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Facts
The assessee, a co-operative society, filed its return declaring Nil income after claiming deductions under Section 80P(2)(d) for interest/dividend income from co-operative bank investments and under Section 80P(2)(c) for Rs. 1 Cr. The AO disallowed the 80P(2)(d) claim and restricted the 80P(2)(c) claim to Rs. 50 Lakhs, which the CIT(A) confirmed.
Held
The Tribunal allowed the deduction under Section 80P(2)(d) for interest and dividend income from co-operative banks, citing Madras High Court judgments. However, it upheld the restriction of deduction under Section 80P(2)(c) to Rs. 50,000/- (under 80P(2)(c)(ii)), as the society was engaged in activities beyond its primary classification, as per a Supreme Court ruling.
Key Issues
1. Eligibility of deduction under Section 80P(2)(d) for interest and dividend income from deposits in co-operative banks. 2. The quantum of deduction permissible under Section 80P(2)(c) for a co-operative society engaged in activities beyond its primary objects.
Sections Cited
80P, 80P(2)(d), 80P(2)(c), 80P(2)(c)(i), 80P(2)(c)(ii), 143(3), 143(3A), 143(3B)
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2018-19 arises out of the order of Learned Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi [hereinafter “CIT(A)”] dated 20.07.2024 in the matter of assessment framed by the Assessing Officer [AO] u/s. 143(3) r.w.s 143(3A) & 143(3B) of the Income-tax Act,1961 (hereinafter “the Act”) on 26.03.2021.
:- 2 -: 2. The brief facts of the case are that the assessee is a co- operative society and filed its return of income on 27.06.2018 declaring total income at Nil after claiming deduction of Rs. 37,72,395/-. The assessee has shown income of Rs.26,13,527/- as income from investment and claimed deduction u/s. 80P(2)(d) of the Act. The details of investments are as under:
Details of investments Income from investment Interest on R.F in VCCB 1,302 Int on SSD VCCD 646 Int ACSf in VCCB 24 Int EPF int in VCCB 49,524 Int on special BDR in VCCB 33,346 Risk fund Int in VCCB 75 Interest on Liquidity cover dep 16,80,493 Interest on sb account with VCCB 7,05,731 Dividend from Investment in shares 1,42,386 Total 26,13,527
The A.O has disallowed the claim u/s. 80P(2)(d) of the Act holding that investment in co-operative banks is not eligible for deduction u/s. 80P(2)(d) of the Act. The assessee has also claimed deduction of Rs. 1 Cr. u/s. 80P(2)(c) of the Act. The A.O has restricted the claim to Rs. 50 Lakhs u/s. 80P(2)(c)(ii) of the Act. Aggrieved, the assessee filed an appeal before Ld. CIT(A). On appeal, the Ld. CIT(A) has confirmed the order of A.O.
The Ld. Authorized Representative (A.R) of the assessee on the ground of appeal against disallowing interest and dividend from :- 3 -: cooperative bank u/s 80(2)(d) has argued that the Ld. CIT(A) ignoring the decision of Hon’ble Jurisdictional High Court in the case of Thorapadi Urban Co-op. Credit Society Ltd., vs. ITO dated 10.10.2023 (Mad.) and CIT vs. The salem Agricultural Producers Co-operative Marketing Society in Tax Appeal No.5 of 2015 dated 10.08.2015 (Mad) has held that interest income from deposits kept with co-operative banks is not allowed deduction u/s. 80P(2)(d) of the Act. The Ld. AR has argued that the Hon’ble Madras High Court in the case of Thorapadi Urban Co-op. Credit Society Ltd., vs. ITO, supra, relying on the decision of Division Bench in the case of CIT vs. The Salem Agricultural Producers Co-operative Marketing Society, supra, has held that co-operative bank falls within the purview of Co-operative Society hence, interest and dividend earned are allowed for the purpose of deduction u/s. 80P(2)(d) of the Act. The Ld AR on the issue of deduction u/s 80P(2)©(1) has submitted that assessee is a consumer cooperative society , therefore it is eligible for deduction of Rs 1,00,000/-.
The Ld. Departmental Representative (DR), on the other hand, has relied on the orders of lower authorities.
:- 4 -: 6. We have heard the rival submissions, and perused the materials available on record. The assessee has received interest and dividend from the Vellore District Central Co-operative Bank (VDCCB) and has claimed deduction u/s. 80P(2)(d) of the Act. The assessee has submitted evidence that VDCCB is registered under the Tamil Nadu Cooperative Societies Act, 1983. We find that the issue of deduction of interest and dividend u/s 80P(2)(d) from Cooperative Banks which are registered under Tamil Nadu Coperative Societies Act is covered by the decision of the Hon’ble Madras High Court in the case of CIT vs. The Salem Agricultural Producers Co-operative Marketing Society, supra, wherein it has been held that income earned from interest and dividends derived from co-operative bank, which is also a Co-operative Society, is entitled for deduction u/s. 80P(2)(d) of the Act, provided the bank is registered under the Tamil Nadu Societies Act. Therefore, this ground of appeal is being allowed.
7. As regard to claim of deduction of Rs. 1,00,000/- u/s. 80P(2)(c)(i) of the Act, the Ld. CIT(A) has held that the assessee society itself admitted that its principal and primary activity is to accept deposits and grant loans and advance to the Members of society and Hon’ble Supreme Court in the case of Mavilayi Service Cooperative Bank Ltd. vs. CIT in Civil Appeal No.7343/2019 dated 21.01.2021 (SC), has held :- 5 -: in order to avail of benefit u/s 80P, a cooperative society once classified as a particular type of society, it must continue to fulfill those objects alone. If such objects are carried out partially and society conducts any other legitimate type of activity, such cooperative society would only be entitled to a maximum deduction of Rs 50,000/- under sub clause (c). The Ld. CIT(A) therefore upheld that the Public Distribution System trading activity cannot be classified as the main objective of the assessee and allowed a deduction of Rs.50,000/- under section 80P(2)(c)(ii) of the Act. We find no infirmity in the order of Ld. CIT(A) on this issue and therefore, disallowance made is upheld.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced on 07th February, 2025.