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Facts
The assessee, a Cooperative Housing Society, claimed a deduction of Rs.1,30,240 under Section 80P(2)(d) for interest income earned from savings and fixed deposits with cooperative banks. This deduction was initially disallowed by CPC and the rectification request was rejected, a decision upheld by the Ld. Commissioner on the grounds that it was a controversial issue beyond the ambit of rectification under Section 154.
Held
The Tribunal, while acknowledging the Ld. Commissioner's view on rectification, held that the legal issue concerning Section 80P(2)(d) has been decided in favor of the assessee by higher courts, including the Supreme Court. Applying the principle that where two reasonable constructions of a taxing provision are possible, the one favoring the assessee should be adopted, the Tribunal allowed the deduction claimed under Section 80P(2)(d) and set aside the CIT(A)'s order.
Key Issues
Whether the assessee, a Cooperative Housing Society, is entitled to a deduction under Section 80P(2)(d) for interest income earned from investments with other cooperative banks, considering the applicability of Section 80P(4) and conflicting High Court judgments.
Sections Cited
250, 154, 80P(2)(d), 80P, 80P(1), 2(19), 80P(4), 143(1)
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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY
Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Assessee against the order dated 27.09.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) under section 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2019-20.
Rs. ”Nil” by filing its return of income on dated 31.08.2019, has claimed the deduction of Rs.1,30,240/- on account of interest income earned from savings bank accounts and fixed deposits accounts detailed below:
: 1. Cosmos Co-operative Bank (FDR) Rs.4,467/- : 2. Abhyudaya Co-operative Bank (FDR) Rs 90,611/- : 3. Abhyudava Co-operative Bank (FDR) Rs. 24,476/- : 4. Abhyudaya Co-operative Bank (SB) Rs. 1,090/- 5. The Maharashtra State Co-op Bank (58) : Rs 9.596/- ------------------------------ Total : Rs. 130,240/-
Such deduction claimed by the Assessee was disallowed by CPC vide intimation/order dated 01.05.2020.
The Assessee, being aggrieved against the said intimation, preferred a rectification application u/s 154 of the Act on dated 23.05.2020 which was disposed of vide order dated 14.07.2020 u/s 154 of the ACT, by the CPC whereby the request for rectification of the intimation/order dated 01.05.2020 with respect to non-allowing the deduction claimed u/s 80P(2)(d) of the Act, was rejected.
5. The Assessee, being aggrieved, challenged the said order u/s 154 of the Act before the Ld. Commissioner, who by impugned following reasons:
“That an error which is not self evident and has to be detected by a process of reasoning, can hardly be said to be an error apparent on the face of record and that an error on the face of the record must be such an error and which, mere looking at the record should strike and it should not require any long-drawn process of reasoning on the points where there may conceivably be two opinions. The issue involved in the instant case is a controversial one and is yet to attain finality. Therefore, being a controversial issue, this issue is beyond the ambit of provisions of section 154 of the Act. Various courts of law have time and again held that any controversial issue cannot be entertained u/s 154 of the Act as the same cannot be stated to be “mistake apparent on record”. Therefore, there is no scope in interfering with the order and it is upheld”.
6. This Court is in concurrence with the observation of the Ld. Commissioner that an error which is not self evident has to be detected by a process of reasoning, cannot be said to be an error apparent on the face of record. However, the issue involved in this case is now dealt with and decided in favour of the Assessee, by considering relevant provisions of law and the dictum laid down by Hon’ble Apex Court and various High Courts by various courts including by the co-ordinate Bench of the Tribunal in the case of Pathare Prabhu Cooperative Housing Society Ltd. V/s ITO [ITA No. 1346 & 1347/Mum/2023 and reported vide 153 taxmann.com 714 (Mum.Trib)] by holding as under:
“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) ..... (b) ..... (c) ..... (d) in respect of any income by way of interest or dividends derived by the cooperative 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 Cooperative 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 M/s. Dreamland Cooperative Housing Society Limited 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 Cooperative 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 Cooperative Bank Ltd. vs CIT, Calicut, [2021] 431 ITR 1 (SC) while analyzing 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 Cooperative 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 Udyog Bhavan Premises Coop Society Ltd vs ITO, in Mum./2017, vide order dated 25/04/2018, 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 cooperative 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 M/s. Dreamland Cooperative Housing Society Limited 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 01.04.2007, 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 cooperative 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 cooperative society from its investments made with any other cooperative 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 Cooperative 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 Cooperative 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/s Totagars Co-operative Sales Society, [2017] 395 ITR 611 (Karn.), wherein it was held that interest earned by the assessee, a Co-operative Society, from surplus deposits kept with a Cooperative Bank, was not eligible for deduction under section 80P(2)(d) of the Act. We find that in an earlier decision the M/s. Dreamland Cooperative Housing Society Limited Hon’ble Karnataka High Court in Pr.CIT v/s Totagars Co- operative Sales Society, [2017] 392 ITR 74 (Karn.) 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., [1972] 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 Cooperative 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.” {highlighted for clarity}
Thus, for just and proper decision of the case and in the interest of substantial justice and considering the fact that the issue involved in this case has emanated from order/intimation dated 01.05.2020 u/s 143(1) of the Act r.w. order dated 14.02.2024 u/s 154 of the Act and therefore respectfully following the judgement referred to above; this Court is inclined to allow the claim of the Assessee qua deduction claimed u/s 80P(2)(d) of the Act. Thus, the deduction claimed is allowed and addition is deleted.
In the result, the appeal of the Assessee is allowed.
Order pronounced in the open court on 16.01.2025.