HORIZON CO-OERATIVE HOUSING SOCIETY LIMITED ,MUMBAI vs. ITO, 22(1)(7), MUMBAI

On facts and circumstance of the case and in law, the learned Commissioner of Income (Appeals) ('CIT(A)') erred in affirming the action of Assessing Officer ('AO') in denying deduction of Rs. 1,38,03,563/- under section 80P(2)(d) of the Act 2. On facts and circumstance of the case and in law, the CIT(A) erred in upholding the action of the AO that co-operative bank is a not a co-operative society within the meaning of section 2(19) of the Act. 3. On facts and circumstance of the case and in law, the CIT(A) erred to hold that income of the assessee is not tax exempt under the principle of mutuality even when the assessees objects are and its existence is for service to its members. 4. The above grounds of appeal are without prejudice to each other.”

The assessee is a Co-operating Housing Society under Maharashtra Co- operative Societies Act, 1960. The assessee filed the return of income for AY 2017-18 on 28.09.2017 declaring a total income of Rs. 70,200/-. During the year under consideration the assessee has received a sum of Rs. 1,38,03,563/- as interest from deposits with Co-operative Bank and the same has been claimed as under section 80P(2)(d) of the Income Tax Act, 1961 (the Act). The AO held that the impugned interest cannot claimed as deduction under section 80P(2)(d) of the Act by placing reliance on the decision of the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 188 taxmann.com 282 (SC). On further appeal the CIT(A) confirmed the disallowance made by the AO. The assessee is in appeal against the order of the CIT(A).

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 – Horizon Co-operative Housing Society Ltd

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. 9. 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:

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:

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 Horizon Co-operative Housing Society Ltd

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:

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 Co- operative 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 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 juri ictional 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. Horizon Co-operative Housing Society Ltd

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.

Since we have already allowed the claim of deduction under section 80P(2)(d) based on merits, the other grounds raised by the assessee in this regard have become academic and does not warrant separate adjudication.

In result, appeal of the assessee is allowed.