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Facts
The assessee, a co-operative society, claimed deduction under Section 80P on interest income of Rs. 4,30,505/- earned from deposits with a District Central Co-operative Bank. The Assessing Officer disallowed this deduction, treating it as income from other sources. The CIT(A) dismissed the assessee's appeal due to a delay of 48 days.
Held
The Tribunal held that interest earned by a co-operative society on deposits made from its surplus funds with co-operative banks is eligible for deduction under Section 80P(2)(a)(i) and 80P(2)(d) of the Act. Relying on High Court and ITAT precedents, the Tribunal directed the Assessing Officer to allow the deduction.
Key Issues
Whether interest income earned by a co-operative society from its deposits with a co-operative bank is eligible for deduction under Section 80P.
Sections Cited
80P, 250, 80P(2)(a)(i), 80P(2)(c)(ii), 80P(2)(d)
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the assessee against the order of ld.Commissioner of Income Tax(Appeal)[NFAC] passed u/sec.250 of the Income tax Act, 1961, for the A.Y.2020-21 dated 17.10.2024. The Assessee has raised the following grounds of appeal : “1. The learned CIT(A) NFAC erred in laws and on facts in confirming the appellant's income assessed by the learned AO amounting to Rs. 6,81,650/- instead of Rs. 2,51,140/- as declared by appellant and denying deduction claimed u/s 80P amounting to Rs.4,30,505/-.
2. Learned CIT(A)-NFAC erred in law and on facts in rejecting appellant's appeal rejected on account of delay of 48 days in filling appeal memo. Learned AO ought to have condoned the genuine delay of 48 days caused on account of non-receipt of order by the appellant.
3. The learned CIT(A) NFAC erred in laws and on facts in sustaining the disallowance of the deduction of Rs. 4,30,505/- u/s 80P of the ITA, 1961 made by the learned AO and treating the same as interest income derived from its investments held with various Co- operative banks and other financial institutions.
4. The learned CIT(A) NFAC erred in law and on facts in not appreciating that Supreme Court in the case of The Mavilayi Service Co-Operative Bank Ltd. & ORS. Vs. Commissioner of Income Tax (2021) 431 ITR 1 (SC) has held that interest earned by a Co-operative Society from a Co-operative bank is entitled for deduction u/s. 80P(2)(d) of ITA, 1961.
5. The learned CIT(A), NFAC erred in law and on facts in not appreciating that various courts have held that deduction u/s 80P(2) (d) of the ITA, 1961 is allowable to credit co- Operative society (i.e. Pathsanstha) on interest income earned from fixed deposits with co- operative bank.
6. The learned CIT(A), NEAC erred in law and on facts in not appreciating that the interest on deposits with co-operative bank, are covered under the concept of "mutuality" and hence not taxable.
7. The appellant craves leave to add/alter/clarify/explain/modify/enhance / delete any or all of the grounds of appeal, and to seek any just and fair relief.” Submission of Ld.AR:
2. Ld.Authorised Representative(ld.AR) for the Assessee filed a paper book along with an Affidavit submitting the reason for delay in filing before ld.CIT(A). Ld.AR explained that during the assessment proceedings, Assessing Officer has denied assessee’s claim for deduction under section 80P of the Act, on interest of Rs.4,30,505/- earned from Raigad District Central Co-operative Bank Limited. Ld.AR submitted that it is mandatory for assessee to maintain certain amounts in District Central Co-operative Banks, accordingly, Assessee had kept deposits in Raigad District Central Co-operative Bank. Assessee had earned interest on the same and claimed 80P. During the assessment proceedings, assessee had relied on the various decision of ITAT Pune, but 2 Assessing Officer(AO) denied assessee’s claim following Hon’ble Karnataka High Court’s decision in The Totgatr’s Cooperative Sales Society, Sirsi in ITA No.100066/2016. 2.1 Ld.AR has relied on the ITAT Pune’s decision in S T Co- operative Credit Society Vs. ITO in for A.Y.2020-21, order dated 18.11.2024. Submission of Ld.DR :
3. Ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Assessing Officer and ld.CIT(A). Findings and Analysis:
4. We have heard both the parties and perused the records. Assessee had electronically filed Return of Income for A.Y.2020- 21 on 10.12.2020 declaring Gross Total Income of Rs.60,32,524/- and claimed deduction under section 80P(2)(a)(i), 80P(2)(c)(ii) and 80P(2)(d) of the Act, amounting to Rs.57,81,384/-. It is observed in the assessment order that assessee is a Co-operative Society engaged in the business of providing credit facilities to its member s. Assessee is registered under Maharashtra State Co- operatives Societies Act, 1960. The Assessing Officer had denied assessee’s case for deduction under section 80P(2) on interest amount of Rs.4,30,505/- earned from Raigad District Central Co- operative Bank Limited. During the assessment proceedings, assessee submitted that interest earned from Raigad District Central Co-operative Bank is attributable to the main activity of the assessee which is providing credit facilities to its members. Assessee also pleaded that said income is exempt under section 80P(2)(a) of the Act. However, ld.AO denied the exemption. Aggrieved by the same, assessee filed appeal before the ld.CIT(A), which was delayed by 48 days. The Assessee had filed a condonation petition explaining the reason for delay. However, ld.CIT(A) dismissed the appeal of the assessee on account of delay. 4.1 Before the ld.CIT(A) assessee had submitted that there was change in the Secretary and Officer Bearers in the Assessee 3 Society. The email was received on the earlier Secretary’s email- id, therefore, there was a delay in filing appeal. Before us, assessee has filed copy of the minutes of the meetings to explain change in the Officer Bearers and reason for delay. 4.2 Aggrieved by the order of the ld.CIT(A), assessee has filed appeal before this Tribunal. 4.3 The first ground raised by the assessee is regarding disallowance of assessee’s claim under section 80P on interest of Rs.4,30,505/-.
5. The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagars Cooperative Sale Society, and held as under : Quote,“8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub- section (2) of section 80P or not.
While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co- operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. …………………… 4 34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note.
But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause
(d) or (e), as the case may be.
The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners 5 derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to".
Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.” Unquote.
5.1 Thus, the Hon’ble High Court of AP & TS held that Interest Income earned by investing Income derived from Business and Profession by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act.
5.2 No contrary decision of the Hon’ble jurisdictional High Court has been brought to our notice. Therefore, as per rule of precedence, the proposition of law laid down by the Hon’ble High Court of AP & TS (supra) are binding precedents for us.
The Hon’ble ITAT Pune Bench in the case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer 158 taxmann.com 322 (Pune Tribunal) has held as under :
6 Quote “7………………………..I am of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule bank qualifies for deduction both under the provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act, therefore, the reasoning given by the lower authorities on this issue cannot be accepted. Therefore, I direct the Assessing Officer to allow deduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of interest income earned from cooperative bank/scheduled bank. Thus, the ground of appeal filed by the assessee stands allowed.”Unquote 6.1 The Hon’ble ITAT Pune Bench in the case of Yashwant Nagari Sahakari Patsanstha Maryadit Vs. ITO in dated 04.06.2024 held that the assessee was eligible for deduction u/sec.80P(2)(a) of the Act on the Interest earned by assessee.
7. Respectfully following the judicial precedent, we direct the Assessing Officer to allow deduction u/sec.80P(2)(a)(i) of the Act on the interest amount of Rs.4,30,505/-. Accordingly, the only Ground raised by the Assessee is allowed.