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Facts
The assessee, a co-operative society, declared a total income of Rs.13,220/- after claiming a deduction of Rs.2,97,17,631/-. The Assessing Officer (AO) noticed interest income of Rs.6,36,02,714/- from deposits with Co-operative Banks, which he disallowed under Section 80P. The AO treated this interest income as income from other sources.
Held
The Tribunal held that, following various decisions of the ITAT, interest income earned by a co-operative society from its investments held with a co-operative bank is eligible for deduction under Section 80P(2)(d) of the Act. The AO was directed to allow such deduction.
Key Issues
Whether interest income earned by a co-operative society from investments in co-operative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
Sections Cited
80P, 80P(2)(d), 80P(4), 250, 56
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Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
ORDER
PER DR. MANISH BORAD, AM:
1. This is an appeal filed by the Revenue against the order of ld.Commissioner of Income Tax(Appeals)[NFAC] for A.Y.2020-21 dated 11.09.2024 passed u/sec.250 of the Income tax Act, 1961. The Revenue has raised the following grounds of appeal : "1) Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in allowing the deduction u/s 80P(2)(d) of the Income Tax Act, 1961, in respect of the interest income from investment kept with co-operative banks?
2) Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in directing the AO to allow deduction u/s 80P(2)(d) of the Act on the interest earned from co-operative banks without appreciating the fact that Sec. 80P(4) clearly states that the provisions of Sec.80P shall not apply to a cooperative bank governed by Banking Regulation Act of 1949? 3) Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in not appreciating the decision of the Hon'ble High Court of Karnataka in PCIT Vs. Totgar Co-op. Sales Society Ltd. (2017) 395 ITR 611 (Kar) dated 16th January, 2017 wherein it was decided by the Hon'ble High court of Karnataka that interest earned from investment made with financial institutions other than co-op society is ineligible for deduction u/s 80P(2)(d) and that a co-op. bank is not a co-op. society and as such interest on deposits was made with co-op. banks is not eligible for deduction u/s. 80P(2)(d) of the IT Act. 4) For these and such other grounds as may be urged at the time of hearing, the order of the CIT(A) may be vacated and that of the AO restored. 5) The appellant craves to add, amend, alter or delete any of the above ground of appeal during the course of appellate proceedings before the Hon'ble Tribunal."
2. Although a number of grounds have been raised by the Revenue, however, these all relate to the order of the Ld.CIT(A)/NFAC in applicability of deduction u/s.80P(2)(d) of the I.T.Act.
3. Brief facts of the case are that assessee is a Co-operative Society registered under the Maharashtra Co-operative Societies Act, 1960 and engaged in the business of providing credit and banking facilities to its members. The appellant filed its return of income for the A.Y 2020-21 by declaring a total income of [R] Rs.13,220/- after claiming deduction u/s.80P of the act amounting to Rs.2,97,17,631/- The case selected for scrutiny under CASS. During the assessment proceedings, the AO noticed that the appellant has received interest income of Rs.6,36,02,714/- from the deposits/investment held with Co-operative Banks which is not allowable deduction u/s 80P. The AO issued show cause notice and Draft Assessment Order (DAO) to the appellant proposing the disallowance of interest income received from Co-operative Banks. In response, the appellant filed its submission, however, the AO relying upon the decisions concluded that the income earned from investment held in financial institutions other than society is not eligible for deduction u/s 82P(2)(d). The AO worked out the net taxable interest income of Rs.6,36,02,714/- and after allowing proportionate expenditure of Rs.4,00,87,935 /- treated Rs.2,35,14,779/- as Income from other sources, ineligible for deduction u/s.80P(2)(d) of the Act.
4. Aggrieved by the order of the AO, the assessee filed appeal before the ld.CIT(A). The ld.CIT(A) relying on various decisions of ITAT on the issue of interest income earned from the deposits held with Co-operative Banks, allowed the deduction u/s.80P(2)(d) of the [R] Act, to the extent of interest earned from the Co-operative Societies and Cooperative Banks alone. Now the Revenue is in appeal before this Tribunal.
Ld.DR supported the order of ld.AO and ld.AR supported the order of ld.CIT(A)/NFAC.
We have heard rival contentions and perused the record placed before us. We observe that the AO disallowed the interest income from investments with Co-operative Banks treating as Income from Other Source is ineligible for deduction u/s.80P(2)(d) of the Act. However, following the decisions of ITAT, the ld.CIT(A) held as under : “4.2.8 As discussed above, the appellant is not eligible to claim 80P(2)(a)(i) for interest receipts on the deposits held with cooperative societies, commercial banks/scheduled banks/cooperative banks...etc., however we need to examine the applicability of claim of deduction u/s.80P(2)(d). In this regard, attention is drawn to the following decisions of the ITATS on the issue of interest income earned from the deposits held with Co-operative Banks
Sea Grean Co-Operative Housing Society Vs ITO in dated 31.03.2017
Lands End Co-operative Housing Society Vs ITO in dated 15.01.2016. [R]
Lady Ratan Tower Co-operative Housing Society Ltd. vs. ITO in in decision dated 09.08.2018.
Shree Mahadeshwar Sahakari Patpedhi Maryadit vs. ITO in ITA No. 374/Mum/2018 dated 06.03.2019. 5. Kaliandas Udyog Bhavan Premises Co-operative Society vs. ITO in ITA No 6547/Mum/2017 dated 25.04.2018. 4.2.9 In the above-mentioned decisions of the Mumbai Bench of the Hon'ble ITAT, it has been held that a Cooperative Bank is a Cooperative Credit Society and interest income earned by the Cooperative Society from the investment made with the Cooperative Banks is eligible for claim of deduction u/s, 80P (2) (d) of the Act.
4.2.10 In particular, the relevant Para No. 7 from the fifth order Kaliandas Udyog Bhavan Premises Co-op. Society Ltd. vs. in dated 25.04.2018, is reproduced below "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."
4.2.11 Hence, respectfully following the decision of the case laws discussed above, the AO is directed to allow the deduction u/s 80P(2)(d) of the Income Tax Act, 1961 to the extent of interest earned from the Co-operative Societies and Cooperative Banks alone.
4.2.12 Further, the AO is directed to assess, if any, interest earned on the deposits held with the Scheduled Banks, Commercial Banks and any other financial institutions other than the mentioned in Para 4.2.11 under the head Income from Other Sources under section 56 of the Income Tax Act, 1961.”
Considering the various decisions of this Tribunal on the issue of interest income earned from the deposits held with Co-operative Banks referred in the impugned order being eligible for deduction u/s.80P(2)(d) of the Act, we do not find any merit in the grounds of appeal raised by the Revenue. Hence, we uphold the order of ld.CIT(A). Accordingly, grounds of appeal raised by the Revenue are dismissed.