THE MADRAS HIGH COURT COOP SOCIETY LTD.,CHENNAI vs. ITO, NCW-4(2), COIMBATORE

The assessee is a cooperative society and filed a return of income for A.Y 2020-21 on 28.11.2020 admitting nil income after claiming deduction u/s. 80P of the Act. The A.O disallowed the claim of the assessee stating that the assessee is not eligible to claim deduction u/s. 80P(2)(a)(i) of the Act by The Madras High Court Cooperative Society Ltd. :- 2 -:

1. placing reliance on the decision of Hon'ble Supreme Court in the case of Totgar Cooperative Sale Society. Aggrieved, the assessee filed further appeal before the CIT(A), who confirmed the disallowance made by the A.O.

The Ld. Authorized Representative (AR) of the assessee submitted that the assessee had received interest income from fixed deposits to the tune of Rs.12,01,300/- and saving bank interest to the tune of Rs. 46,347/-. The Ld. AR further submitted that the assessee had claimed the said amount as deduction u/s. 80P(2)(d) of the Act, whereas the A.O while disallowing has held that the assessee is not entitled to claim deduction u/s. 80P(2)(a)(i) of the Act. The Ld. AR in this regard drew our attention the submissions made before the A.O stating that the deduction towards interest is claimed by the assessee u/s. 80P(2)(d) of the Act which is legally correct (page 1 of paper book). The ld AR also drew our attention to the computation of income for the year under consideration where the impugned amounts have been claimed as deduction u/s.80P(2)(d) of the Act (page 25 of paper book). The ld AR submitted that since the impugned interest is received from the deposits held with cooperative banks the assessee is eligible for deduction u/s.80P(2)(d) of the Act.

The ld DR on the other hand supported the orders of the lower authorities.

We heard the parties and perused the material on record. The assessee during the year under consideration has received a sum of Rs.60,39,121 as income from dividend and interest. The assessee has claimed the said amount as deduction u/s.80P(2)(d) of the Act. The AO while completing the The Madras High Court Cooperative Society Ltd. :- 3 -:

assessment has allowed the deduction towards dividend and interest on reserve fund but has denied the deduction claimed against the interest on investments to the tune of Rs.12,47,647. From the perusal of the orders of the lower authorities we notice that the deduction is denied stating that the assessee is not entitled for deduction u/s.80P(2)(a)(i). Therefore we see merit in the contention of the assessee that the deduction has been denied on the incorrect premise that the assessee has claimed the deduction u/s.80P(2)(a)(i) whereas the assessee has claimed the deduction u/s.80P(2)(d). Now coming to the issue of allowability of deduction under section 80P(2)(d) in respect of interest income earned from deposits with co-operative banks, we notice that the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 123 taxmann.com 161 (SC), while analysing the scope of section 80P(4) of the Act, held that the said provision operates as a proviso to section 80P(1) and (2) and excludes only such co-operative banks which, though co- operative societies, possess an RBI licence to carry on banking business. The Hon’ble Supreme Court further held that the limited object of section 80P(4) is to deny deduction only to those co-operative banks which function at par with commercial banks by lending money to the general public. In the light of the above decision, we are of the considered view that section 80P(4) becomes relevant only where the assessee itself is a co-operative bank claiming deduction under section 80P, which is admittedly not the case in the present appeal. Therefore, the embargo contained in section 80P(4) has no application to the assessee’s claim under section 80P(2)(d). In other words though, by virtue of insertion of sub-section (4) to section 80P, a co-operative bank is not eligible to claim deduction under section 80P of the Act, it nevertheless continues to be a co-operative society registered under the Co- operative Societies Act, 1912 or under the relevant State Co-operative Societies Act. What is relevant for claim of deduction under sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other cooperative society. Therefore in our considered view that as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. sec. 80P(2)(d) cannot be denied. Accordingly we hold that the interest income earned by the assessee being a co-operative society from investments or deposits made with a co-operative bank would qualify for deduction under section 80P(2)(d) of the Act. We direct the AO to delete the disallowance made in this regard.

In result the appeal of the assessee is allowed.