HORIZON CO-OPERATIVE HOUSING SOCIETY LIMTED ,MUMBAI vs. ITO WARD 21(1)(4), MUMBAI

The Ld. AO further recorded that in A.Y. 2017-18, the Ld. CIT(A) had decided the issue in favour of the assessee; however, according to the Ld. AO, the Department had preferred an appeal before the Tribunal against the said appellate order. Solely on this reasoning, and without pointing out any independent distinguishing feature in the facts of the year under consideration, In appeal, the Ld. CIT(A) affirmed the disallowance by placing reliance upon the judgment of the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs. CIT (2021) 431 ITR 1 and the decision of the Hon’ble Karnataka High Court in DCIT vs. Totgars Co-operative Sale Society Ltd. (2017) 83 taxmann.com 140, and concurred with the view that interest earned from co- operative banks would not qualify for deduction under section 80P(2)(d).

Before us, it has been submitted that the issue now stands squarely covered in favour of the assessee by the order of the Tribunal in assessee’s own case for A.Y. 2017-18 in dated 07/01/2025. The relevant findings of the Tribunal are reproduced hereunder:

Before proceeding further, it is relevant to note the provisions of section 80P of the Act under which the assessee has claimed the deduction in the present case. As per the provisions of section 80P(1) of the Act, the income referred to in sub-section (2) to section 80P shall be allowed as a deduction to an assessee being a Co- operative Society. Further, section 80P(2)(d) of the Act, reads as under:

Thus, for the purpose of provisions of section 80P(2)(d) of the Act, two conditions are required to be cumulatively satisfied- (i) income by way of interest or dividend is earned by the Co-operative Society from the investments, and (ii) such investments should be with any other Co-operative Society. Further, the term co-operative society? is defined under section 2(19) of the Act as under:

In the present case, there is no dispute that the assessee is a Co- Operative Housing Society. Thus, if any income as referred to in sub-section (2) to section 80P of the Act is included in the gross total income of the assessee, the same shall be allowed as a deduction. It is pertinent to note that since the assessee is registered under the Maharashtra Co-operative Societies Act, 1960, it is required to invest or deposit its funds in one of the modes provided in section 70 of the aforesaid Act, which includes investment or deposit of funds in the District Central Cooperative Bank or the State Co-operative Bank. Accordingly, the assessee kept the deposits in Co-operative Banks registered under the Maharashtra Co-operative Societies Act and earned interest, which was claimed as a deduction under section 80P(2)(d) of the Act. The AO denied the deduction under section 80P(2)(d) of the Act on the basis that the Co-operative Bank is covered under the provisions of section 80P(4) of the Act. We find that the Hon?ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 123 taxmann.com 161/279 Taxman 75/431 ITR 1 while analysing the provisions of section 80P(4) of the Act held that section 80P(4) is a proviso to the main provision contained in section 80P(1) and & 8469/Mum/2025 (2) and excludes only Co-operative Banks, which are Co-operative Societies and also possesses a licence from RBI to do banking business. The Hon'ble Supreme Court further held that the limited object of section 80P(4) is to exclude Co- operative Banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, we are of the considered view that section 80P(4) of the Act is of relevance only in a case where the assessee, who is a Co- operative Bank, claims a deduction under section 80P of the Act which is not the facts of the present case. Therefore, we find no merits in the aforesaid reasoning adopted by the AO and upheld by the learned CIT(A) in denying deduction under section 80P(2)(d) of the Act to the assessee.

As regards the claim of deduction under section 80P(2)(d) of the Act, it is also pertinent to note that all Co-operative Banks are Co-operative Societies but vice versa is not true. We find that the coordinate benches of the Tribunal have consistently taken a view in favour of the assessee and held that even the interest earned from the Co-operative Banks is allowable as a deduction under section 80P(2)(d) of the Act. In Kaliandas Udyag Bhavan Premises Co-op Society Ltd. v. ITO [2018] 94 taxmann.com 15 (Mum.)/[ITA No. 6547/Mum./2017, dated 25-4- 2018], while dealing with the provisions of section 80P(2)(d) vis-à-vis section 80P(4) of the Act, the coordinate bench of the Tribunal observed as under:

We find that the learned CIT(A) has placed reliance upon the decision of the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sales Society [2017] 83 taxmann.com 140/395 ITR 611, wherein it was held that interest earned by the assessee, a Co-operative Society, from surplus deposits kept with a Co- operative Bank, was not eligible for deduction under section 80P(2)(d) of the Act. We find that in an earlier decision the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169/392 ITR 74 held that according to section 80P(2)(d) of the Act, the amount of interest earned from a Co-operative Society Bank would be deductable from the gross income of the Co- operative Society in order to assess its total income. Thus, there are divergent views of the same Hon'ble High Court on the issue of eligibility of deduction under section 80P(2)(d) of the Act in respect of interest earned from Co-operative Bank. No decision of the Hon'ble jurisdictional High Court was brought to our notice on this aspect. We have to, with our highest respect to both the views of the Hon'ble High Court, adopt an objective criterion for deciding as to which decision of the Hon'ble High Court should be followed by us. We find guidance from the judgment of the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR

In the aforesaid decision, the Hon'ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted".

Therefore, in view of the above, we uphold the plea of the assessee and direct the AO to grant the deduction under section 80P(2)(d) of the Act to the assessee in respect of interest income earned from investment with Co-operative Banks. Accordingly, we set aside the impugned order passed by the learned CIT(A) for the assessment year 2018-19. As a result, grounds raised by the assessee are allowed.

Considering that the issue in assessee's case being identical i.e. denial of deduction under section 80P(2)(d) towards interest earned from deposits with Cooperative Banks, respectfully following the above decision we hold that the assessee is entitled for deduction under section 80P(2)(d) towards income derived from deposits with Co-operative Bank. Accordingly, the AO is directed to allow the deduction claimed by the assessee.”

Section 80P(2)(d) grants deduction in respect of any income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society. The statutory language is clear and does not carve out any exception in respect of co-operative banks. A co-operative bank, though engaged in banking activity and subject to regulatory control, continues to be registered under the State Co-operative Societies Act and therefore squarely falls within the definition of “co- operative society” under section 2(19). The exclusion contained in section 80P(4) operates in the case of a co-operative bank claiming

Accordingly, the disallowance of deduction u/s 80P(2)(d) for both the assessment years under consideration is directed to be deleted and the Assessing Officer is directed to allow the deduction as claimed.