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Facts
The assessee, a cooperative housing society, claimed deduction under Section 80P(2)(d) for interest earned from cooperative banks. The Assessing Officer and the CIT(A) disallowed this deduction, holding that cooperative banks are not cooperative societies for the purpose of this deduction.
Held
The Tribunal held that cooperative banks fall within the definition of cooperative societies and thus, interest earned from such banks by a cooperative society is eligible for deduction under Section 80P(2)(d) of the Income Tax Act.
Key Issues
Whether interest 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
250, 80P(2)(d), 143(3), 80P(2)(c)(ii), 2(19), 80P(4), 80 P (2) (d), 263
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Income Tax Appellate Tribunal, “SMC” BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN
Assessee by Shri Rakesh Joshi Revenue by Shri Sunil Agawane, Sr. DR Date of Hearing 30.01.2025 Date of Pronouncement 18.02.2025 आदेश / ORDER
PER SANDEEP GOSAIN, JM:
1. The present appeals have been filed by the assessee challenging the different impugned orders dated 21.11.2024, passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (‘Ld. CIT(A)’) for the assessment year 2017-18 & 2018-19.
Since all the issues involved in these appeals are common and identical, therefore, they have been clubbed, heard together and consolidated order is being passed for the sake of convenience and brevity. We shall take A.Y 2017-18 as lead case and facts narrated therein. The assessee has raised the following grounds of appeal.
1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned 1 Assessing Officer in disallowing the deduction u/s.80P(2)(d) of the Income Tax Act, 1961 amounting to Rs.27,19,303/- without considering the facts and circumstances of the case.
2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in not allowing deduction of Rs.50,000/-/- under section 80P(2)(c)(ii) of the Act against other income which is an independent deduction allowable, without considering the facts and circumstances of the case.
3. The appellant craves leave to add, amend, alter or delete the said ground of appeal.
3. As per the facts of the case, the assessee is a cooperative housing Society Limited. Since during the year under consideration the assesse had received interest from cooperative bank, therefore claimed deduction u/s 80P(2)(d) of the Act after claiming incidental expenses. But the same was denied vide assessment order passed u/s 143(3) of the Act dated 30.11.2019, consequently additions made.
4. Although, against the said order of assessment, assessee preferred appeal but the same was rejected by Ld. CIT(A) vide its order dated 21.11.2024.
Now before me the present appeal has been filed by the assessee thereby raising two grounds of appeal. Both the grounds raised by the assessee are interrelated and interconnected relates to challenging the order of Ld. CIT(A) in confirming the disallowance of deduction u/s 80P(2)(d) of the Act. Therefore, I have decided to take up both the issues together and to adjudicate the same through the present consolidated order.
The Ld. AR while reiterating the same arguments as were raised by him before the revenue authorities and also relied upon his written submissions, the contents of the same are reproduced herein below:
The appellant is a Co-operative Housing Society and filed its return of Income for both the year after claiming deduction U/s 80P(2)(d) on interest received from Co-operative Banks. Yearwise details of returned income and deduction claimed are as under:
Sr. No Particulars A.Y 2017-18 A.Y 2018-19 1 Gross Total Income 27,93,069 38,63,839 2 Deduction U/s 8P(2)(d) 26,88,195 38,63,839 3 Total Income 1,04,870 Nil 4 Date of Return filing 02.011.2017 30.10.2018
During assessment AO disallowed claim of deduction U/s 80P(2)(d) on the plea that that as per section 2(19) the definition of Co-operative societies does not include 'bank' and accordingly co-operative banks can not be treated as co-operative societies, hence assessee is not eligible to claim deduction U/s 80P(2)(d) for the interest received from such banks.
Learned CIT - A rejected the explanation of the assessee which was also before the learned AO that deduction by way of interest is allowed only when the cooperative society investment is made in another cooperative society and cooperative banks are not cooperative societies. Therefore, assessee's investment in cooperative banks earning interest income is not eligible for deduction under section 80 P (2) (d) of the act. The learned CIT - A further referred to the provisions of section 80 P (4) of the act and as well as the definition of cooperative society under section 2 (19) of the act and held that there is no ambiguity in this issue and the assessee has invested in different cooperative banks and earned interest thereon is not eligible for deduction under section 80 P (2) (d) of the act. He also relied upon the decision of Hon'ble Gujarat High Court in case of Katlary Kariyana Merchant Sahkari Sarfi Mandali Ltd Vs ACIT (327 CTR 138) in support of his contention. Thus he confirmed the action of the AO.
Before the Hon'ble Bench we submit as under: -
i. According to the provisions of section 80 P in case of a cooperative society the gross total income if it includes the income referred to in is subsection (2) then same shall be granted as a deduction subject to the conditions and to the extent of amount specified from the total income. In subsection 2, clause (d) provides that in respect of income by way of interest on dividend derived by the cooperative society from its investment with any other cooperative society the whole of such income is eligible for deduction. Therefore, if the cooperative society makes any investment in another cooperative societies and consequently on any interest or dividend earned from such investment total sum so earned is eligible for deduction. ii. Section 2 (19) of the act defines cooperative society means a cooperative society registered under the cooperative societies act, 1912 or under any other law for the time being in force in any State for the registration of cooperative societies. Thus if the cooperative banks are falling into the definition of 'cooperative societies', naturally the deduction would be eligible to the assessee under section 80 P (2) (d) of the act. iii. Section 2 (10) of the Maharashtra cooperative societies act defines "Co-operative bank" means a Co-operative society which is doing the business of banking as defined in clause (b) of sub- sections (1) of section 5 of the Banking Companies Act, 1949 and includes any society which is functioning or is to function as an Agricultural and Rural Development Bank under Chapter XI; Therefore, according to the above definition, the cooperative banks are also cooperative society iv. Thus, on plain reading of the sections of the income tax act it is clear that if assessee has made an investment in fixed deposit receipts or in savings bank account, interest earned thereon is eligible for deduction under section 80 P (2) (d) of the act
V. As far as reliance on the decision of Hon'ble Gujarat High Court in case of Katlary Kariyana Merchant Sahkari Sarfi Mandali Ltd Vs ACIT (327 CTR 138) by Ld CIT(A), we submit that the said decision of Hon'ble Gujarat High Court was later modified vide order dated 26/04/2024, copy enclosed, and the same was considered by the Hon'ble Gujarat High Court in it's later decision in case of PCIT VS. Ashwinkumar Arban Co-operative Society Ltd (168 taxmann.com 314)(Guj), where in para 18 the Hon'ble Court has discussed this facts, which is reproduced as under:
"18. It was submitted that this Court while considering the applicability of sections 80P(2)(a)(i) and 80P(2)(d) has also held that the interest income earned by the assessee has rightly been considered taxable and not entitled to the deduction under section 80P(2)(d) as the investment was made in nature of FDR other than Cooperative Societies i.e. other Cooperative Banks and Nationalized Bank. It was therefore submitted that the decision of the Katlary Raiyana Merchant Sahkari Sarafi Mandali Ltd. (supra) was further modified by order dated 26.04.2024 wherein, in para 19, it was the words "other cooperative Banks" after the words other than Cooperative Bank" are modified to be read as "other banks"." vi. Therefore, reliance by the Ld CIT(A) on a order which was modified by the same court is not a good practice and can not be sustained. In the case of Ashwinkumar Arban Co-operative Society Ltd(Supra) the Hon'ble Gujarat High Court after considering various decisions has held that interest received from Co-operative banks are eligible for deduction U/s 80P(2)(d) of the Act. Relevant part of the decision is as under:
"33. In view of the above dictum of law as well as the provisions of the Act which are considered we are of the opinion that the provisions of section 80P(2)(d) would be applicable in the facts of the case and the PCIT was not justified in invoking revisional powers under section 263 of the Act which is rightly reversed by the Tribunal holding that the cooperative bank is a cooperative society registered under the Gujarat State Cooperative Societies Act and in view of the various decisions of the Court, the Tribunal after following the same has come to the conclusion that the assessment was not erroneous allowing deduction of section 80P(2)(d) of the Act which is in consonance with the various decisions of the Court as a twin condition invoking section 263 as to the assessment being erroneous and prejudicial to the interest of the revenue are not being fulfilled." vii. Since the issue is squarely covered in favour of the assesse, Hon'ble Bench is requested to kindly set aside the order of lower authorities and allow deduction U/s 80P(2)(d) of the Act.
The Ld. AR further submitted that the issue in question is squarely covered in favour of assessee.
On the other hand, Ld. DR representing the respondent relied upon the orders passed by the revenue authorities.
9. I have heard the counsels for both the parties and I have also perused the material placed on record, judgements cited before us and also the orders passed by the revenue authorities. Ld. AR submitted that the issue in the present appeal are fully covered by the decision of coordinate bench of ITAT in case of Ashok tower “D” Co. Op. Housing Society Ltd. Vs. ITO, reported in [2024] 163 taxmann.com 598 (Mumbai-Trib), where in it was held that assessee co-operative housing society was eligible for deduction u/s 80P(2)(d) in respect of interest income earned by it from a co-operative bank and accordingly, AO was directed to grant deduction to assessee on interest income earned from cooperative banks u/s 80(2)(d). The operative portion of the order of the coordinate bench of ITAT is reproduced herein below:
We have heard the rival contentions and perused the orders of the lower authorities. The simple controversy involved in this appeal is that assessee is a co-operative society, has placed certain funds with cooperative banks and earned interest thereon of Rs. 1,472,930/-. The claim of the assessee is that deduction is available under section 80 P (2) (d) of the act to the assessee.
According to the provisions of section 80 P in case of a cooperative society the gross total income if it includes the income referred to in is subsection (2) then same shall be granted as a deduction subject to the conditions and to the extent of amount specified from the total income. In subsection 2, clause (d) provides that in respect of income by way of interest on dividend derived by the cooperative society from its investment with any other cooperative society the whole of such income is eligible for deduction. Therefore if the cooperative society makes any investment in another cooperative societies and consequently on any the cooper dividend earned from such investment total sum so is eligible for deduction
The controversy involved here is that the argument of the revenue is that when the assessee has made investment in another cooperative society copy then this deduction is allowable. Therefore according to the if amount is not investment trative society, the deduction is not eligible. The reden to the AO if the count is investment in a cooperative bank which is different from cooperative societies or the says that cooperative societies and therefore the assessee is not entitled to deduction under section 80 P (2) (d) of the Act.
12. Section 2 (19) of the act defines cooperative society means a cooperative society registered under the Cooperative societies act, 1912 or under any other law for the time being in force in any State for the registration of cooperative societies. Thus if the cooperative banks are falling into the definition of cooperative societies', naturally the deduction would be eligible to the assessee under section 80 P (2) (d) of the act. Therefore it needs to be examined that whether the cooperative banks are operative societies under section 2 subsection (19) of the act are not.
Section 2 (10) of the Maharashtra cooperative societies act defines "Co-operative bank" means a Co- operative society which is doing the business of banking as defined in clause (b) of sub- sections (1) of section 5 of the Banking Companies Act, 1949 and includes any society which is functioning or is to function as an Agricultural and Rural Development Bank under Chapter XI; Therefore according to the above definition, the cooperative banks are also cooperative society
Thus, though the assessee has referred to several judicial precedents, even after considering those precedents, which also holds the same view, we do not have any hesitation to hold that the amount of investment made by the assessee with cooperative
banks in Maharashtra are also investment made in cooperative society.
Thus, on plain reading of the sections of the income tax act it is clear that if assessee has made an investment in fixed deposit receipts or in savings bank account, interest earned thereon is eligible for deduction under section 80 P (2) (d) of the act. The words of the statute are plain and clear and there is no room for applying any of the principles of interpretation. We are supposed to interpret them as they stand. It is not the claim of the revenue that assessee is not a cooperative society.
In the result, the orders of the lower authorities are reversed and the learned AO is directed to grant deduction to the assessee on interest income earned from cooperative banks u/s 80 P (2) (d) of The Act.
In the result, Appeal of the assessee is allowed.
10. In view of the discussion made above and respectfully, following the decision in the case of Ashok tower “D” Co. Op. Housing Society Ltd. (supra) cited above, I decide ground No. 1 & 2 in favour of assessee and accordingly grounds raised by the assessee are allowed.
11. As the facts and circumstances in these appeals are identical to for the A.Y 2017-18 (except variance in figures) and the decision rendered in above paragraph would apply ‘mutatis mutandis’ for these appeals also. Accordingly, the grounds of appeal of the assessee are allowed.
In the result, both the appeals filed by the assessee are allowed.
Order pronounced in the open court on 18.02.2025.