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Facts
The assessee, a co-operative housing society, claimed deduction of Rs. 2,10,583 under Section 80P(2)(d) for interest income from a co-operative bank and Rs. 1,50,000 as exemption for transfer fees from members on mutuality grounds. The CPC denied the Section 80P deduction, and the CIT(A) dismissed the appeal, asserting that the deduction was wrongly claimed under Section 80P(2)(f) instead of 80P(2)(d).
Held
The Tribunal held that the interest income received from a co-operative bank is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, considering co-operative banks as co-operative societies. It also upheld the exemption of transfer fees received from members based on the principles of mutuality.
Key Issues
1. Whether interest income received by a co-operative society from a co-operative bank is deductible under Section 80P(2)(d). 2. Whether transfer fees received from members are exempt based on the principle of mutuality.
Sections Cited
250, 80P, 80P(2)(d), 80P(2)(f), 143(1), 263, 194A(3), 194A(3)(v), 80P(4)
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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: DR.B.R.R. KUMARMS. SUCHITRA KAMBLE
Date of Hearing 11.03.2025 Date of Pronouncement 02.04.2025 O R D E R PER: DR. B.R.R. KUMAR, VICE PRESIDENT:
The captioned appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeal)/National Faceless Appeal Centre (NFAC), Delhi Ahmedabad, vide order dated 27.11.2024 passed under Section 250 of the Income-tax Act, 1961, for Assessment Year 2018-19.
The Assessee has taken the following grounds of appeal:-
1. The CIT(A) erred in law and on facts in dismissing the appeal on technical ground-in the return of income, claim of deduction was made by selecting section 80P(2) (f) instead of 80P(2)(d) of the I.T. Act, without considering facts of the case.
2. The CIT(A) erred in law and on facts in confirming disallowance of deductions amounting to Rs. 2,10,583/-, interest received from Co-Op. Bank which is exempt U/s 80P(2)(d) of the IT Act.
3. The CIT(A) erred in law and on facts in confirming not allowing exemption amounting to Rs. 1,50,000/-, transfer fees received from members which is claimed as exempt on Mutuality Ground.
The Appellant reserve right to add, to modify or to withdraw any ground of appeal.
3. The brief facts of the case are that assessee is a registered Co-operative Society Ltd., registered under Co-op. Housing Society Act, providing common utility (facility) to its members. The assessee-society had filed its return of income electronically in ITR 5 under the status AOP/BOP for the year under consideration on 28.08.2018 declaring therein Nil income, after claiming deduction u/s.80P(2)(d) of the Act amounting to Rs.2,10,583/- in respect of interest income received on Saving Bank Account and fixed deposit interest with Ahmedabad Co-operative Bank and Rs.1,50,000/- on the ground of principle of mutuality. The CPC has denied deduction claimed by the assessee u/s 80P of the Act in the intimation order passed u/s 143(1) of the Act dated 12.07.2019.
4. Aggrieved by the intimation sent by the CPC, assessee preferred appeal before the Ld. CIT(A) who dismissed the appeal of the assessee on the ground that assessee had wrongly claimed deduction u/s 80P(2)(f) of the Act, instead of section 80P(2)(d) of the Act, in the return of income filed by the assessee.
Deduction u/s.80P(2)(d) of I.T. Act.
The issue raised by the assessee in Ground Nos. 1 & 2 relate to the disallowance of deduction amounting to Rs.2,10,583/- towards the interest received from Co-operative Bank. The short issue before us for adjudication is whether the co-operative bank was to be treated as co-operative societies for the purpose of allowing deduction u/s.80P(2)(d) of the Act. We find that this issue stands settled by the order of the Hon’ble Jurisdictional High Court in the case of PCIT Vs. Ashwinkumar Arban Co-Operative Society Ltd, [2024] 168 taxmann.com 314 (Gujarat). For the sake of ready reference, snippets of the said order is reproduced below:-
“Section 80P, read with section 263 of the Income-tax Act, 1961 Deductions Income of co-operative societies (Interest from co- operative bank) Assessment year 2018-19- Principal Commissioner invoked revisional powers under section 263 on ground that Assessing Officer had allowed deduction on interest earned by assessee, a cooperative society, from investment made with a cooperative bank under section 80P(2)(d) which was erroneous and prejudicial to Interest of revenue Tribunal reversed Principal Commissioner's order holding that cooperative bank was a cooperative society registered under Gujarat State Cooperative Societies Act and, therefore, interest earned by assessee from said bank was eligible for deduction under section 80P(2)(d) - Whether deduction under section 80P(2)(d) is available to cooperative societies on income earned as interest on investment made with cooperative bank which in turn, is a cooperative society itself - Held, yes - Whether exclusion of applicability of section 80P to cooperative banks by section 80P(4) would not disentitle assessee from claiming deduction under section 80P(2)(d) in absence of any amendment in said section - Held, yes - Whether thus, provisions of section 80P(2)(d) would be applicable to instant case and Principal Commissioner was not justified in invoking revisional powers under section 263 which was rightly reversed by Tribunal - Held, yes [In favour of assessee) *** • The controversy sought to be canvassed with regard to deduction under section 80P(2)(d) is no more res integra in view of the decision of this Court in case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. v Asstt. Commissioner of Income Tax [2022] 140 taxmann.com 602 (Guj.) as well as in case of State Bank of India v Commissioner of Income Tax (2018) 389 ITR 578 (Guj.) wherein it was held that the deduction under section 80P(2)(d) is available to the cooperative societies on the income earned as interest on the investment made with the cooperative bank which in turn, is a cooperative society itself. [Para 28]
• Reliance placed by the revenue on decisions of the Karnataka High Court in Totgars’ Cooperative Sale Society (2017) 395 ITR 611 and Supreme Court in case of Totgars Cooperative Sale Society Ltd v. Income Tax Officer 322 ITR
283 (S.C), the Karnataka High Court appears to have taken into consideration the amendment in section 194A(3)(v) wherein the cooperative bank is excluded from the applicability of tax to be deducted at source. However, it appears that the interpretation made by the Karnataka High Court to the effect that the cooperative banks have been excluded from the definition of the cooperative societies by Finance Act, 2015 by amending section 194A(3)(v) is concerned, on perusal of section 194A (3), it appears that it provides for exemption from deducting Tax Deducted at Source from the income on interest other than interest on securities as the cooperative societies other than cooperative banks meaning thereby that the cooperative banks are liable to deduct TDS from the interest other than interest on securities. Therefore it cannot be said that cooperative banks are excluded from the definition of cooperative societies by such an amendment. [Para 29] • Moreover, as reliance placed on the aforesaid decision for applicability of section 80P(4) in the facts of the case is also not possible to accept as section 80P(4) would be applicable to the cooperative bank when the cooperative bank is liable to pay tax under the provisions of the Act and in such eventuality, the provision of section 80P would not be applicable as per the amendment of sub-section (4) of section 80P. Therefore, the exclusion of applicability of section 80P to cooperative banks by section 80P (4) would not disentitle the respondent-assessee from claiming deduction under section 80P(2)(d) in absence of any amendment in the said section and that would not be sufficient to deny the claim of the respondent-assessee for deduction of interest earned from investment made in a cooperative bank which is also a cooperative society from the total income. [Para 30] • The Apex Court in case of Kerala State Co-operative Agricultural & Rural Development Bank Ltd. v. Assessing Officer in 458 ITR 184 while considering various provisions of the Banking Regulation Act read with provisions of the Income Tax Act has held that the provision of section 80P(4) would not be applicable to a cooperative bank which is not a bank as per the provisions of the Banking Regulation Act, 1949.[Para 31] • In view of the above the provisions of section 80P(2)(d) would be applicable in the facts of the case and the Principal Commissioner was not justified in invoking revisional powers under section 263 which is rightly reversed by the Tribunal holding that the cooperative bank is a cooperative society registered under the Gujarat State Cooperative Societies Act and in view of the various decisions of the Court, the Tribunal after following the same has come to the conclusion that the assessment was not erroneous allowing deduction of section 80P(2)(d) which is in consonance with the various decisions of the Court as a twin condition invoking section 263 as to the assessment being erroneous and prejudicial to the interest of the revenue are not being fulfilled. [Para 33] • In view of the foregoing reasons the question is answered in favour of the assessee and against the revenue. Tax Appeals being devoid of any merit are dismissed [Para 34].”
Respectfully following the decision of the Hon’ble jurisdictional High Court, the ground No.1 & 2 raised by the assessee in this appeal are hereby held to be allowable.
With regard to the transfer fees amounting to Rs.1,50,000/-, which was claimed as exempt on mutuality ground, is hereby held to be valid on the principles of mutuality.
While adjudicating the core issue raised in in this appeal, we have given primacy to the merit rather than the technicalities involved.
In the result, the appeal of the assessee is allowed.