [2017] 78 taxmann.com 169/392 ITR 74 (Karnataka) and Hon'ble High Court of Gujarat in the case of State Bank Of India v. CIT [2016] 72 taxmann.com 64/290 CTR 129/389 ITR 578/241 Taxman 163 (Gujarat), wherein it was observed that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act." and 5497/MUM/2024 Samarth Surksha Co-op Credit Soc Ltd., AYs 2018-19 and 2020-21 9.2. Further, the Coordinate Bench in assessee’s own case vide dated 10.12.2024 for Assessment Year 2017-18 had confirmed on similar facts that the assessee is a co-operative credit society and that it is eligible for the benefit of deduction u/s 80P(2)(d) of Act.
Issue relating to claim of deduction u/s.80P(2)(a)(i) for interest income on deposits with Union Bank is also no longer res integra as held in long line of judicial precedents listed below: i) Guttigedarara Credit Where interest income earned by Co-operative Society Ltd. assessee society by providing credit vs. ITO facilities to its members was [2015] 60 taxmann.com deposited in banks for a short 215 (Karnataka) duration which had earned interest, said interest on deposits was attributable to business of banking of assessee and it was liable to deduction under section 80P(2)(a)(i) ii) PCIT v. Gunja Samabay Where assessee, co-operative Krishi Unnayan Samity society, earned interest income on Ltd. surplus funds invested in deposits [2023] 147 taxmann.com with banks and Government 518 (Calcutta) securities, since neither said amount of deposit was due to its members nor it was liability to its members, same would qualify for deduction under section 80P(2)(a)(i) iii) Vavveru Co-operative Income of co-operative societies Rural Bank Ltd. vs. CCIT Assessment years 2010-11, 2013-14 [2017] 396 ITR 371 and 2014-15 -Assessee-society was (Telangana and Andhra entitled to deduction under section Pradesh) 80P in respect of interest income from fixed deposits with nationalised bank when source of such investment was income derived from activities listed in sub-clauses (i) to (vii) of clause (a) of section 80P(2) [In favour of assessee] iv) ITO vs. Yendagandhi Interest income received by Large Sized Co-operative assessee, a co-operative society, on Society Ltd. deposits pertaining to reserved fund and 5497/MUM/2024 Samarth Surksha Co-op Credit Soc Ltd., AYs 2018-19 and 2020-21 [2023] 156 taxmann.com with co-operative banks and other 669 (Visakhapatnam nationalized banks was eligible for Trib.) deduction under section 80P V) Supa (Kurel) Vibhag Interest income received by Seva Sahakari Mandli assessee, co-operative society, from Ltd. v. ITO FDRs in nationalized bank would [2017] 87 taxmann.com qualify for exemption under section 355 (Ahmedabad - Trib.) 80P(2)(a)(i). vi) DIT Vs. Buldana Urban In the instant case, the amount Co-op. Credit Society which was invested in banks to earn Ltd. [4398/Mum/2023] interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore, they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act.
10.1. Assessee submitted a detailed note on its operations of providing credit facilities to its members which yields certain insignificant amount of interest on deposits made on a temporary basis or to meet statutory requirement for the conduct of its business. The same is reproduced as under: “We state that the objects of the Society are to promote the interests of all the members of the Society to attain their social and economic betterment through self-help and mutual aid in accordance with the co-operative principles and to encourage thrift and cooperation amongst the members. In furtherance of the above objects, the Society is undertaking following activities, i.e., to enable its members to obtain loans on reasonable terms and to enable them to save part of their income in a safe and convenient way. For this, the funds of the Society are raised from the monthly subscriptions from the members. Thereafter, whenever members are in need of funds, they apply to the Society for loan. In the monthly managing committee, all such loan applications are properly scrutinized and sanctioned on monthly repayment terms. Such monthly installments are and 5497/MUM/2024 Samarth Surksha Co-op Credit Soc Ltd., AYs 2018-19 and 2020-21 recovered through the payroll of the member. During the course of operations of the Society as above, the funds received out of monthly collection and requirement of loans do not match exactly in each month. Either, the available funds are in excess of the loan requirements or the available funds are not sufficient to sanction all the loan requirements. When the funds are in excess, instead of keeping them idle in the bank account, they are kept separate in deposit a/c to use in succeeding months when loan requirements are more. In the process, some nominal interest is received from these deposit accounts. Page 2 of 3 Please refer to the Balance sheet and Income and Expenditure account already submitted. The main funding is by way of loan taken from Mumbai District Co-op. Bank Ltd. The total loan taken and outstanding as on 31.03.2018 is Rs. 8,69,76,563/-. The deposits from the members are Rs. 81,41,355/- while loans given to the members are Rs. 15,86,60,010/-. The Society tries to maximize its return by lending maximum amount and the remaining balance, if any, has to be deployed in fixed deposits rather than keeping it in savings account. At the same time, the Society has to set aside 25% of its profit to reserve fund as per statute. If these investments are not made, the Society may loose the registration and to do the business. Thus, such investments are made during the course of and part of the business of providing credit facilities. No institute will borrow and invest in fixed deposits when the interest rate on borrowing is much higher than the interest earned on investment. This essentially means that investments made in banks are out of the statutory requirements under the Maharashtra Co-op. Societies Act, 1960. The fulfillment of the main object of providing credit facilities is completely based on the above fund-flow management on regular basis and, in this fund management, some nominal interest income is generated incidentally. Naturally, it is a part and parcel of the entire business procedure of the Society. Hence, it is respectfully submitted that all the activities of the Society are within the broad parameter of business activity of providing credit facilities to its members & consequently, entitle to deduction under section 80P(2)(a)(1) of the Income Tax Act, 1961.”
10.2. In view of the above facts and judicial precedents, we are of the considered view that assessee is eligible for deduction u/s.80P(2)(a)(i).
Considering the factual matrix in the present case which are akin to the judicial precedents dealt above and the decision of the Coordinate Bench, we hold that assessee is entitled to claim of deduction u/s. 80P(2)(d) and 80P(2)(a)(i). Accordingly, the disallowance made is deleted.
11.1. Similar issue is involved in the appeal for Assessment Year 2020-21, which includes income from dividends of shares of cooperative bank also claiming as a deduction u/s. 80P(2)(d) by the and 5497/MUM/2024 Samarth Surksha Co-op Credit Soc Ltd., AYs 2018-19 and 2020-21 assessee. Further, observations and findings in appeal for Assessment Year 2018-19 apply mutatis mutandis to this year also. Accordingly, deduction claimed by assessee u/s. 80P(2)(d) and 80P(2)(a)(i) are allowed.
In the result, both the appeals of the assessee are allowed.