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Facts
The assessee, a co-operative credit society, claimed deduction under Section 80P for interest and dividend earned from co-operative banks. The AO disallowed the deduction, holding that Section 80P(4) restricted such benefits to primary agricultural credit societies. The CIT(A) upheld the AO's order.
Held
The Tribunal held that a co-operative bank is a co-operative society, and the assessee is eligible for deduction under Section 80P(2)(d) for interest and dividend earned from other co-operative societies. The disallowance made by the AO and upheld by the CIT(A) was unjustified.
Key Issues
Whether a co-operative credit society is eligible for deduction under Section 80P(2)(d) on interest and dividend income earned from other co-operative banks, notwithstanding Section 80P(4) of the Act.
Sections Cited
250, 143(3), 143(1), 143(2), 142(1), 80P, 80P(2)(d), 80P(4)
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Income Tax Appellate Tribunal, MUMBAI BENCH “J(SMC
Before: SHRI VIKRAM SINGH YADAV & SHRI ANIKESH BANERJEE
The instant appeal of the assessee was filed against the order of the Learned Commissioner of Income-tax (Appeal) / ADDL / JCIT(A)-1, Visakhapatanam *in short, ‘Ld.CIT(A)’]passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’)for A.Y. 2017-18, date of order 03/03/2025. The impugned order was emanated from the order of the Learned Income-tax Officer 2 1783/Mum/2025 MES Industrial Employees’ Co-operative Credit Society Ltd 17(2)(2),Mumbai (in short the “Ld. AO”) passed under section 143(3) of the Act, date of order 16/12/2019.
The assessee has raised the following grounds of appeal:-
1. On the facts and circumstances of the case and in law, it be held the Ld.CIT(A) has erred in confirming the order of Ld.AO disallowing deduction ofRs.10,87,877/- under section 80P of the Income-tax Act. It be held that the appellant is eligible for such deduction and appellant be granted just and proper relief in this respect.
2. On the facts and circumstances of the case and in law, it be held the Ld.CIT(A) has erred in confirming the order of the Ld.AO disallowing deduction under section 80P without appreciating the judgements relied by the appellant during the course of hearing. It be held that the appellant is eligible for such deduction and appellant be granted just and proper relief in this respect.
3 The appellant craves to add, amend, alter or leave any of the above grounds of appeal.”
The brief facts of the case are that the assessee is a co-operative credit society, engaged in activity of providing credit facilities to the MES Industrial Employees. The object of the assessee is to provide credit facility and other related services to its members, who are employees of Military Engineering Service. The society has been formed with an intend of extending credit facilities to its members and to carry on the duties as a registered co-operative society. The assessee society filed the return declaring total income at Nil after claiming deduction under section 80P of the Act at Rs.99,37,017/-. The said return was processed under section 143(1) of the Act and the case was selected for scrutiny and the notice under section 143(2) and 142(1) of the Act were issued. During 3 1783/Mum/2025 MES Industrial Employees’ Co-operative Credit Society Ltd the assessment proceedings, it was found that the assessee earned interest from following co-operative banks:-
1.
Interest on FDR Rs.7,58,062/- 2. Interest on Savings Bank Account Rs. 34,877/- 3. Dividend from MDCC Ltd Rs.2,94,877/- Rs.10,87,877/- And the interest earned from investment in Co-operative Credit Society which was claimed as deduction under section 80P(2)(d) of the Act. During assessment, the assessee claimed that the assessee is a co-operative society to be an entity registered under Co-operative Societies’ Act, 1912 and assessee is eligible for deduction under Chapter VIA under section 80P(2)(d) of the Act. The Ld.AO during the assessment observed that the assessee is contravening the provisions of section 80P(4) of the Act and the co-operative society is not eligible for deduction of interest from co-operative banks under section 80P(2)(d) of the Act. He explained that the primary agricultural credit society is only eligible for this deduction. But the assessee considered these co-operative banks as co-operative credit societies relying on the order of the Hon’ble Apex Court and the order of the ITAT, Mumbai Benches. Finally, the assessment was completed and the deduction under section 80P was reduced by a amount of Rs.10,87,877/- and total exemption was reduced from Rs.99,37,017/- to Rs.88,49,137/-. The aggrieved assessee filed an appeal before the Ld. CIT(A) and the Ld.CIT(A) has upheld the view taken by the Ld.AO. Being aggrieved, the assessee filed an appeal before us.
4. We heard the rival submissions and considered the documents available on the record. It is argued that the issue is well settled by the Hon’ble Apex Court 4 1783/Mum/2025 MES Industrial Employees’ Co-operative Credit Society Ltd and by the ITAT, Mumbai Benches that a co-operative bank is primarily the co- operative society. So, the interest and dividend earned by the assessee from the co-operative bank is eligible for deduction under section 80P(2)(d) of the Act. The same issue was dealt by the co-ordinate bench in the case of Jaimuni Sahkari Patpedhi Maryadit in to 334/Mum/2025 order dated 06/03/2025, wherein it has been held as follows:-
“6. We heard the rival submissions and considered the documents available on record. The only issue as agitated by the assessee society related to interest and dividend from co-operative banks which is claimed as deduction under section 80P(2)(d) of the Act.The Ld. CIT(A) in his order had referred the judgement of Hon’ble High Court of Gujarat in the matter of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd v. ACIT [2022] 140 taxmann.com 602 (Gujarat) wherein the deduction of 80P(2)(d) were not allowed to the appellant.The Ld. AR distinguished that inference drawn in the instant matter as compared to the matter relied upon by Ld.CIT(A) in pronouncement of his Order.In the matter of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd (supra) the facts were that the Appellant had received interest income from both Co- operative Banks as well as Nationalised Bank and the same was claimed as deduction u/s 80P(2)(d).Whereas in the instant case, the assessee has received interest only from Co operative Banks. Section 80P(2)(d) provides for deduction of interest received by a Co-operative Society from another Co-operative Society. A Co-operative Society being a Co-operative Society fits into the permissible provisions of the deductions.Thus the case referred by the Ld. CIT(A) in his judgement is not applicable or relatable to the facts of the instant case.
The Ld. AR argued that the two judgements passed by same Hon'ble Gujarat High Court in which the Ld. CIT(A) had relied onare distinguishable pertaining to the claim of deduction u/s 80P(2)(d).
The Ld. AR respectfully relied on the order of Hon’ble Gujrat High Court inPCIT v. Ashwinkumar Arban Co Operative Society Ltd [2024] 168 taxmann.com 314 (Gujarat) wherein the high court has allowed the deduction claimed by the appellant u/s 80P(2)(d) taking into 5 1783/Mum/2025 MES Industrial Employees’ Co-operative Credit Society Ltd consideration the judgement passed by Hon'ble Apex Court in the case of Kerala State Cooperative Agricultural and Rural Development Bank Ltd v. Assessing Officer [2023] 154 taxmann.com 305/295 Taxman 675/458 ITR 384 (SC). The relevant extract is as follows- "28. Having heard learned advocates for the respective parties and considering the controversy arising in these tax appeals, we are of the opinion that the controversy sought to be canvassed with regard to deduction under section 80P(2)(d) of the Act is no more res integra in view of the decision of this Court in case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. (supra) as well as in case of State Bank of India (supra) wherein it was held that the deduction of under section 80P(2)(d) of the Act is available to the cooperative societies on the income earned as interest on the investment made with the cooperative bank which in turn, is a cooperative society itself.
In the matter of PCIT v. Shree Madhi Vighag Khand Udyog Sahakari Mandli Ltd [2025] 171 tomann.com 22 (Gujarat), wherein it was held that the appellant being a cooperative society, earning interest on investment made with a cooperative bank and claiming deduction under section 80P(2)(d), deduction was to be allowed under section 80P(2)(d).
8. Further the Ld. AR respectfully relied on the order of the Hon'ble Supreme Court in PCIT Vs Annasaheb Patil MathadiKamgarSahakariPathpedi Limited, Civil Appeal No. 8719/2022 dated 20/04/2023 it is held that, "…………Even otherwise, on merits also and taking into consideration the CBDT Circulars and even the definition of Bank under the Banking Regulation Act, the respondent/Assessee cannot be said to be Co-operative Bank/Bank and, therefore, Section 80(P)(4)shall not be applicable and that the respondent/Assessee shall be entitled to exemption/benefit under Section 80(P)(2) of the Income Tax Act." The reliance was placed in the order of the Hon'ble Supreme Court in Kerala State Co-Operative Agricultural And Rural Development Bank Ltd. KSCARDB vs. Assessing Officer, [2023] 458 ITR 384 (SC), it has been held that, "15.14…………… Conclusion: In the instant case, although the appellant society is an apex cooperative society within the meaning of the State Act, 1984, it is not a co-operative bank within the meaning of Section 5(b) read with Section 56 of the BR Act, 1949.
6 1783/Mum/2025 MES Industrial Employees’ Co-operative Credit Society Ltd In the result, the appeals filed by the appellant are allowed and the order(s) of the Kerala High Court and other authorities to the contrary are set aside. Consequently, we hold that the appellant is entitled to the benefit of deduction under Section 80P of the Act."
The further reliance was placed on the following judgments of coordinate bench of ITAT which are as follows. i) (2014) 44 Taxmann.com 123 (Panaji Trib.) Tarani Mahila Co-op Credit Society Ltd. ii) (2014) 50 Taxmann.com 210 (Pune Trib) - MSEB Employees Co-op Cr Soc. Ltd iii) (2014) 59 Taxmann.com 97 (Bang Trib) Bagalkot District State Govt. Employees Co-op Credit Soc. Ltd. iv) (2014) 60 Taxmnn.com 163 (Hyderabad Trib)-Metrocity Criminal Courts Employees Mutually Aided Co-op. Credit Society v) (2014) 52 Taxmann.com 104 (Bang. Trib) Shree Laxmananda Multipurpose Co-op Soc. Ltd. vi)
(Assessment Year: 2013-14) Income Tax Officer Ward- 20(2)(2), Mumbai vs M/s. Mazgaon Dock Employees Co. Op. Credit Society Ltd dated 27.06.2018 vii) LT.A. No. 3048/Mum/2016 (Assessment Year: 2012-13) ITO 20(2)(2) vs M/s Mazgaon Dock Employees Co-op. Credit Society Ltd. dated 28/02/2018 viii) Assessment Year 2017-18 & ITA No. 165/MUM/2024 Assessment Year: 2020-21-Income Tax Officer-28.3.1, Mumbai vs Vaibhav Co-op Credit Society dated 29.05.2024 9. In our considered view the issue is well settled by the order of the Hon’ble Supreme Court. The revenue has restricted the claim of deduction U/s 80P(2)(d) in pursuance of section 80P(4) of the Act and the cooperative bank is not considered as cooperative society. Respectful reliance was placed on the order of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Limited(supra) and Kerala State Co-Operative Agricultural and Rural Development Bank Ltd. KSCARDB(supra) where the Hon’ble Apex Court categorically stated that cooperative bank is the cooperative society and not acted as Bank under Banking Regulation Act,1949.We note the orders of the