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Facts
The assessee, a cooperative housing society, claimed deduction under Section 80P(2)(d) for interest income earned from fixed deposits with cooperative banks. The AO disallowed this deduction, holding that these banks are not cooperative societies. The CIT(A) upheld the AO's disallowance.
Held
The Tribunal held that the assessee is entitled to claim deduction under Section 80P(2)(d) for interest income earned from deposits with cooperative banks. The Tribunal relied on coordinate bench decisions and Supreme Court pronouncements regarding Section 80P(4).
Key Issues
Whether interest income earned by a cooperative housing society from deposits made with cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, considering the provisions of Section 80P(4).
Sections Cited
80P(2)(d), 80P(4), 143(3), 250, 2(19)
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Before: SMT. BEENA PILLAI & SMT. RENU JAUHRI
Assessee by : Shri Dhanshyam Patel (Treasurer) Revenue by : Shri Asif Karmali (Sr. DR) Date of Hearing 19.02.2025 Date of Pronouncement 28.02.2025 आदेश / O R D E R PER RENU JAUHRI [A.M.] :- These appeals are filed by the assessee against the orders of the Learned Commissioner of Income-tax (Appeals), Mumbai/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] dated 04.12.2024 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2016-17, 2017-18 & 2018-19.
255 & 256/ Mum/2025 A.Y. 2016-17, 17-18 & 18-19 Raj legacy 1 Co-Operative HSG SOC. Ltd 2. The assessee has raised the following grounds of appeal: AY 2016-17
1. The Ld. CIT(A) erred in confirming the action of Ld AO of not allowing the deduction u/s 80P(2)(d) in respect of interest income received from Co- operative bank to the tune of Rs. 31,46,130/- on the ground that the co- operative bank is not a co-operative society.
2. The Ld. CIT(A) has also erred in confirming the action of Ld AO of not allowing the deduction by incorrectly interpreting the provisions of section 80P(4) and thus, he has ignored the reality that the provisions in this section are to be viewed from the recipient's perspective and not the payer. 3 The Ld. CIT(A) has also erred in confirming the action of Ld AO of not allowing the deduction u/s 80(P)(2)(d) by interpreting that the conditions of Mutuality Concept are not satisfied in the case of interest earned from Co- operative Banks.” AY 2017-18 “1. The Ld. CIT(A) erred in confirming the action of Ld AO of not aliowing the deduction uls 80P(2)(d) in respect of interest income received from Co- operative bank to the tune of Rs. 30,94,735/- on the ground that the co- operative bank is not a co-operative society. 2 The Ld. CIT(A) has also erred in confirming the action of Ld AO of not allowing the deduction by incorrectly interpreting the provisions of section 80P(4) and thus, he has ignored the reality that the provisions in this section are to be viewed from the recipient's perspective and not the payer.
3. The Ld. CIT(A) has also erred in confirming the action of Ld AO of not allowing the deduction u/s 80(P)(2)(d) by interpreting that the conditions of Mutuality Concept are not satisfied in the case of interest earned from Co- operative Banks. AY 2018-19
1. The Ld. CIT(A) erred in confirming the action of Ld AO of not allowing the deduction u/s 80P(2)(d) in respect of interest income received from Co- operative bank to the tune of Rs. 31,46,130/-on the ground that the co- operative bank is not a co-operative society.
2. The Ld. CIT(A) has also erred in confirming the action of Ld AO of not allowing the deduction by incorrectly interpreting the provisions of section 80P(4) and thus, he has ignored the reality that the provisions in this section are to be viewed from the recipient's perspective and not the payer.
3. The Ld. CIT(A) has also erred in confirming the action of Ld. AO of not allowing the deduction u/s 80(P)(2)(d) by interpreting that the conditions of Mutuality Concept are not satisfied in the case of interest earned from Co- operative Banks.
3. Since facts in all four appeals are identical, these appeals are being disposed of together vide a common order. AY 2016-17 is taken up as a lead case.
255 & 256/ Mum/2025 A.Y. 2016-17, 17-18 & 18-19 Raj legacy 1 Co-Operative HSG SOC. Ltd
Brief facts of the case are that the assessee is a cooperative housing society and has filed return declaring a total income of Rs. 2,35,417/- on 15.10.2016. The assessee had claimed deduction u/s 80P(2)(d) of the Act in respect of interest income earned from fixed deposits with cooperative banks viz. Saraswat Co-operative Bank, Shamrao Vithal Co-operative Bank & MDCC Bank Ltd.
Ld. AO disallowed the claim of deduction u/s 80P(2)(d) of the Act after holding that the co-operative banks cannot be treated as cooperative societies. Accordingly, Ld. AO proceeded to complete the assessment u/s 143(3) at an income of Rs. 31,46,130/- after disallowing the claim of deduction u/s 80P(2)(d) of the Act.
6. Aggrieved with the order of Ld. AO, the assessee preferred an appeal before Ld. CIT(A). The assessee’s appeal was dismissed on merits by the Ld. CIT(A) after holding that the interest income is not earned by applying the principle of mutuality and is therefore outside the purview of deduction u/s 80P of the Act. 7. Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before the Tribunal. Before us, Ld. AR has argued that on similar facts and circumstances, numerous decisions by the co-ordinate benches have allowed the claim of deduction u/s 80P(2)(d) of the Act in respect of interest earned 255 & 256/ Mum/2025 A.Y. 2016-17, 17-18 & 18-19 Raj legacy 1 Co-Operative HSG SOC. Ltd from fixed deposits with co-operative banks in the hands of the cooperative societies.
8. Ld. DR has, on the other hand, strongly relied on the orders of lower authorities and argued for upholding the disallowance of interest income u/s 80P(2)(d) of the Act.
We have heard the rival submissions and perused the material placed before us. We observe that this issue has been decided in numerous decisions of the co-ordinate benches wherein it has been held that the interest income earned from deposits made with co-operative banks are eligible for deduction u/s 80P(2)(d) of the Act. In this regard, reliance is placed on one of the decisions of the co-ordinate bench in for AY 2015-16 Kona Seema Co-operative Housing Society Ltd. dated 08.11.2023. Relevant portion of the order is reproduced as under: “5. We have considered the submissions of both sides and perused the material available on record. The dispute raised by the assessee is against the denial of deduction claimed under section 80P(2)(d) of the Act in respect of interest income received from the Co-operative Banks. The assessee is a Co-operative Housing Society and during the assessment year 2015-16 earned ITA no.2024/Mum./2023 interest income of Rs. 5,74,097 from the investments made in Saraswat Co-operative Bank Ltd and Maharashtra State Co-operative Bank Ltd.
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)....................
255 & 256/ Mum/2025 A.Y. 2016-17, 17-18 & 18-19 Raj legacy 1 Co-Operative HSG SOC. Ltd (d) in respect of any income by way of interest or dividends derived by the co- operative society from its investments with any other co-operative society, the whole of such income;"
Thus, for the purpose of provisions of section 80P(2)(d) of the Act, two conditions are required to be cumulatively satisfied- (i) income by way of interest or dividend is earned by the Co-operative Society from the investments, and (ii) such investments should be with any other Co-operative Society, Further, the term 'co-operative society' is defined under section 2(19) of the Act as under: "(19) "co-operative society" means a co-operative society registered under the Co- operative 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;"
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 Co-operative Bank. Accordingly, the assessee kept the deposits in Saraswat Co- operative Bank Ltd and Maharashtra State Co-operative Bank Ltd and earned interest, which was claimed as a deduction under section 80P(2)(d) of the Act. The deduction under section 80P(2)(d) of the Act was denied on the basis that the Saraswat Co-operative Bank Ltd and Maharashtra State Co-operative Bank Ltd are multi-state schreduled banks and therefore interest derived will not qualify for deduction under section 80P(2)(d) of the Act. However, from the perusal of section 80P(2)(d) of the Act, it is sufficiently evident that there is no restriction on claiming deduction under the said section in respect of interest income earned from the Co- operative society operating in multiple states. Further, section 80P(4) of the Act is of relevance only in a case where the taxpayer, who is a Co-operauve Bank, claims a deduction under section 80P of the Act which is not the facts of the present case. We find that the Hon'ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs CIT, Calicut, [2021] 431 ITR 1 (SC) while analysing 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 Co-operative 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 i.e. which lend money to members of the public. Therefore, we find no merits in the reasoning adopted by the learned CIT(A) in denying deduction under section 80P(2)(d) of the Act to the assessee. As a result, grounds no. 4 and 5 raised in assessee's appeal are allowed”
Respectfully following the decision of the co-ordinate bench in the above case, we hereby hold that the assessee is entitled to claim deduction u/s 255 & 256/ Mum/2025 A.Y. 2016-17, 17-18 & 18-19 Raj legacy 1 Co-Operative HSG SOC. Ltd 80P(2)(d) of the Act in respect of interest income earned from deposits made with the co-operative banks. Ld. AO, therefore, is directed to allow the deduction as claimed by the assessee in respect of interest income earned from the co-operative banks. & 256/Mum/2025 for AY 2017-18 & 2018-19 11. Since the issues involved in these two appeals are identical, the above decision will apply mutatis mutandis to these years also. Accordingly, Ld. AO is directed to allow the claim deduction u/s 80P(2)(d) to the assessee in respect of interest income from deposits made with co-operative banks for all the three appeals for AY 2016-17, 2017-18 and 2018-19.
In the result, the appeals of the assessee are allowed. Order pronounced in the open court on 28.02.2025.