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Facts
The assessee, a co-operative housing society, earned interest income from deposits made with Saraswat Co-operative Bank. The Assessing Officer (AO) denied deduction for this interest income under Section 80P(2)(d) of the Income Tax Act, relying on Section 80P(4). The appeals were filed after a delay.
Held
The Tribunal held that Section 80P(4) is a proviso to Section 80P(1) and (2) and excludes co-operative banks functioning like commercial banks. However, it does not exclude interest earned by a co-operative society from investments with a co-operative bank. The Tribunal condoned the delay and directed the AO to allow the deduction under Section 80P(2)(d).
Key Issues
Whether interest income earned by a co-operative society from its investments with a co-operative bank is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, notwithstanding Section 80P(4).
Sections Cited
80P(2)(d), 80P(4), 2(19)
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SMT. BEENA PILLAI, JM
Per: Smt. Beena Pillai, J.M.: Present appeals filed by the assessee arises out of separate orders passed by NFAC Delhi, for assessment years 2016-17, 2017- 18 and 2020-21 vide order dated 31/03/2024 and 29/03/2024 respectively.
At the outset, the Ld.AR submitted that there is delay of 130 days approximately, in filing all three appeals before this Tribunal. The Ld.AR submitted that the assessee was served with copies of the impugned orders electronically through mail. It is submitted that, there was dispute between the temporary managing committee about the areas of responsibilities, due to which the function of the society adversely affected. He submitted that, it is subsequently by intervention of the Registrar of Co-operative Society, that a change in the office bearers were made who then took charge of societies accounts and tax matters. Ld. AR submitted that due to these reasons the delay occurred. 2.1 He thus, prayed for the delay to be condoned, as it was bonafide circumstances that prevented the assessee from filing present appeals before this Tribunal within the period of limitation. 2.2 On the contrary, the Ld.DR vehemently opposed the application for condonation of delay filed by the assessee in all the three appeals. I have perused the submission advanced by both the sides in the light of records placed before me.
From the application filed by the assessee alongwith affidavit, it is noted that, there is no malafide intention on behalf of the assessee in not presenting the appeals before this Tribunal within the period of limitation. The reasons stated in the affidavit under oath brings out a reasonable and sufficient cause that led to the filing of these appeals belatedly. 3.1 As observed by Hon’ble Supreme Court in case of Collector Land Acquisition vs. Mst. Katiji & Others reported in (1987) 167 ITR 471 (SC), substantial justice has to be pitted before the technicalities, in order to render justice. In any event, assessee is not in any benefit by not presenting these appeals before the Tribunal belatedly. 3.2 I am therefore, condoning the delay in filing the appeals before this Tribunal. Accordingly, the application dated 02/01/2025 filed by the assessee in all the three appeals stands allowed.
On merits of the case, the Ld.AR submitted that, only challenge is against the disallowance made by the Ld.AO u/s 80P(2)(d) of the Act. It is submitted that, the assessee earned interest from Saraswat Co-operative Bank. It was submitted by the Ld.AR that the provisions of clause 4 of Section 80P were relied by the Ld. AO to hold that the assessee is not eligible for deduction against the interest income earned from Saraswat Co-operative Bank. 4.1 The Ld.AR further submitted that the issue has been subject matter of litigation before various Tribunals in plethora of decisions. He placed reliance on the following decisions of Co- ordinate Bench of this Tribunal : “1. The Mangalorean Garden Homes Coop. Housing Society ITA/1696/Mum./2024 dt. 20th Sept'24 2. M/s. Torino Coop. Hse Society ITA/2470/Mum./2024 dt. 2nd August 2024 3. M/s. Raheja Chambers Premises Coop. Society Ltd. ITA/630/Mum./2024 dt. 25th June 2024”
4.2 He also placed on record order passed by the Ld.CIT(A) -33 Mumbai for assessment year 2015-16 on 19/10/2019, wherein identical claim of interest earned by the assessee from Mumbai District Central Co-operative Bank Ltd and Saraswat Co-operative Bank was allowed as deduction u/s 80P(2)(d) by observing as under: “Decision- 7. I have considered the submission of the appellant as well as facts mentioned in the assessment order. 7.1 As per provisions of sec. 80P(2)(d), it is abundantly clear that in order to claim deduction u/s 80P(2)(d), the assessee co- operative society must receive interest income from the investments made with any other co-operative society. 7.2 The term 'co-operative society' has been defined u/s 2(19) of the Act to mean a co-operative society registered under the Co- operative Societies Act, 1912 or under any other law for the time being in force in any state for the registration of cooperative societies. 7.3 The decisions in the following case laws allow deduction u/s SOP (2)(d) on interest earned by a co-operative society from co-operative banks: a) PCIT vs. Totagars Co-operative Sale Society [20171 392 ITR 74 Karnataka) / [2017] 78 taxmann.com 169 The assessee was a co-operative credit society and its business was to provide credit facilities to its members and to market their agricultural produce. Interest income was earned by the assessee from deposits in the Co-operative Banks. The issue before the Court was whether for the purpose of Section 80P(2)(d), a co-operative Bank is to be considered as a co-operative society. The Court held that the co-operative bank is merely a variety of the co-operative society and hence included in the same and therefore interest earned from co- operative bank would be deductible u/s 80P(2)(d). b) State Bank of India vs. CIT [20161 389 ITR 578 (Guiaratl/ [20161 72 taxmann.com 64 (Gujarat) The assessee was a co-operative society accepting deposits from employees of SBI and providing credit facilities to them. It earned interest on deposits made with SBI. The assessee had claimed deduction u/s 80P(2)(a)(i). The Court held that interest derived by depositing surplus funds with the SBI notbeing attributable to the business carried on by the assessee, cannot be deducted u/s 80P(2)(a)(i). It was also stated by the Court in the aforesaid decision that if the appellant wants to avail of the benefit of deduction of such interest income, it is open for it to deposit the surplus funds with co-operative bank and avail of deduction under section 80P(2)(d). c) Kaliandas Udyog Bhavan Premises Co-operative Society Ltd. vs ITO (2018) 94 Taxmann.com 15 (Mumbai- Trib) d) Lands End Co-operative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum) e) Sea Grean Co-operative Housing Society Ltd. Vs ITO 21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated: 31.03.2017. f) MerwanjeeCama Park Co-operative Housing Society Ltd. Vs. ITO (ITA No. 6139/Mum/2014, dated: 27.09.2017. In the aforesaid four decisions of the Mumbai Tribunal from (c) to (f), it has been held that the assessee is entitled to deduction under section 80P(2)(d) in respect of interest income on investments made with the co-operative banks. In the case of Kaliandas Udyog Bhavan Premises Co-operative Society Ltd. (Supra), it has been noted by the ITAT, Mumbai that there are conflicting decisions of non- jurisdictional High Courts. The Tribunal has also referred to the decision of the Bombay High Court in case of K. Subramanian Vs. Siemens India Ltd. [1983] 15 Taxman 594/[ 1985] 156ITR 11 (Bom) wherein it was held by the jurisdictionalHigh Court that if there is a conflict between decisions of non-jurisdictional High Courts, then a view which is in favour of the assessee is to be preferred as against that taken against him. The Tribunal in the case of Kaliandas Udyog Bhavan Premises Co-operative Society Ltd.(Supra) also held that the adjudication of the Supreme Court in case of Tatgars Co-operative Sale Society Ltd.(Supra) was in context of Sec. 80P(2)(a)(i) and not on entitlement of a co-operative society towards deduction under section 80P(2)(d) on investments parked with a co-operative bank. 7.4 Considering the provisions of the Income-tax Act under section SOP and section 2(19) and aforesaid judicial pronouncements, I am of the view that the cooperative bank is a type of co-operative society which gets license from RBI to conduct banking business. Section 80P(4) denies deduction of an assessee if it is co-operative bank. However, the deduction in respect of interest earned by a cooperative society from deposits/investments made with a co-operative bank is allowable u/s 80P(2)(d) and the same is not affected or controlled by Section 80P(4). Therefore, it is held that the assessee is eligible for deduction in respect of interest of Rs. 32,05,234/-earned on its investments with the co-operative banks u/s. 80P(2)(d). The grounds are allowed.”
4.3 On the contrary the Ld. DR relied on orders passed by the authorities below. I have perused the submission advanced by both sides in the light of the records placed before me. 5. A similar issue was considered by Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. Vs. CIT reported in (2021) 123 taxmann.com 161 and observed as under:
“5. We have heard the parties and perused the material available on record. We notice that the Co-ordinate Bench has been consistently holding that the income derived by way of interest from Co-operative Banks is also eligible for deduction under section 80P. The relevant observations of the coordinate bench in Pathare Prabhu Co–operative Housing Society Ltd. (supra) where it is held that– 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 Cooperative 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 Cooperative 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 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 „cooperative 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 Cooperative 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 Cooperative 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 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 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 cooperative 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 cooperative societies;' NEETU We are of the considered view, that though the cooperative 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 cooperative 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 Cooperative 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 Cooperative 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.
6. Considering that the issue in assessee's case being identical i.e. denial of deduction under section 80P(2)(d) towards interest earned from deposits with Cooperative Banks, respectfully following the above decision we hold that the assessee is entitled for deduction under section 80P(2)(d) towards income derived from deposits with Co-operative Bank. Accordingly, the AO is directed to allow the deduction claimed by the assessee.”
5.1 Admittedly, in the year under consideration the assessee has earned interest only from Saraswat Co-operative Bank Ltd. Under such circumstances. Respectfully following the view taken hereinabove, I direct the Ld.AO to allow the claim to the assessee u/s 80P(2)(d) of the Act. 6. Accordingly, the grounds raised by the assessee stands allowed. In the result, the appeals filed by the assessee in all the assessment years stands allowed. Order pronounced in the open court on 13/01/2025