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Facts
The assessee, a co-operative housing society, claimed deductions under Section 80P(2)(d) for interest income of INR 24,19,242 from deposits in co-operative banks and a standard deduction of INR 50,000 under Section 80P(2)(c). The assessment under Section 143(1) and the CIT(A) upheld the disallowance of both deductions, arguing that interest from co-operative banks did not qualify for Section 80P(2)(d) and Section 80P(2)(c) was inapplicable to the assessee's activities.
Held
The Tribunal allowed the appeal, holding that interest income from deposits with co-operative banks is eligible for deduction under Section 80P(2)(d), relying on previous ITAT judgments and the principle that ambiguous taxing statutes should favor the assessee. It also ruled that the assessee, as a co-operative housing society engaged in activities other than those specified in clauses (a) or (b) of Section 80P(2), is entitled to the standard deduction of INR 50,000 under Section 80P(2)(c). The AO was directed to grant both deductions.
Key Issues
1. Whether interest income earned by a co-operative housing society from deposits in co-operative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act. 2. Whether a co-operative housing society is entitled to a standard deduction under Section 80P(2)(c).
Sections Cited
250, 143(1), 80P, 80P(1), 80P(2), 80P(2)(c), 80P(2)(d), 80P(2)(a), 80P(2)(b), 80P(2)(a)(i), 80P(4), 2(19)
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Income Tax Appellate Tribunal, “H”(SMC
Before: SHRI SANDEEP SINGH KARHAILSHRI GIRISH AGRAWAL
Date of Hearing – 11/02/2025 Date of Order – 14/02/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal against the impugned order dated 06/12/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Additional/Joint Commissioner of Income Tax (Appeals)–2, Noida [“learned Addl./Joint CIT(A)”], for the assessment year 2019-20.
Suvarna Nagar Co.op. Hsg. Soc. Ltd. 2
In this appeal, the assessee has raised the following ground:
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1. The learned Commissioner of Income Tax (Appeals) erred in confirming the Order of the Asst. Director making addition of Rs. 24,69,242/- by disallowing the deduction u/s 80P (2)(d) and 80P(2)(d) of the Act.
2. The assessee craves leave to add, alter or modify the grounds of appeal and submit a detailed statement of facts, written submissions and case law relied upon at the time of the hearing.
3. The sole grievance of the assessee is against the denial of deduction claimed under section 80P(2)(c) section 80P(2)(d) of the Act on the interest income earned on saving accounts and fixed deposits maintained with Co- operative Banks.
4. The brief facts of the case are that the assessee is a co-operative housing society duly registered under the Maharashtra State Co-operative Society Act. For the year under consideration, the assessee filed its return of income on 01/10/2019, declaring a total income of INR 4,24,090. The return filed by the assessee was processed vide intimation dated 06/03/2020 issued under section 143(1) of the Act, determining the total income of the assessee at INR 28,93,330 after disallowing the deduction of INR 24,19,242 claimed under section 80P(2)(d) of the Act and deduction of INR 50,000 claimed under section 80P(2)(c) of the Act. The learned Addl./Joint CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the disallowance of deduction claimed under section 80P(2)(c)and section 80P(2)(d) of the Act on the basis that the interest earned from the Co- operative Banks do not qualify for deduction under section 80P(2)(d) of the Act. Further, the learned Addl./Joint CIT(A) also denied the deduction
Suvarna Nagar Co.op. Hsg. Soc. Ltd. 3 claimed under section 80P(2)(c) of the Act on the basis that the provision is applicable to co-operative societies engaged in activities other than those specified in sub-section (2) of section 80P of the Act and the assessee is a co-operative housing society, which does not fall within the ambit of section 80P(2)(c) of the Act. Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. In the present case, the assessee is a co- operative housing society. During the year under consideration, the assessee earned interest income from saving accounts and fixed deposits maintained with the Co-operative Banks, which was recognised as income of the society. Thus, during the year under consideration, the assessee earned interest income of INR 24,19,242 from its deposits maintained with the Co- operative Banks, and the same was claimed as a deduction under section 80P(2)(d) of the Act, which was denied by the lower authorities. Further, the assessee claimed standard deduction of INR 50,000 under section 80P(2)(c) of the Act, which was also denied to the assessee.
We find that while deciding the issue pertaining to the claim of deduction under section 80P(2)(d) of the Act with respect to the interest income earned from investment with Co-operative Bank, the coordinate bench of the Tribunal in Pathare Prabhu Co–operative Housing Society v/s ITO, (2023) 202 ITD 464 (Mum-Trib), held that interest income 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: –
Suvarna Nagar Co.op. Hsg. Soc. Ltd. 4 “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.
9. 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;"
10. 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 ;"
11. 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 Suvarna Nagar Co.op. Hsg. Soc. Ltd. 5 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 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 Suvarna Nagar Co.op. Hsg. Soc. Ltd. 6 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 Suvarna Nagar Co.op. Hsg. Soc. Ltd. 7
assessment year 2018-19. As a result, grounds raised by the assessee are allowed.”
7. We find that the decision of the Hon’ble Supreme Court in Citizen Co- operative Society Ltd. v/s ACIT, reported in [2017] 397 ITR 1 (SC), relied upon in the impugned order, is not applicable to the facts of the present case as the Hon’ble Supreme Court was examining the issue whether a taxpayer, who is a co-operative credit society, is entitled to claim deduction under section 80P(2)(a)(i) of the Act when the society was carrying on the banking business for public at large instead of carry on business of banking or providing credit facilities to its members. However, in the present case, the issue under consideration before us pertains to the claim of deduction under section 80P(2)(d) of the Act on the interest income earned on saving accounts and fixed deposits maintained with Co-operative Banks.
Therefore, respectfully following the decision of the coordinate bench of the cited supra, we direct the AO to grant a deduction under section 80P(2)(d) of the Act to the assessee in respect of the interest income earned from deposits made with the Co-operative Banks.
Further, we find that the decision of the Hon’ble Jurisdictional High Court in Sind Co-op. Hsg. Society v/s Income-tax Officer, reported in [2009] 317 ITR 47 (Bom.), relied upon in the impugned order for denying the deduction under section 80P(2)(c) of the Act, is also not applicable to the facts of the present case as the issue before the Hon’ble Court was whether any part of transfer fees received by the assessee societies - whether from outgoing or incoming members - is not liable to tax on the ground of Suvarna Nagar Co.op. Hsg. Soc. Ltd. 8 mutuality. Further, as is evident from para-26 of the judgment, the Hon’ble High Court did not examine the applicability of provisions of section 80P of the Act in the facts of the case.
Insofar as the provisions of section 80P(2)(c) of the Act are concerned, the same provides for a standard deduction, inter-alia, of INR 50,000 in case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) of section 80P(2) of the Act. In the present case, there is no dispute regarding the fact that the assessee is a co-operative housing society. Such being the facts, it is ostensible that the assessee is engaged in activities which is other than those specified in clause (a) or clause (b) of section 80P(2) of the Act. Therefore, we are of the considered view that the assessee rightly claimed the deduction of INR 50,000 under section 80P(2)(c) of the Act. Accordingly, the AO is directed to grant a deduction under section 80P(2)(c) of the Act to the assessee. As a result, the impugned order is set aside and sole ground raised by the assessee is allowed.
In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on /02/2025.