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Facts
The assessee, a co-operative housing society, filed appeals for AY 2020-21 and 2021-22 with a delay of 218 days, claiming non-receipt of the impugned order despite selecting 'No' for email communication. The core issue was the disallowance by the CPC and CIT(A) of a deduction claimed under Section 80P(2)(d) for interest and dividend income earned from investments in other co-operative banks.
Held
The Tribunal condoned the delay in filing the appeals, accepting the assessee's reasons as bonafide. On the merits, relying on consistent decisions by various ITAT benches and the Supreme Court's principle of construing taxing provisions in favor of the assessee, it held that Section 80P(4) is applicable only to co-operative banks engaged in banking business and not to co-operative societies merely investing in such banks. Consequently, the assessee was found entitled to the deduction under Section 80P(2)(d) for the interest and dividend income, and the addition made by the authorities below was deleted.
Key Issues
1. Whether the delay in filing the appeal by the assessee should be condoned. 2. Whether a co-operative housing society is eligible for deduction under Section 80P(2)(d) for interest and dividend income earned from investments with other co-operative banks, or if such income is disallowed under Section 80P(4).
Sections Cited
250, 1961, 143(1), 80P, 80P(1), 80P(2), 80P(2)(d), 80P(4), 2(19), 234A, 234B, 234C
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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY
Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Assessee against the order dated 06.02.2024, impugned herein, passed by the passed by the Ld. Addl/Joint Commissioner of Income Tax (Appeals) (in short “Ld. Addl./Joint Commissioner”) under section 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2020-21 & 2021-22.
Both the cases having involved identical facts and circumstances except variation in amounts and dates, hence for the sake of brevity the same are heard together and disposed of by this composite order by considering as a lead case and result of the same would apply mutatis mutandis to both the appeals under consideration. the outset it is observed that there is a delay of 218 days in filing the instant appeal, on which the Assessee has claimed that in Form No.35 in response to the question “whether notices/communication may be sent on email?”, the Assessee has specifically mentioned “No”. However, no physical notice has ever been received by the Assessee. The Assessee further claimed that it has neither received the impugned order on the registered email ID nor any hard copy of the same. The Assessee only came to know about the impugned order, once the demand notice dated 13.10.2024 was issued by the ACIT, Circle 22(1) which was received by the Assessee on 14.10.2024 and thereafter the Assessee immediately filed the instant appeal but with a delay of 218 days in filing the same. The delay has been occurred not due to any deliberate or malafide intention or negligence but because of the aforesaid reasons, which were beyond control and therefore the assessee is praying for condonation of delay by taking lenient view. On the contrary, the Ld. D.R. refuted the claim of the Assessee by submitting that on ITBA portal, order passed by the NFAC goes automatically in digital mode to the registered email ID Assessee and therefore the reason stated by the Assessee, is neither logical nor genuine.
4. Having considered the reason for delay in filing the instant appeal and the answer given by the Assessee in response to the question “whether notices/communication may be sent on email?”, the Assessee specifically replied “No”. Though the receiving of impugned order on the ITBA portal in digital mode cannot be ruled out, however, delaying the proceedings by the Assessee would not have served any purpose and therefore considering the reasons stated by the Assessee which is supported by the duly sworn affidavit by the secretary of the Assessee society, as bonafide and unintentional, the delay is condoned.
Coming to the merits of the case, it is observed that the Assessee during the assessment year under consideration has earned the amount of Rs.2,47,805/- on account of interest and dividend from SVC Co- operative Bank Ltd. and Mumbai District Co-operative Bank wherein the Assessee has maintained saving bank account and fixed deposit account. The Assessee therefore claimed the deduction of the said amount u/s 80P(2)(d) of the Act, however, the same was denied by the CPC vide intimation dated 25.11.2021 u/s 143(1) of the Act.
7. The Assessee, being aggrieved, challenged the said addition/disallowance before the Ld. Commissioner, however, could not succeed and therefore the Assessee is in appeal before this Court. The Assessee has claimed that it is entitled for the deduction as claimed u/s 80P(2)(d) of the Act on the basis of various judgments passed by the various courts including by the Mumbai Benches.
8. On the contrary, the Ld. D.R. supported the orders passed by the authorities below and refuted the claim of the Assessee.
Heard the parties and perused the material available on record. Admittedly, the Assessee has earned interest/dividend income from co- operative banks such as SVC Co-operative Bank Ltd. and Mumbai District Central Co-operative Bank. Therefore, the question emerges “as to whether the Assessee is entitled to get deduction u/s 80P2(d) of the Act or not.”
The Co-ordinate Bench of the Tribunal in various cases including in the case of M/s. Aurum Grande Co-operative Housing Society Ltd. in for A.Y. 2020-21 has dealt with the identical issue and by analyzing the relevant provisions of law and the various judgments on this issue, has allowed the identical deduction claimed u/s 80P2(d) of the Act by observing and holding as under:
“3. Grounds No. 1 and 2 have not been pressed by the appellant and grounds no. 3 to 5 related to disallowance of deduction u/s 80P(2)(d) of the Act. Grounds No. 6 & 7 are against the charging of interest u/s 234A, 234B & 234C of the Act.
Brief facts of the case are as under: a. The assessee is a co-operative housing society and return for A.Y. 2020-21 was filed on 13.02.2021 declaring income of ₹ 1,74,722/- after claiming deduction of ₹ 30,36,217/- u/s 80P(2)(d) of the Act. b. After considering the written submissions filed by the assessee, the assessment was completed by the AO, disallowing the claim of the deduction u/s 80P(2)(d) of the interest income earned from banks as under:
Particulars Amount Bank Name
Interest of Fixed deposit 14,76,640/- Sarswat Co-op Bank Ltd. Interest jn Sweep Fixed- 15,39,258/- Sqrswat Co-op Bank Ud Deposit-Sarswat Bank Interest in Saving Bank 9,040/- Sarswat Co-op Bank Ltd Interest in Saving Bank 11,273/- Mumbai District Central Co-op Bank. Ltd. Total Interest 30,36,217/- c. Aggrieved by the assessment order, the assessee filed appeal before Ld.CIT(A)/NFAC who also upheld the disallowance vide order dated 31.10.2023 on the ground that interest earned on deposits with co-operative banks is not covered u/s 80P(2)(d) of the Act. d. Both the AO and the Ld.CIT(A) have placed reliance on the decision of the Hon’ble Karnataka High Court in the case of PCIT v/s Totagars Co-operative Sale Society (2017) 395 ITR 611 (Karnataka) on this issue.
5. Before us, the Ld.AR submitted that the assessee is not a credit co-operative society, as wrongly stated by the AO, but is a co-operative housing society. During the year, the appellant has earned interest income to the tune of ₹30,36,217/-from its investments/deposits made with Saraswat Co-op Bank Ltd. & Mumbai District
Central Coop Bank Ltd. On plain reading of section 80P(2)(d), it is clear that the deduction u/s 80P is available to the appellant. The Ld. AR also cited several decisions of the Co-ordinate benches of the ITAT, Mumbai in support of his claim.
On the other hand, the Ld. CIT DR has placed reliance on the order of the Ld.CIT(A) and the decision of the Hon’ble Karnataka High Court in the case of PCIT v/s Totagars Co-operative Sale Society (Supra).
We have heard rival submissions and carefully examined the facts of the case. It is seen that prior to the decision of the Hon’ble Karnataka High Court relied upon, the Hon’ble Karnataka High Court in PCIT v/s Totagars Co-operative Sale Society (2017) 392 ITR 74 have held that the amount of interest earned from co-operative society bank would be deductable u/s 80P(2)(d). Thus, there are divergent views of the same Hon’ble High Court on this issue.
The Co-ordinate Benches of the Tribunal in various decisions have consistently taken the view that in the case of a co-operative society, the income earned by way of interest income on the investments made with any co-operative bank is allowable as deduction u/s 80P(2)(d) of the Act . For ready reference, the relevant portion of one of the decisions in the case of Pathare Prabhu Cooperative Housing Society Ltd. v/s ITO (2023) in & 1347/Mum/2023 and reported vide 153 taxmann.com 714 (Mum.Trib) on identical issue is reproduced hereinbelow:
"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:
80P. Deduction in respect of income of co-operative societies. (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;
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:
"(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;
11. In the present case, there is no dispute that the assessee is a CoOperative Housing Society. Thus, if any income as referred to in subsection (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 Co-operative 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(2Xd) 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 Co-operative 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 co- operative 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 cooperative 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 co-operative 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 co-operative societies;' We are of the considered view, that though the co-operative 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 co- operative 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 Cooperative Sales Society [2017] 83 taxmann.com
140/395 ITR 611, wherein it was held that interest earned by the assessee, a Cooperative Society, from surplus deposits kept with a Co-operative Bank, was not eligible for deduction under section 80P(210) of the Act. We find that in an earlier decision the Hon'ble Karnataka High Court in Pr. CT 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 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."
9. Following the decisions of the co-ordinate benches of ITAT, we direct the AO to allow the deduction of interest earned from cooperative banks u/s 80P(2)(d) of the Act as claimed by the assessee.”
10. As the issue is settled by various courts including by the co-ordinate Bench of the Tribunal (supra) in the case referred to above, hence respectfully following same, the deduction claimed u/s 80P2(d) of the Act is allowed. Consequently, the addition sustained by the Ld. Commissioner is deleted. Resultantly the filed by the Assessee stand allowed.
In the result, in view of judgment in both the appeals under consideration stand allowed.
Order pronounced in the open court on 07.01.2025.