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Facts
The assessee, a cooperative society, claimed a deduction for interest and dividend income earned from investments in cooperative banks. The Assessing Officer and CIT(A) disallowed this deduction, stating it was income from other sources and not eligible under Section 80P(2)(d) because the banks were not cooperative societies.
Held
The Tribunal held that income earned by a cooperative society from investments in other cooperative societies, including cooperative banks, is eligible for deduction under Section 80P(2)(d). The Tribunal relied on coordinate bench decisions and the principle of adopting a construction favorable to the assessee when there are divergent views.
Key Issues
Whether interest and dividend income earned by a cooperative society from investments in cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income-tax Act.
Sections Cited
80P(2)(d), 80P(2)(a)(i), 143(3), 144B, 80P(1), 2(19), 80P(4)
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Income Tax Appellate Tribunal, “H (SMC
Before: SHRI SANDEEP SINGH KARHAIL & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), vide order no. ITBA/NFAC/S/250/2024-25/1070309076(1), dated 13.11.2024 passed against the assessment order by Income Tax Officer, Ward (125)(1), Mumbai, u/s. 143(3) r.w.s. 144B of the Income-tax Act (hereinafter referred to as the “Act”), dated 12.09.2022 for Assessment Year 2020-21.
Grounds taken by the assessee are reproduced as under:
BSNL Employees Junior Co-op Credit Society Ltd., AY 2020-21 1. The learned CIT (Appeals) National Faceless Appeal Centre failed to appreciate that the Interest and dividend received by the Appellant Society from other co-operative societies of Rs 2590948/- is eligible for deduction u/s 80P(2)(d) 2. The learned CIT (Appeals) National Faceless Appeal Centre has erred in disallowing the deduction u/s 80P(2)(a)(i) for the Interest income of Rs 2314495/- and Rs 276453/- for the dividend income received from Co- operative Societies 3. The appellant craves leave to add, alter, amend, and modify the aforesaid grounds of appeal at or any time before the hearing as may be advised from time to time. B RELIEF CLAIMED
1. The deduction claimed by the Assessee u/s 80P(2)(d) of Rs 25,90,948/- be allowed.
2. Alternatively, the deduction also being allowed u/s 80P(2)(a)(i) of Rs 25,90,948/- be allowed
3. Any other Relief as may be deemed fit by the authority.
Brief facts of the case are that assessee is an Employees Cooperative Society, wherein employees of BSNL are its members. Membership of the assessee society is restricted only to employees of BSNL. Deposits for assessee are generated through deduction from salary and advances are strictly given to members only. Assessee is registered under Maharashtra Cooperative Societies Act, 1960. Assessee claimed deduction of Rs.46,76,120/- u/s. 80P2(a)(i), out of which, claim of Rs. 25,90,948/- was disallowed by ld. Assessing Officer and confirmed by ld. CIT(A). Reasons given by ld. Assessing Officer for making disallowance is that interest is chargeable to tax as ‘income from other sources’ and not under the head ‘profits and gains from business’, since assessee has earned interest and dividend income from deposits kept with the Mumbai District Central Cooperative Bank and Saraswat Cooperative Bank Ltd. and dividend from Maharashtra State Housing Federation, which are not a cooperative society.
Assessee, in the course of assessment submitted that it made investments for meeting these statutory compliances and hence interest income earned by it is allowable u/s.80P2(a)(i). In the alternate, it also submitted that interest and dividend income earned by it is also allowable u/s. 80P2(d), since these incomes have arisen from investments made with cooperative banks. Details of interest and dividend income from investments made from cooperative banks and other entities is tabulate below: (i). Interest Income Interest on FD with Saraswat Co-operative 9,73,531/- Bank Interest with Mumbai District Co-operative 13,76,964/- Bank Total 23,14,495/- (ii). Dividend Income Dividend on share of Mumbai District Co- 2,76,253/- operative Bank Dividend on share of Maharashtra State 200/- Housing Federation Total 2,76,453/- Grand Total Rs. 25,90,948/- 4.1. Assessee, thus contended that interest and dividend income earned by it is from cooperative banks which are first a cooperative society.
We have heard both the parties and perused the material available on record. Admittedly, assessee had claimed deduction u/s.80P2(a)(i), which included interest and dividend income earned by BSNL Employees Junior Co-op Credit Society Ltd., AY 2020-21 it from investments made with cooperative banks. Ld. Assessing Officer disallowed deduction claimed towards interest and dividend income from these investments by holding that these are income from other sources and not business income of the assessee. Assessee has contended alternatively that these incomes are allowable u/s. 80P2(d), since there is no dispute of earning of this income from cooperative banks. The issues before us is no longer res integra, as we find that while deciding similar issue, Coordinate Bench of ITAT, Mumbai in the case of Pathare Prabhu Co–operative Housing Society v. ITO, [2023] 202 ITD 464 (Mum-Trib), held that interest income earned from investment with Co-operative Bank is eligible for deduction under section 80P(2)(d) of the Act. The relevant findings of the Coordinate Bench, in the aforesaid decision, are reproduced as follows: – “8. We have considered the submissions of both sides and perused the material available on record. The only dispute raised by the assessee is against the disallowance of deduction under section 80P(2)(d) of the Act in respect of interest income received from the Co-operative Banks. The assessee is a registered Co-operative Housing Society and during the assessment year 2018-19 earned interest income of Rs. 50,39,861 from the investments made in various Co-operative Banks.
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) to (c) ** ** ** (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 BSNL Employees Junior Co-op Credit Society Ltd., AY 2020-21 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 Co-operative Banks registered under the Maharashtra Co-operative Societies Act and earned interest, which was claimed as a deduction under section 80P(2)(d) of the Act. The AO denied the deduction under section 80P(2)(d) of the Act on the basis that the Co- operative Bank is covered under the provisions of section 80P(4) of the Act. We find that the Hon'ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 123 taxmann.com 161/279 Taxman 75/431 ITR 1 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. Thus, we are of the considered view that section 80P(4) of the Act is of relevance only in a case where the assessee, who is a Co-operative Bank, claims a deduction under section 80P of the Act which is not the facts of the present case. Therefore, we find no merits in the aforesaid reasoning adopted by the AO and upheld by the learned CIT(A) in denying deduction under section 80P(2)(d) of the Act to the assessee.
As regards the claim of deduction under section 80P(2)(d) of the Act, it is also pertinent to note that all Co-operative Banks are Co-operative Societies but vice versa is not true. We find that the coordinate benches of the Tribunal have consistently taken a view in favour of the assessee and held that even the interest earned from the Co-operative Banks is allowable as a deduction under section 80P(2)(d) of the Act. In Kaliandas Udyag Bhavan Premises Co-op Society Ltd. v. ITO [2018] 94 taxmann.com 15 (Mum.)/[ITA No. 6547/Mum./2017, dated 25-4-2018], while dealing with the provisions of section 80P(2)(d) vis-à-vis section 80P(4) of the Act, the coordinate bench of the Tribunal observed as under:
"7. ……Thus, from a perusal of the aforesaid sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee co-operative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We may herein observe, that what is relevant for claim of BSNL Employees Junior Co-op Credit Society Ltd., AY 2020-21 deduction under sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other cooperative society. We though are in agreement with the observations of the lower authorities that with the insertion of sub-section (4) of sec. 80P, vide the Finance Act, 2006, with effect from 1-4-2007, the provisions of sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, but however, are unable to subscribe to their view that the same shall also jeopardise the claim of deduction of a co- operative society under sec. 80P(2)(d) in respect of the interest income on their investments parked with a co-operative bank. We have given a thoughtful consideration to the issue before us and are of the considered view that as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. sec. 80P(2)(d) would be duly available. We may herein observe that the term 'co-operative society' had been defined under sec. 2(19) of the Act, as under:-
'(19) "Co-operative society" means a cooperative 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;'
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, as 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 co-operative societies, therefore, the interest income derived by a co-operative 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 find that the learned CIT(A) has placed reliance upon the decision of the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sales Society [2017] 83 taxmann.com 140/395 ITR 611, wherein it was held that interest earned by the assessee, a Co-operative Society, from surplus deposits kept with a Co-operative Bank, was not eligible for deduction under section 80P(2)(d) of the Act. We find that in an earlier decision the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169/392 ITR 74 held that according to section 80P(2)(d) of the Act, the amount of interest earned from a Co-operative Society Bank would be deductable from the gross income of the Co-operative Society in order to assess its total income. Thus, there are divergent views of the same Hon'ble High Court on the issue of eligibility of deduction under section 80P(2)(d) of the Act in respect of interest earned from Co-operative Bank. No decision of the Hon'ble jurisdictional High Court was brought to our notice on this aspect. We have to, with our highest respect to both the views of the Hon'ble High Court, adopt an objective criterion for deciding as to which decision of the Hon'ble High Court should be followed by us. We find guidance from the judgment of the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR BSNL Employees Junior Co-op Credit Society Ltd., AY 2020-21 192. In the aforesaid decision, the Hon'ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted".
Therefore, in view of the above, we uphold the plea of the assessee and direct the AO to grant the deduction under section 80P(2)(d) of the Act to the assessee in respect of interest income earned from investment with Co- operative Banks. Accordingly, we set aside the impugned order passed by the learned CIT(A) for the assessment year 2018-19. As a result, grounds raised by the assessee are allowed.”
Therefore, in the given set of facts, respectfully following the de- cision of Coordinate Bench of ITAT cited supra, we allow the claim of assessee for deduction u/s. 80P(2)(d) for Rs.25,90,948/- in respect of interest and dividend income earned by it from Cooperative Banks. Accordingly, grounds raised by the assessee are allowed.
In the result, appeal by the assessee is allowed.
Order is pronounced in the open court on 25 February, 2025