B.S.N.L EMPLOYEES JUNIOR CO OPERATIVE CREDIT SOCIETY LIMITD ,MUMBAI vs. ITO WARD 17(1)(2), MUMBAI

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:

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:

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.