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Facts
The assessee, a co-operative society, earned interest income on fixed deposits and savings accounts held with co-operative banks. The Assessing Officer (AO) disallowed the claim for deduction under Section 80P, and the CIT(A) upheld this disallowance. The assessee appealed to the Tribunal.
Held
The Tribunal held that interest earned by a co-operative society from investments made with another co-operative society is eligible for deduction under Section 80P(2)(d) of the Income Tax Act. Relying on various High Court and Tribunal judgments, it was concluded that Section 80P(4) does not exclude co-operative banks from the definition of co-operative societies for the purpose of this deduction.
Key Issues
Whether interest earned by a co-operative society on deposits made with another co-operative bank is eligible for deduction under Section 80P(2)(d) of the Income Tax Act.
Sections Cited
147, 144B, 143(3), 80P, 80P(2)(d), 80P(4), 143(3), 147, 263, 194A(3)(v)
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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: DR.BRR KUMAR & SHRI SIDDHARTHA NAUTIYAL
Appellant by : Shri Viranch Modi, A.R. Respondent by: Ms. Ketaki Desai, Sr. DR Date of Hearing 07.01.2025 Date of Pronouncement 24.01.2025 O R D E R PER: DR. BRR KUMAR, VICE PRESIDENT:
The captioned two appeals have been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeal)/National Faceless Appeal Centre (NFAC), Delhi, vide order dated 10.05.2024 for the Assessment Years 2016-17 & 2017-18. Since the issue involved in these two appeals are common, we extract the grounds of appeal raised in AY 2016-17 for the purpose of adjudication.
The Assessee has taken the following grounds of appeal:-
& 1349/Ahd/2024 Asst.Years 2016-17 & 2017-18 - 2–
1.0 Assessment Order passed u/s.147 r.w.s 144B of the Act is bad-in-law: 1.01 On the facts and in the circumstances of the case and in law, the order passed by Ld.AO is bad in law in as much as the reopening of an assessment completed u/s.143(3) of the Act is without jurisdiction and is based on a mere change of opinion. 1.02 Your appellant further submits that it had disclosed fully and truly all material facts relating to claim of deduction u/s.80P of the Act during the course of original assessment made u/s.143(3) of the Act. After being satisfied with the details submitted during the course of original assessment, the ld. AO allowed the claim of deduction of your appellant which the ld. CIT(A) failed to appreciate. 1.03 Your appellant prays Your Honour to hold so now and quash the reassessment being bad in law, illegal and non-est.. 2.00 Disallowance of deduction claimed u/s.80P of the Act amounting to Rs.38,89,237/- 2.01 On the facts and circumstances of you appellant’s case as well as in law, the ld.CIT(A) erred in dismissing the appeal on wrong plea that interest earned on deposits kept with and on saving bank accounts kept with Co-operative banks is chargeable under the head “Income from other sources” and eligible for deduction u/s.80P of the Act. 2.02 Your appellant further submits that out of funds received from its member i.e operational funds, it has been investing in the form of fixed deposits with Co- operative banks. Accordingly, there was a direct and proximate connection with the source of funds used in keeping fixed deposits since your appellant was engaged only in a single activity of accepting deposits from and lending the same to its members which the Ld.CIT(A) failed to appreciate. 2.03 Your appellant prays your Honour to hold so now and direct the ld.AO to delete additions made
The issue of taxability of interest earned on the deposits in the saving bank account maintained with Co-operative bank is deductible u/s.80(P) or not stand adjudicated by various Judgments of the Hon’ble High Court and orders of the Tribunal.
& 1349/Ahd/2024 Asst.Years 2016-17 & 2017-18 - 3–
The undisputable facts relevant for adjudication of the issue are that the assessee is a primary Co-operative society engaged in providing in credit facilities to its members. The assessee had earned interest of Rs.XXX on FDs and savings from Co-operative banks namely Baroda Co-operative Central Bank, Mehsana Urban Co-operative Bank and Prime Co-operative Bank to mention a few, Indian Oil Employees Welfare Co-operative Society Ltd.-ITA No.351/Mum/2023. Salestax Employees Co-operative Credit Society Ltd.-ITA No.612/Ahd/2024 Charkop Lands End Co-operative Housing Society Ltd-ITA No.2843/Mum/2024. The Rifle Factory Co-operative Society Ltd.-ITA NO.41/Kol/2023.
For the sake of ready reference the order of this Tribunal in the case of Gujarat State Co.Op. Housing Finance Corporation Ltd., in order dated 05.12.2024 involving the similar issue is reproduced below:
“…3. Heard the arguments of both the parties and perused the material available before us. In these cases, the order for the relevant Assessment Years, i.e. 2013-14, 2014-15 and 2017-18, have been passed by the ACIT, Circle 5(2)(1), Ahmedabad u/s. 143(3) r.w.s. 147/263 of the Act, disallowing the interest income earned by the assessee by way of FD investment in other Co-op. Society, i.e. Gujarat State Co-op. Bank Ltd. (GSCB) and the rental income from HUDCO and SHARK Systems, which were claimed by the assessee u/s 80P(2)(d) of the Act.
4. Aggrieved, the assessee filed appeal before the ld. CIT(A) who deleted the additions made by the Assessing Officer in these assessment years, relying the order of the Hon’ble High Courts in the cases of Totgar’s Sale Society Ltd. (2017) 292 ITR 74 (Kar.) and State Bank of India (2016) 389 ITR 578 (Guj.). & 1349/Ahd/2024 Asst.Years 2016-17 & 2017-18 - 4– 5. Aggrieved by the order of the ld. CIT(A), the Revenue is now in appeal before the Tribunal.
The provisions of section 80P(2)(d) of the Act are as under:- “[Deduction in respect of income of co-operative societies. 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in subsection (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.
ACIT Vs. Gujarat State Co-op Hsg Fin Corn Ltd Asst. Year : 2013-14, 2014-15& 2017-18 - 3– (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 cooperative society, the whole of such income;”
7. In this case, the undisputed facts are as under:- The assessee is a Co-operative Society, The assessee had deposits as FDs in GSCB, The assessee earned income as interest, The GSCB is a Co-operative Society as per Co-operative Societies Act, registered in 1960 with registration No. 560 under Urban Cooperative Bank, Thus, the assessee who is a co-operative society earned interest out of the FDs made in another co-operative society.
The only legal issue involved in this case is that whether the assessee is eligible for deduction u/s 80P(2)(d) of the Act on the interest earned on Fixed Deposits made in a Co-operative Bank (GSCB) or not.
On this issue, we are guided by the judgment of 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 cooperative 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 ITA
ITA No.1348 & 1349/Ahd/2024 Asst.Years 2016-17 & 2017-18 - 5– Nos. 923-925/Ahd/2023 ACIT Vs. Gujarat State Co-op Hsg Fin Corn Ltd Asst. Year : 2013-14, 2014-15& 2017-18 – 4– 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 925/Ahd/2023 ACIT Vs. Gujarat State Co-op Hsg Fin Corn Ltd Asst. Year : 2013-14, 2014-15& 2017-18 – 5– 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 & 1349/Ahd/2024 Asst.Years 2016-17 & 2017-18 - 6– 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 ACIT Vs. Gujarat State Co-op Hsg Fin Corn Ltd Asst. Year : 2013-14, 2014-15& 2017-18 – 6– 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] i. 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].”
Similar view has been taken by this Tribunal in the case of :-
& 1349/Ahd/2024 Asst.Years 2016-17 & 2017-18 - 7– (i) Ratneshwari Co. Op. Credit Society Limited Vs. ACIT [ITA No. 1409/Ahd/2024 dated 29.11.2024], (ii) Shree Vivekanand Co-op. Credit Society Limited Vs. ITO [ITA No. 1003/Ahd/2024 dated 22.11.2024], (iii) The Deesa Merchantile Co. Society Ltd. Vs. PCIT [ITA No. 382/Ahd/2024 dated 05.11.2024], (iv) Sai Prerna Co-operative Society Ltd. Vs. CIT [ITA No. 5741/Mum/2018 dated 03.12.2018].
In the absence of any change in the factual matrix and legal proposition, respectfully following the order of the Hon’ble jurisdictional High Court, the appeals of the Revenue are hereby dismissed…”
6. In the absence of any change in the legal preposition and the factual matrix the appeals of the assessee is hereby allowed.
In the result, both the appeals of the assessee are allowed.
This Order pronounced in Open Court on 24.01.2025
Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (DR. BRR KUMAR) JUDICIAL MEMBER VICE PRESIDENT (True Copy) Ahmedabad; Dated 24.01.2025 Manish, Sr. PS TRUE COPY आदेश क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. संबंिधत आयकर आयु� / Concerned CIT 3. 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,