MAYOOR COOPERATIVE HOUSING SOCIETY LIMITED,MUMBAI vs. INCOME TAX OFFICER 21(2)(3), MUMBAI

O R D E R Per B.R. Baskaran (AM) :-

The assessee has moved this stay application seeking stay of outstanding demand raised in its hands for AY 2013-14.

2. The Ld Counsel appearing for the assessee submitted that the assessee is a housing co-operative society. In respect of interest income earned from co- operative banks, the assessee had claimed deduction u/s 80P(2)(d) of the Act. However, the AO rejected the claim by placing reliance on the provisions of sec. 80P(4) of the Act, which denied deduction u/s 80P to Co-operative banks. He submitted that the assessee has only placed deposits with co-operative banks, which otherwise is a co-operative society. Accordingly he submitted that the assessee is eligible for deduction u/s 80P(2)(d) of the Act as the interest received from co-operative society is deductible under that provision. He submitted that this issue is covered by the decisions rendered by the Tribunal and accordingly he submitted that the assessee has got fair chance in getting relief. Accordingly he prayed for complete stay of outstanding demand.

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3. The Ld D.R, on the contrary, strongly opposed the plea of the assessee. He submitted that the assessee may be directed to pay atleast 50% of the outstanding demand.

5. The solitary issue urged in the appeal is whether the assessee is entitled for deduction u/s 80P(2)(d) of the Act in respect of interest earned from co- operative banks.

6. The facts in brief are that the assessee is a co-operative housing society. It derives income by way of subscription, service charges etc from members and interest income from savings and fixed deposits kept with various banks. The assessee claimed that the interest earned from co-operative banks is deductible u/s 80P(2)(d) of the Act. Since the provisions of sec. 80P(4) has withdrawn deduction u/s 80P to co-operative banks, the AO held that the assessee cannot avail deduction of interest earned on deposits with co- operative banks u/s 80P of the Act. The Ld CIT(A) also confirmed the same.

7. We notice that an identical issue was considered in the case of M/s Citiscape Co-op Housing Society Ltd (ITA No.5435 & 5436/Mum/2017 dated 08-12-2017) and for the sake of convenience, we extract below the order passed in the above said case:-

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4. The Ld CIT(A) allowed the claim of the assessee in both the years by following the decision rendered by Hon'ble Karnataka High Court in the case of PCIT vs. Totagars Co-operative sale society (2017)(392 ITR 74), wherein the Hon'ble Karnataka High Court had held that the co-operative banks are co- operative societies. Aggrieved, the revenue has filed these appeals.

Co-operative Societies. Thus the Co-operative Bank which is a species of the genus would necessarily be covered by the word "Co-operative Society".......

Admittedly, the interest which the assessee responded had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the I.T Act, the said amount of interest earned from a Co-operative Society Bank would be deductible from the gross income of the Co-operative Society in order to assess its total income."

9. The Ld A.R has referred to me the decision rendered by Hon'ble Himachal Pradesh High Court in the case of Kangra co-operative bank Ltd (supra), wherein the High Court has observed as under:-

"....Furthermore, the investments have been made in H.P. State Co- operative Bank which is also a co-operative society and therefore even under sec. 80P(2)(d) of the Act, interest income from investments made in any co-operative society would also be entitled for deduction."

10. Thus, I notice that there are divergent views on this matter. The Hon'ble Karnataka High Court has expressed the view that the deduction u/s 80P(2)(d) would not be available in respect of interest income received from co-operative bank, whereas the Hon'ble Himachal Pradesh High Court has held that the said deduction would be available. The Hon'ble Supreme Court has held in the case of Vegetable Products Ltd (88 ITR 192) that if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted. By applying the said principle, the view taken by Hon'ble Himachal Pradesh High Court, which is in favour of the assessee, is required to be adopted in this case. Accordingly I hold that the interest income earned by the assessee from Co-operative banks, which are basically co- operative societies carrying on banking business, is deductible u/s 80P(2)(d) of the Act. On this reasoning, I uphold the decision taken by Ld CIT(A) in both the years on this issue.

8. Consistent with the view taken in the above said case, we set aside the order passed by Ld CIT(A) and direct the AO to allow deduction to the interest earned from co-operative banks to the assessee u/s 80P(2)(d) of the Act.

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Order has been pronounced in the Court on 9.03.2018.