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Facts
The assessee, a Co-operative Society, claimed deduction u/s.80P for AY 2020-21. The AO disallowed a portion of this deduction, specifically Rs.1,05,15,757/-, which represented interest income from Central Co-operative Bank, treating it as not allowable.
Held
The Tribunal held that interest income earned by a co-operative society from another co-operative society is eligible for deduction under Section 80P(2)(d) of the Income Tax Act. They relied on a Supreme Court decision and stated that such deductions are benevolent provisions to be interpreted liberally.
Key Issues
Whether interest income earned by a Co-operative Society from another Co-operative Bank/Society is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
Sections Cited
80P, 80P(2)(d), 56
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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:
1. This is an appeal preferred by the assessee Co-operative House Building Society Ltd., against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as “the Ld.CIT(A)”), Delhi, dated 13.08.2024 for the Assessment Year (hereinafter referred to as "AY”) 2020-21.
At the outset, it is noted that the appeal of the assessee is time barred by ‘95’ days and the assessee has filed an affidavit explaining the cause for the delay. After going through the contents of the affidavit and the reason for condonation of delay, we find that there was a sufficient cause for the delay and therefore, we condone the delay and proceed to hear the appeal on merits.
The main grievance of the assessee is against the action of the Ld.CIT(A) confirming the action of the AO denying the deduction of interest income of Rs.1,05,15,757/- from Central Co-operative Bank.
The brief facts are that the assessee is a Co-operative Society registered under the Tamil Nadu Co-operative Societies Act, 1983 which was formed for the purpose of providing loan facility to its members for construction of new house or their additions to the existing house. The AO noted that the assessee has filed its return of income (RoI) for AY 2020-21 on 15.01.2021 offering gross total income at Rs.2,24,59,265/- and total income at Rs.Nil after claiming total deduction of Rs.2,49,36,071/- u/s.80P of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘). The AO after scrutiny has accepted the claim of deduction u/s.80P of the Act except a sum of Rs.1,05,15,757/- which according to the AO was interest income from Central Co-operative Bank which was not allowable.
On appeal, the Ld.CIT(A) concurred with the AO by merely 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 of the Act to the tune of Rs.2,49,36,071/-, which was allowed except that of Rs.1,05,15,757/- on the ground that the same was interest income from the Central Co-operative Bank and therefore, he treated it as other income u/s.56 of the Act. The Ld.CIT(A) is noted to have concurred with the view of the AO on the ground that the assessee failed to show that Central Co-operative Bank was primarily a Society. Before us, the assertion of the Ld.AR is that assessee is entitled for 80P deduction on the interest income received from Central Co-operative Bank u/s.80P(2)(d) of the Act, since said bank is primarily a Society and therefore, according to him, both the AO 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.]
As noted supra, the assessee’s case is that it has received interest from Central Co-operative Bank which is basically a Co-operative Society.
And therefore, the income by way of interest derived by it from its investment with Central Co-operative Bank/Society is exempt under sub- clause (d) of sub-section 2 of section 80P of the Act. Having gone through the records and the relevant provisions of law in respect of claim of assessee, we are of the view that interest earned by assessee from another Co-operative Society, which in this case a Co-operative Society/Bank is eligible u/s.80P(2)(d) of the Act, unless the Ld.CIT(A)/AO could show that the Co-operative Bank (from which assessee earned interest on its deposits) is not basically a Co-operative Society.
Therefore, in the instant case, we are of the view that the deduction claimed by the assessee 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). In the light of the aforesaid discussion, we hold that 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 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.1,05,15,757/-
In the result, appeal filed by the assessee is allowed.
Order pronounced on the 26th day of May, 2025, in Chennai.