DATTA SADAN CO OPERATIVE HOUSING SOCIETY LIMITED,MUMBAI vs. INCOME TAX OFFICER 22 1 6, MUMBAI

The learned Addl/Jt. Commissioner of Income Tax (Appeals) grossly erred in not following the decisions of the Mumbai Bench of the Tribunal relied upon by the appellant in support of its contentions and submissions that deduction under Section 80P (2)(d) of the Income Tax Act, 1961 on the interest income derived by a Co-operative Society from its investments held with Cooperative Banks is allowable in which the decisions quoted by the Learned Addl/Jt. Commissioner of Income Tax (Appeals) have been duly considered.”

The sole grievance of the assessee is against the denial of deduction claimed under section 80P(2)(d) of the Act on the interest income earned on Time Deposits maintained with Co-operative Banks.

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 16/12/2021, declaring a total income of INR 35,140. The return filed by the assessee was processed vide intimation dated 19/10/2022 issued under section 143(1) of the Act, determining the total income of the assessee at INR 3,90,770 after disallowing the deduction claimed under section 80P(2)(d) of the Act amounting to INR 3,55,622. 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)(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.However, in the present case, the deposits/investments were made with the Co-operative Banks and not with co-operative societies. 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 collecting money from its members for the maintenance of society and spending the same on the maintenance of society. As per the assessee, the surplus money out of the money collected from its members is kept from time to time in Time Deposits with the Co- operative Banks and interest earned thereon is recognised as income of the society. Thus, during the year under consideration, the assessee earned interest income of INR 3,55,622 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.

We find that while deciding a similar issue 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 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: –

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:

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:

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 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:

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

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, 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. Accordingly, the impugned order is set aside and grounds raised by the assessee are allowed.

In the result, the appeal by the assessee is allowed.