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Facts
The assessee, a cooperative housing society, claimed a deduction for interest income earned on deposits with cooperative banks. The Assessing Officer rejected this claim. The CIT(A) also upheld the rejection.
Held
The Tribunal held that the interest income earned by a cooperative society from its investments in a cooperative bank is eligible for deduction under Section 80P(2)(d) of the Act. The disallowance made by the authorities below was deleted.
Key Issues
Whether interest income earned by a cooperative society from deposits with a cooperative bank is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
Sections Cited
80P(2)(d), 80P(4), 143(1), 234A, 234B, 234C
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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:
This appeal filed by assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide order no. ITBA/NFAC/S/250/2022-23/1048881030(1), dated 18.01.2023 passed against the assessment order by Assessing Officer, Central Processing Centre (CPC), Bengaluru, u/s. 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 26.02.2013 for Assessment Year 2012-13.
Grounds taken by the assessee are reproduced as under: “1. The learned CIT(A) erred in contending that the income received by the appellant is from co-operative banks and not co- operative societies, without Pathare Prabhu Coop Hsg Soc Ltd., AY 2012-13 appreciating the fact that the co operative banks are in the first instance co- operative societies 2. The learned CIT(A) erred in relying on the Supreme Court's decision in Totgar's Co-operative Sales Society Ltd. which judgment is delivered in the context of sec. 80P(2)(a)(i) and wherein it was held that interest on surplus funds deposited with banks bears the character of income from other sources and not business income, whereas the appellant has claimed deduction under sec. 80P(2)(d) which does not confine the deduction to business income.
The learned CIT(A) failed to appreciate that the mandate of sec. 80P(4) is to deny the benefit of sec. 80P to co-operative banks and not to other co-operative societies investing their funds in co-operative banks.
The learned CIT(A) erred in applying the principle of mutuality to the interest income without appreciating that the appellant never claimed that interest is exempt on the principle of mutuality. This interest was offered as income, however, in view of Sec 80P(2)(d) the deduction was claimed. Hence, the application of principle of mutuality is completely erroneous with respect to interest income.”.
3. There is a delay of 668 days noted by the registry in filing the present appeal for which petition of condonation of delay along with affidavit is placed on record. According to assessee, as it is a cooperative society and not a business entity, it has not employed any full time accountant and staff who would have knowledge of time-lines under income tax laws nor do it regularly login to income tax websites to check updates. Assessee, also does not have an exclusive email address for society matters. Therefore, the order which was sent on email by the ld. CIT(A) was not noticed by the assessee. Further, in and around the same period from January to March 2023 appeals for two other years i.e., Assessment Year 2014-15 and Assessment Year 2018-19 were also decided, and those appeals were dismissed by the ld. CIT(A) and assessee had preferred appeals against the same before the Tribunal. While, the appeals for the above two years were dismissed, the appeal for the year under consideration was "partly allowed". Therefore, assessee was under the impression that the appeal for the year under consideration was allowed and not dismissed. Assessee, in a meeting with its consultants to discuss the Pathare Prabhu Coop Hsg Soc Ltd., AY 2012-13 status of tax litigations in the month of March 2023, discussed the issues related to Assessment Year 2014-15 and Assessment Year 2018-19, since appeals for those years were dismissed, however, the appeal order for the year under consideration was not discussed as assessee was under the impression that the appeal was allowed, also there was no tax amount outstanding for the Assessment Year 2012- 13. Owing to the above reasons stated above, assessee never brought the order to the notice of its consultants, therefore the filing of appeal against the said order did not take place. It is during a meeting with the consultants to discuss the status of tax litigations process and pursue claim of refund in respect of appeals allowed in favour of the society that the consultants suggested that application for order giving effect is required to be submitted to the assessing officer. On perusal of the same, it came to the notice of the consultants that the appeal for the year under consideration was only partly allowed and the claim for deduction u/s 80P(2)(d) was denied. Thereafter, assessee proceeded to file the present appeal along with petition for condonation of delay and affidavit. According to the assessee, there is no intention to jeopardize the interest of Revenue, by delaying the filing of the present appeal and hence prayed for condoning the same.
3.1. We have considered the petition for condonation of the said delay along with an affidavit. Upon perusal of the same and hearing both sides, we deem it fit to condone the delay on the ground that there was sufficient cause for the said delay. Accordingly, we condone the delay to take up the matter for adjudication.
Pathare Prabhu Coop Hsg Soc Ltd., AY 2012-13 4. Brief facts of the case as culled out from records are that the assessee is a co-operative housing society and filed its return of income on 07.09.2012 reporting a total Income of Rs. 2,67,471/-. Assessee claimed a deduction under chapter VI-A of the Act, of the Interest income earned on deposits made with various co-operative banks. The return was processed u/s 143(1) of the Act by Central Processing Centre (CPC), Bengaluru. CPC rejected the claim of Rs.29,58,400/- u/s 80P vide intimation dated 26.02.2013 and raised a demand of Rs. 9,36,610/-including interest u/s 234A, 234B and 234C of The Act. Aggrieved, assessee went in appeal before the ld. CIT(A).
In the present appeal, order passed by ld. CIT(A) is an ex parte order directing the ld. Assessing Officer to tax the net income that corresponds to the income earned from investments in cooperative bank after allowing the proportionate expenses and thus partly allowed the grounds of appeal. Aggrieved, assessee in in appeal before the Tribunal.
The moot point before us is in respect of eligibility of deduction of Rs.29,58,400/- 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.
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 u/s. 80P(2)(d) which allows deduction only in respect of receipts from cooperative society. It is worth noting that assessee has derived interest income from various sources and has suo motto not claimed
8. On the above stated facts, the issue before us is no longer res integra as 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.
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.
For the reasons stated above, this Court does not find any merit in the present appeal. Hence, the appeal is dismissed.”
8.1. 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.
8.2. 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.
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 Pathare Prabhu Coop Hsg Soc Ltd., AY 2012-13 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.
10.1. In a recent 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 [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 Pathare Prabhu Coop Hsg Soc Ltd., AY 2012-13 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."
10.2. It is worth taking note of the fact that this issue had travelled before the Coordinate Bench of ITAT Mumbai in assessee’s own case in 1347/Mum/2023 and 1346/Mum/2023, for Assessment Years 2014-15, 2017-18 and 2018- 19 respectively, wherein the Bench had passed orders in favour of the assessee.
10.3. Considering the factual matrix in the present case which are akin to the judicial precedents dealt above, we hold that assessee is entitled to claim of deduction u/s. 80P(2)(d) towards interest earned on deposits with cooperative banks. Accordingly, the disallowance made is deleted and appeal of the assessee is allowed.
In the result, appeal of the assessee is allowed.