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Facts
The revenue has appealed against the CIT(A)'s order allowing deduction under Section 80P(2)(d) of the Act for interest earned by the assessee (a cooperative society) from its investment in a cooperative bank. The Assessing Officer had disallowed this deduction, citing Supreme Court decisions like Totagars Cooperative Sale Society Ltd.
Held
The Tribunal, following the decisions of the Hon'ble Gujarat High Court in Ashwinkumar Arban Co-operative Society Ltd. and Rajkot Lodhika Sahakari Kharid Vechan Sangh Ltd., held that a cooperative bank is a cooperative society. Therefore, interest earned by a cooperative society from its investment in a cooperative bank is eligible for deduction under Section 80P(2)(d) of the Act.
Key Issues
Whether interest earned by a cooperative society from its investment in a cooperative bank is eligible for deduction under Section 80P(2)(d) of the Income-tax Act, 1961.
Sections Cited
80P(2)(d), 194A(3)(v), 80P(1), 80P(4), 263, 143(2), 142(1)
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Before: MS. SUCHITRA RAGHUNATH KAMBLE & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the revenue emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) dated 18.12.2024 by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [in short, ‘CIT(A)’] for the assessment year (AY) 2017-18.
The grounds of appeal
raised by the revenue are as under: “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing deduction u/s. 80P(2)(d) of the Act of Rs.4,20,67,352/- ignoring the decision of Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. reported in 322 ITR 283, wherein it was held that interest earned from investments made in any bank not being cooperative society, is not deductible under section 80P(2)(d) of the Act.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing deduction u/s. 80P(2)(d) of the Act without appreciating the facts that the deposit in Co-operative Banks lacks the degree of proximity /AY.2017-18 The Surat Vankar Sahkari Sangh Limited between the members of the society with that of cooperative bank and thus offends this sacrosanct principle of mutuality.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring Hon'ble Gujarat High Court's observation in Katlary Kariyana Merchant Sahakari Sarafi Mandali in SCA No.20585 of 2019 that by virtue of amendment in section 194A(3)(v) of the Income tax act, it has also excluded the co-operative banks from the definition of "co-operative society by the Finance Act, 2015.
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing deduction u/s. 80P(2)(d) of the Act without appreciating the facts that the Co-operative Banks are entirely different species than those of Co-operative Societies, and for deduction u/s 80P(2)(d) of the Act the income must be derived from investment with any other co-operative society only, as held by the Hon'ble Karnataka High Court in the case of Principal Commissioner of Income-tax, Hubballi vs. Totagars Co-operative Sale Society, reported in, (2017) 83 taxmann.com 140 (Karnataka) and Hon'ble Supreme Court in the case of Totagar's Co-operative Sales Society Ltd reported in (2010) ITR 283 (SC).
5. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing deduction u/s. 80P(2)(d) of the Act and has not appreciated that the introduction of sub-section (4) was to exclude the Cooperative Banks from availing the benefits of deductions under section 80P and the section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2) consequently, the exclusion of Cooperative Banks extends to Section 80P(2)(d) as well as held by Hon'ble Supreme Court in the case of Mavilayi Service Co-Operative Bank Ltd Vs Commissioner of Income Tax ((2021) 431 ITR 1 (SC).
6. On the basis of the facts and circumstances of the case and in law, the Id. CIT(A) ought to have upheld the order of the Assessing Officer.
7. It is therefore prayed that the order of ld. CIT(A) may kindly be set aside that of the Assessing Officer be restored.”
The facts of the case in brief are that the assessee e-filed its return of income for AY 2017-18 on 27.10.2017, declaring gross total income of Rs.5,01,77,346/- and after claiming deduction under Chapter VIA of Rs.4,36,53,155/- and total income of Rs.65,24,190/-. The case was selected for limited scrutiny under CASS on the following issues: (i) deduction under Chapter /AY.2017-18 The Surat Vankar Sahkari Sangh Limited VIA, (ii) sales turnover/receipts. Various notices u/s 143(2) and 142(1) of the Act were issued on 20.08.2018 and 13.03.2019. The Assessing Officer (in short, ‘AO’) observed that assessee had claimed Rs.4,35,27,982/- deduction u/s 80P(2)(d) of the Act and Rs.1,25,173/-u/s 80P(2)(a)(i) of the Act. The assessee society derived interest income of Rs.1,25,173/- from its members and claimed as deduction u/s 80P(2)(a)(i) of the Act. As per section 80P(2)(d) of the Act, deduction is available in respect of income by way of dividend and interest received by the co-operative society on its investment with any other co- operative society. However, the assessee had received interest income and dividend income from co-operative bank and not from co-operative society. The AO did not allow the deduction by holding that section 80P(2)(d) of the Act does not provide for deduction if interest income and dividend received by the assessee Co-op. society is from its investment with Co-op. Bank in view of the restriction provided in sub-section (4) of section 80P of the Act. The AO has discussed provisions of section 80P(2)(d) of the Act and after relying on the decision in case of Totagars’ Co-operative Sale Society Ltd. vs. ITO, Karnataka, (2010) 188 Taxman 288 (SC) and Totagars’ Co-operative Sale Society Ltd. vs. PCIT, (2017) 83 taxmann.com 143 (Karnataka), SBI vs. CIT, (2016) 389 ITR 578 (Guj.), Tumkur Merchants Souhardha Credit Co-operative Ltd. vs. ITO, 55 taxmann.com 447 (Kar.), Milk Producers Union Ltd. vs. CIT, TA No.473 of 2014, dated 16.06.2014 (Guj.) and some other decisions held that interests and dividend income earned by the assessee from its investment in Surat District Co-operative Bank Ltd., is not allowable u/s 80P(2)(d) of the Act. Accordingly, 3 /AY.2017-18 The Surat Vankar Sahkari Sangh Limited the AO disallowed the interest income of Rs.4,20,67,352/- earned from co- operative bank and added it to the total income. He determined the total income of Rs.4,85,91,542/- as against returned income of Rs.65,24,190/-.
Aggrieved by the order of AO, the assessee filed the appeal before the CIT(A). The appellant raised a ground regarding disallowance of deduction u/s 80P(2)(d) of the Act. The submission of the appellant is at pages 2 to 9 of the appellate order. The finding of the CIT(A) is at page 9 of the order. The CIT(A) observed that the assessee had earned interest and dividend income from investment in Co-operative Banks and hence, it was not eligible for deduction u/s 80P(2)(d) of the Act. He also observed that a Co-operative bank may have the corporate body or skeleton of a co-operative society, but its business is entirely different, i.e., baking business and services provided to non-member also. Since, the co-op. banks also provides service to non-members, the principle of mutuality is lost. He relied upon decision of Mavilayi Services Co- operative Bank Ltd. (supra) and allowed the appeal.
Aggrieved by the order of CIT(A), both the assessee and revenue have filed appeal before the Tribunal. The learned Authorized Representative (ld. AR) of the assessee filed a paper book and relied on the decisions in cases of (i) Surat Vankar Sahakari Sangh Ltd. vs. ACIT, 72 taxmann.com 169 (Guj.), (ii) DCIT vs. Sardar Patel Co-op. Credit Society Ltd., 172 taxmann.com 53 (Surat – Trib.), (iii) PCIT vs. Totagars Co-op. Sale Soceity, 78 taxmann.com 169 (Kar.), (iv) The Sasme Co-op. Soc. Ltd. vs. PCIT, dated 03.03.2021, (v) Begumpura Nagrik Dhiran Sahakari Mandali Ltd. vs. ACIT, & 4 /AY.2017-18 The Surat Vankar Sahkari Sangh Limited 115/SRT/2024, dated 12.04.2024, (vi) ACIT vs. Shree Aradhna Urban Co-op. Credit Society Ltd., 159 taxmann.com 350 (Surat – Trib.), (vii) Navapura Co-op. Credit Consumer Soc. Ltd. vs. ITO, dated 20.12.2023, (viii) Surendranagar District Co-op. Milk Producers Union Ltd. vs. DCIT, 111 taxmann.com 69 (Rajkot – Trib.), (ix) PCIT vs. Ashwinkumar Arban Co-operative Society Ltd., (2024) 168 taxmann.com 314 (Guj.) and (ix) PCIT vs. Rajkot Lodhika Sahakari Kharid Vechan Sangh Ltd., 176 taxmann.com 71 (Guj.). He submitted that the Hon’ble Gujarat High Court in case of Ashwanikumar Arban Co- operative Society Ltd. (supra) has considered and distinguished the order passed by the Hon’ble Supreme Court in case of Totagars Co-operative Sales Society Ltd. (supra) and held that deduction u/s 80P(2)(d) is available to Co- operative Societies on income earned as interest on investment made with co- operative bank, which in turn is a co-operative society itself.
On the other hand, the learned Commissioner of Income-tax – Departmental Representative (ld. CIT-DR) relied on the orders of the lower authorities and the decision of Hon’ble Supreme Court in case of Totagars Co- operative Sale Society Ltd. (supra).
We have heard both the parties and perused the material available on record. We have also deliberated upon the decisions relied upon by both sides. The grounds raised
by the parties are inter-related and pertain to the deduction claimed u/s 80P(2)(d) of the Act on account of interest on investment held with Surat District Co-operative Bank Ltd. There is no dispute that the Surat District Co-operative Bank Ltd. is a co-operative society duly registered under Gujarat 5 /AY.2017-18 The Surat Vankar Sahkari Sangh Limited Co-operative Societies Act, 1961. The ld. AR has relied on the decisions of the Hon’ble jurisdictional High Court in case of Ashwinkumar Arban Co-operative Society Ltd. (supra) and Rajkot Lodhika Sahakari Kharid Vechan Sangh Ltd. (supra), wherein the Hon’ble jurisdictional High Court held that deduction u/s 80P(2)(d) is available to co-operative societies on income earned as interest on investment made with co-operative bank, which in turn is a co-operative society. In case of Ashwanikumar Arban Co-op. Society Ltd. (supra), it was held as under:
28. Having heard learned advocates for the respective parties and considering the controversy arising in these tax appeals, we are of the opinion that the controversy sought to be canvassed with regard to deduction under section 80P(2)(d) of the Act is no more res integra in view of the decision of this Court in case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. (supra) as well as in case of State Bank of India (supra) wherein it was held that the deduction of under section 80P(2)(d) of the Act 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. …………..
In view of the above dictum of law as well as the provisions of the Act which are considered we are of the opinion that the provisions of section 80P(2)(d) would be applicable in the facts of the case and the PCIT was not justified in invoking revisional powers under section 263 of the Act 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) of the Act 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.”
In the subsequent decision in case of Rajkot Lodhika Sahakari Kharid Vechan Sangh Ltd. (supra), the Hon’ble jurisdictional High Court followed the above decision in case of Ashwinikumar Arban Co-operative Society Ltd. (supra) and held that co-operative bank is a co-operative society and interest earned 6 /AY.2017-18 The Surat Vankar Sahkari Sangh Limited from co-operative bank is eligible for deduction u/s 80P(2)(d) of the Act. The facts of the instant case are similar to the facts of the case discussed above. Hence, respectfully following the decisions cited supra, the grounds raised
by the assessee are allowed and grounds raised by the revenue are dismissed.
9. In the result, the appeal of the revenue is dismissed. Order is pronounced under provision of Rule 34 of ITAT Rules, 1963 on 30/10/2025.