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Facts
The assessee, a co-operative society, claimed deduction u/s 80P for interest income from fixed deposits with other banks. The Assessing Officer disallowed the claim, treating the assessee as a co-operative bank and the interest as income from other sources. The CIT(A) upheld the AO's decision, leading to this appeal before the Tribunal.
Held
The Tribunal held that the assessee is a co-operative society, not a co-operative bank, as it lacks a banking license. Following Supreme Court and jurisdictional High Court precedents, it ruled that interest income earned from other co-operative banks by the appellant society is eligible for deduction u/s 80P(2)(d) of the Income Tax Act.
Key Issues
Whether a co-operative society lacking a banking license can be considered a co-operative bank for Section 80P purposes, and whether interest income earned from other co-operative banks is eligible for deduction u/s 80P(2)(d).
Sections Cited
80P, 143(3), 80P(2)(d), 80P(4), 80P(2)(a)(i)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, COCHIN
Before: Shri Inturi Rama Rao
Asst.Year 2017-2018 The Bank Employees Co- The Income Tax Officer operative Credit Society v. Ward 1(3) 11/45AKuriyal Lane Kozhikode. Kozhikode – 673 001. PAN : AABAT2177P. (Appellant) (Respondent) Appellant by : --- None --- Respondent by : Smt.Leena Lal, Senior AR Date of Date of Hearing : 13.03.2025 Pronouncement : 23.04.2025 O R D E R This appeal filed by the assessee is directed against the order of the National Faceless Assessment Centre / Commissioner of Income- tax (Appeals) [“CIT(A)” for short] dated 29.10.2024 for the assessment years 2017-2018.
There is a delay of 55 days in filing this appeal before the Tribunal. The appellant filed a condonation petition along with an Affidavit of the Secretary of the appellant, stating therein the reasons for the belated filing of this appeal.
2.1 On a careful perusal of the reasons stated in the affidavit, I am satisfied that there is reasonable cause in belated filing of this appeal before the Tribunal and no latches can be attributed to the assessee. Therefore, I condone the delay and admit the appeal for adjudication.
The appellant is a co-operative society, registered under the Kerala Co-operative societies Act, 1969. The return of income for the assessment year 2017-2018 was filed on 21.03.2019 declaring Nil income after claiming deduction u/s.80P of the Income-tax Act, 1961 (“the Act” hereinafter) amounting to Rs.14,71,835 being interest earned from fixed deposits with KDC Bank and Treasury. The assessment was completed u/s.143(3) of the Act vide order dated 05.12.2019. While doing so, the AO disallowed the claim for deduction u/s.80P of the Act by holding that the appellant society is a co-operative bank, therefore, not eligible for deduction u/s.80P of the Act. Further, the AO proceed to hold that the interest income earned from deposits with other banks cannot be treated as business income and it has to be considered as income from other sources.
Being aggrieved, the appellant filed an appeal before the CIT(A), who vide the impugned order confirmed the action of the AO in denying the deduction u/s.80P(2)(d) of the Act.
Being aggrieved, the appellant is in appeal before me in the present appeal. The assessee submits that the lower authorities have grossly erred in holding that the appellant is a co-operative bank but not a credit society and not hit by the provisions of sub-section (4) of section 80P of the Act. It is therefore prayed that orders of the lower authorities may be set aside.
On the other hand, the learned Sr.DR relied upon the orders of the authorities below.
I heard the rival submissions and perused the material available on record. On a mere perusal of the orders passed by the lower authorities, it would be clear that the AO as well as the CIT(A) denied the claim for deduction u/s 80P(2)(d) of the Act on the ground that the appellant is a co-operative bank. The finding of the lower authorities is contrary to the law in view of the settled position of law that in the absence of any license to carry on the banking business, the co- operative society cannot be considered as a co-operative bank. Reliance is placed on the judgment of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (2021) 431 ITR 1 (SC) and Hon’ble Karnataka High Court in the case Pr.CIT & Anr. v. Totagars Co-operative Sale Society reported in (2017) 395 ITR 611 (Kar.).
The issue whether the interest income earned by the co-operative society from the co-operative banks qualifies for deduction is now settled by the decision of the Hon’ble jurisdictional High Court in the case of PCIT v. Peroorkada Service Co-operative Bank Ltd. 442 ITR 141 (Ker.). In the light of this, we hold that the appellant is entitled for deduction in respect of interest income earned from co-operative banks u/s.80P(2)(d) of the Act. The relevant paragraph is reproduced as under:-
“12.2 Section 80P deals with co-operative societies' computation of income. As already noted, it has four sub-sections and several clauses and sub-clauses. Parliament has considered the various situations in which the exigible income and the deductible income of the assessee is considered while computing the income of the assessee. For getting deduction, in our considered view, the assessee must also establish that the interest income earned by the assessee is from a co-operative . The Bank Employees Co-op Credit So.Ltd. society. As a matter of fact, in the case on hand, there is no dispute that it is not from a co-operative society registered under Kerala Co-operative Societies Act. The interest income earned from District co-operative bank/State co-operative bank, in the facts and circumstances of the case, do come within section 80P(2)(d). Therefore, the income constitutes income from other sources and the only eligible deduction is covered by section 80P(2)(d), viz., interest or dividend derived by the assessee from its investments with any other co-operative society. The source of interest income is from bank and treasury, interest income received from treasury be included in the computation of total income of the assessee. In other words, interest earned from treasury is registered under the Kerala inadmissible for deduction and interest income from co- operative societies Co-operative Societies Act are eligible for deduction. The contra consideration of the Commissioner of Income-tax (Appeals) and the Tribunal is incorrect and liable to be modified as stated above. Hence, it is held that the interest income earned by the assessee does not come within the ambit of section 80P(2)(a)(i) and permissible deduction of interest income is limited to co-operative societies/banks registered under Kerala Co-operative Societies Act under clause (d) of the Act and effect order on the above lines is made by the Assessing Officer. The questions are accordingly answered.
Respectfully following the above judgment of the Hon’ble High Court, I hold that the interest income earned by the appellant society from other co-operative banks qualifies for deduction u/s.80P(2)(d) of the Act. Accordingly, I direct the A.O. to allow the claim of deduction u/s.80P(2)(d) of the Act.
In the result, the appeal filed by the assessee stands allowed.
Order pronounced on this 23rd day of April, 2025.
Sd/- (Inturi Rama Rao) ACCOUNTANT MEMBER Cochin; Dated : 23rd April, 2025. Devadas G*