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Facts
The assessee, a cooperative credit society, earned interest income from deposits made with cooperative banks. The Assessing Officer disallowed the deduction claimed under Section 80P(2)(d) of the Income Tax Act for this interest income, which was upheld by the CIT(A).
Held
The Tribunal held that interest income earned by a cooperative society from its investments in cooperative banks is eligible for deduction under Section 80P(2)(d) of the Act. They followed the decision of the Coordinate Bench and set aside the order of the CIT(A).
Key Issues
Whether interest income earned by a cooperative society from deposits with cooperative banks is deductible under Section 80P(2)(d) of the Income Tax Act.
Sections Cited
80P(2)(d), 143(3), 234A, 234B, 234C, 270A, 80P(1), 80P(4), 2(19)
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Income Tax Appellate Tribunal, “K (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/250/2023-24/1057560299(1), dated 31.10.2023 passed against the assessment order by Income Tax Officer, Ward 4(5), Thane, u/s. 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 28.12.2019 for Assessment Year 2017-18.
2. Grounds taken by the assessee are reproduced as under:
1. 1. In the facts and circumstances of the case and in law, the learned A.O. erred in not granting deduction u/s 80P(2)(d) amounting to RS 46,13,533/- by way of income from other sources in respect of interest earned on fixed deposit with Co-operative bank.
2. In the facts and circumstances of the case and in law, the learned Commissioner of Income Tax(A) erred in confirming the same by rejecting written submissions and several judgments cited before him.
3. In the facts and circumstances of the case and in law, the learned A.O. erred in wrong charging interest u/s 234A, B & C and levying penalty u/s 270A. [B] Relief Prayed: The appellant therefore prays Your Honour; 1) To allow the deduction of Rs. 46,13,533/- claimed u/s 80P(2)(d). 2) To delete the interest u/s 234A, B & C and penalty u/s 270A. [C] General:- • The appellant reserves rights to add alter or delete any portion of this appeal before its conclusion. • This appeal is filed late and the delay may please be condoned. • A Detailed paper book along with case laws will be submitted at the time of hearing.
Sole grievance of assessee is against the denial of deduction of Rs.46.13,533/- claimed under section 80P(2)(d) of the Act on the in- terest income earned on Time Deposits maintained with Co-operative Banks.
2.1. There is a delay of 373 days in filing the present appeal for which petition for condonation of delay alongwith affidavit are placed on record. It is submitted that wife of Chairman of assessee was suffering from lung cancer and the Chartered Accountant engaged also went Ekta Sahakari Patpedhi Maryadit, AY 2017-18 through medical issues. 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.
Assessee is a Cooperative Credit Society, carrying on banking business and providing banking facilities to its members. Assessee accepts deposits from its members and gives loan to its members. Assessee filed its return of income on 27.10.2017 reporting a total income at Rs.1,91,57,850/- and claimed deduction under Chapter VI- A of Rs.1,90,45,423/-. Assessee claimed deduction u/s. 80P(2)(a) of Rs.1,43,81,890/- and u/s. 80P(2)(d) of Rs. 46,13,533/-. Ld. CIT(A) dismissed the appeal filed by the assessee and upheld the disallowance of deduction claimed under section 80P(2)(d) of the Act on the basis that section 80P(2)(d) of the Act allows a deduction 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. According to him, in the present case, deposits/investments were made with Co-operative Banks and not with co-operative societies. Being aggrieved, assessee is in appeal before the Tribunal.
We have considered the submissions of both sides and perused the material available on record. In the present case, assessee is a co-operative credit society carrying on banking business and providing banking facilities to its members. Assessee accepts deposits from its members and gives loans to its members. As per the contentions of assessee, the surplus money out of the money collected from its members are kept from time to time in Time Deposits with the Ekta Sahakari Patpedhi Maryadit, AY 2017-18 Co-operative Banks and interest earned thereon is recognised as income of the society. Thus, during the year under consideration, assessee earned total interest of Rs.1,59,79,326/- from deposits maintained with Cooperative Banks, details of which is tabulated be- low. From this interest income, after providing for proportionate ex- penses of Rs.1,13,65,793/-, net interest income of Rs.46,13,533/- was claimed as a deduction u/s.80P(2)(d).
Sr. No. Particulars Amount (Rs.) 1. Bassien Catholic Co-op. Bank Ltd. 81,08,514 2. Apna Sahakari Bank Ltd. 6,11,803 3. Abhuday Co-op Bank 1,74,058 4. Municipal Co-op Bank 60,63,891 5. Thane Dist. Co-op Bank 2,380 (Saving Account) 6. Bassien Catholic Co-op. Bank Ltd. 1,26,857 (Saving Account) 7. Thane Dist. Co-op Bank 8,33,478 (Reserve Fund Deposit) 8. Bassien Catholic Co-op Bank 3,300 (Loan Provision Deposit) 9. Bassien Catholic Co-op Bank 552 (Sulabh Account) 10. Thane Dist. Co-op Bank 54,493,00 Total 1,59,79,326
We find that while deciding a similar issue, the Coordinate Bench of ITAT, Mumbai in the case of Pathare Prabhu Co–operative Housing Society v/s ITO, (2023) 202 ITD 464 (Mum-Trib), held that interest income earned from investment with Co-operative Bank is Ekta Sahakari Patpedhi Maryadit, AY 2017-18 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 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 Ekta Sahakari Patpedhi Maryadit, AY 2017-18 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 KaliandasUdyag 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 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 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 the Coordinate Bench of ITAT cited supra, we allow the claim of the assessee for deduction u/s. 80P(2)(d) of Rs.46,13,533/- in re- Banks. Accordingly, grounds raised by the assessee are allowed.
In the result, appeal by the assessee is allowed.