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Facts
The assessee, a Primary Thrift & Credit Society, filed its return declaring NIL income after claiming a deduction of Rs. 2,19,062/- on interest income earned from Erode District Central Co-operative Bank. The CPC rejected this claim, and a subsequent rectification application was also dismissed.
Held
The Tribunal held that the interest income earned by the assessee from the Erode District Central Co-operative Bank is eligible for deduction under Section 80P(2)(d) of the Act, as the bank is a cooperative society. The deduction cannot be denied unless it is shown that the bank is not a cooperative society.
Key Issues
Whether interest income earned from a cooperative bank by a cooperative society is eligible for deduction under Section 80P(2)(d) of the Income Tax Act.
Sections Cited
80P(2)(d), 143(1), 154
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee co-operative society against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as “the Ld.CIT(A)”), Delhi, dated 14.06.2024 for the Assessment Year (hereinafter referred to as "AY”)
2021-22.
At the outset, the Ld. Counsel for the assessee submitted that there is a delay of ‘89’ days in filing of this appeal and explained the reason for cause of delay. Having gone through the facts which led to the delay, we find that there was sufficient cause for the cause of delay and hence, we condone the delay of ‘89’ days and proceed to adjudicate the appeal on merits.
The main grievance of the assessee is against the action of the Ld.CIT(A) disallowing the deduction u/s.80P(2)(d) of the Income Tax Act, 1961 (hereinafter referred to as "the Act”) amounting to Rs.2,19,062/- in respect of the interest income from Erode District Central Co-operative Bank.
The brief facts are that the assessee is a Primary Thrift & Credit Society and registered under the Tamil Nadu Co-op. Socialites Act, 1983 and had filed its return of income (RoI) declaring ‘NIL’ income for AY 2021-22 after claiming deduction u/s.80P(2)(d) of the Act to the tune of Rs.2,19,062/-. The assessee claims to have made deposits with Erode District Central Co-op. Bank Ltd., and has earned interest income on such deposits; and later the return was processed by the CPC u/s.143(1) of the Act, wherein the claim u/s.80P(2)(d) of the Act was rejected; and pursuant to it, the assessee filed a rectification application u/s.154 of the Act, which was dismissed.
On appeal, the Ld.CIT(A) concurred with the CPC’s action, inter alia, by stating that the assessee failed to show that the Central Co-operative Bank was a Co-operative Society and therefore, he dismissed the appeal of the assessee.
Aggrieved, the assessee is in appeal before this Tribunal.
Having heard both the parties and after perusal of the records, we note that the assessee has claimed deduction u/s.80P(2)(d) of the Act to the tune of Rs.2,19,062/-, which was not allowed by the CPC u/s.143(1)
1. of the Act. The Ld.CIT(A) upheld the CPC’s action inter-alia on the ground that the assessee failed to show that the Erode District Central Co- operative Bank was a Cooperative Society. The assessee’s assertion is that it is entitled for 80P deduction on the interest income received from Erode District Central Co-operative Bank u/s.80P(2)(d) of the Act, since said bank is primarily a Society and therefore, the AO/CPC as well as the Ld.CIT(A) erred in disallowing it. In order to examine this issue, let us look into the relevant provisions of Sec.80P(2) of the Act, which reads as under:
Deduction in respect of income of co-operative societies. 80P.(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub- section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.
(2)The sums referred to in sub-section (1) shall be the following, namely:-
(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;
[(4) The provisions of this section shall not apply in relation to any co- operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
Explanation - For the purposes of this sub-section,-
(a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949);
(b) primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.]
The assessee’s case is that it has received interest from Erode District Central Co-operative Bank which is basically a Co-operative Society.
Therefore, the income by way of interest derived by it from its investment with Erode District Central Co-operative Bank/Society is exempt under sub-clause (d) of sub-section 2 of section 80P of the Act. We find force in the contentions of the assessee and is of the considered view that interest earned by assessee from another Co-operative Society, which in this case a Erode District Co-operative Society/Bank is eligible u/s.80P(2)(d) of the Act; unless the Ld.CIT(A)/AO could show that the Erode District Co- operative Bank (from which assessee earned interest on its deposits) is not basically a Co-operative Society, the deduction can’t be denied; and for such a proposition, we rely on the decision of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. & Others. V. CIT reported in [2021] 431 ITR 1 (SC). Therefore, unless the assessee earns interest income from a Co-operative Bank which is not basically a Co-operative Society, the assessee can’t be denied the deduction u/s.80P(2)(d) of the Act, which is a benevolent provision enacted by the Parliament to encourage and promote the co-operative sector in general and therefore, must be read liberally and reasonably and if there is ambiguity in favour of the assessee. A deduction that is given without any reference to any restriction, or limitation can’t be restricted or limited by implication. Therefore, the Ld.CIT(A) ought not to have denied the claim of assessee. Therefore, we set-aside, the impugned order of Ld CIT(A), and direct the AO to allow the deduction claimed by the assessee u/s.80P(2)(d) of the Act, to the tune of Rs.2,19,062/--
In the result, appeal filed by the assessee is allowed.
Order pronounced on the 26th day of May, 2025, in Chennai.