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Facts
The assessee, a Cooperative Housing Society, claimed a deduction under Section 80P(2)(d) of the Income Tax Act for interest earned on investments in cooperative banks. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) disallowed this deduction, arguing that the provision only applies to investments in other cooperative societies, not cooperative banks.
Held
The Tribunal held that income earned from interest on deposits with cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act. Previous decisions by coordinate benches and High Courts have consistently allowed such deductions, interpreting 'cooperative society' to include cooperative banks for the purpose of this section.
Key Issues
Whether interest income earned from deposits in cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act.
Sections Cited
80P(2)(d), 250, 143(3)
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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI. AMARJIT SINGH & SHRI. RAJ KUMAR CHAUHAN
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order dated 28.08.2024 of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 The Mangalorean Gardens Homes Co-operative Hsg. Soc. Ltd.; A.Y. 2017-18 [hereinafter referred to as “the Act”] for the A.Y. 2017-18, wherein the order of the Ld. AO has been confirmed and the appellant society has been denied the benefit of Section 80P(2)(d) of the Act and the deduction claimed u/s. 80P(2)(d) of the Act of Rs. 50,16,434/- was disallowed and added to the total income.
The brief facts as culled out from the proceedings before the lower authorities are that the assessee is a Cooperative Housing Society. The assessee has claimed deduction u/s 80P(2)(d) of the Act, on account of interest earned for investment in Citizen Credit Cooperative Bank Ltd., Sahrawat Cooperative Bank Ltd. and Maharashtra Bank Ltd., The Ld. AO has disallowed the deduction claimed by the assessee in view of the provision of section 80P(2)(d), wherein it has been provided that the deduction under this section is available only for the interest income earned against the deposit made with other cooperative society not with any Cooperative Bank or Commercial Bank.
3. Aggrieved by the impugned order as well as the Assessment Order, the assessee society is in appeal before us. The only issue raised in this appeal is with regard to addition of Rs. 50,16,434/- by the Ld. AO on account of disallowance of deduction u/s. 80P(2)(d) of the Act. Page | 2 The Mangalorean Gardens Homes Co-operative Hsg. Soc. Ltd.; A.Y. 2017-18 4. Since there is a delay of 161 days in filing this appeal before the Tribunal, an application for condonation of delay has been filed alongwith supporting affidavit by the appellant society. In the delay condonation application, it is stated that the order dated 28.08.2023 for the A.Y. 2017- 18 of the Ld. CIT(A) was handed over to the Chartered Accountant, Mr. Ramesh Shetty and Co. for doing the needful. The contents of the affidavit of Mr. Ramesh Shetty, Chartered Accountant are as under:
“The assessee appellant had handed over the appellate order dated 28-08-2023 for the Assessment Year 2017-2018 passed by the Commissioner of Income Tax (Appeals). National Faceless Appeal- Center, somewhere around 31 August, 2023, to my office to do the needful after going through the same.
2. The accounts assistant. Miss Kshitija J. Tandel who received the order kept the same in a drawer and forget to inform me about the same as I was not in the office attending Tax Audit & Statutory Audit of various companies.
On downloading the appellate order from the Tribunal site on 30/03/2024 for assessment year 2016-2017, the assessee appellant informed about the same to me and enquired about the status of the appeal for assessment year 2017-2018. On realizing that the appeal for the assessment year 2017-2018 remained to be filed, we immediately took step to file the appeal before this Hon'ble Income Tax Appellate Tribunal. However, there is a delay of 161 days in filing this appeal. 4. On the facts and circumstances narrated above and in the interest of justice we pray to your honor’s to kindly condone the inadvertent delay in filing this appeal and dispose of this appeal on merits.”
The Mangalorean Gardens Homes Co-operative Hsg. Soc. Ltd.; A.Y. 2017-18 5. We have heard the submissions and considered the affidavit of the Chartered Accountant of the appellant. In the interest of justice the delay in filing the appeal is condoned.
6. We have heard the Ld. AR on behalf of the appellant as well as Ld. DR on behalf of the revenue on merit. It is argued on behalf of the appellant that the appellant has been allowed benefit of Section 80P(2)(d) of the Act for the A.Y. 2016-17 by the Ld. Coordinate Bench in The Mangalorean Garden Homes Co-op. Hsg. Soc. Ltd. Vs. Income Tax Officer Ward 23(3)(4), order dated 29.02.2024. It is therefore argued that the Ld. AO as well as Ld. CIT(A) has committed illegality and their order suffers from perversity wherein they have disallowed the deduction u/s. 80P(2)(d) of the Act for the interest amount of Rs. 50,16,434/- which has been earned by appellant society from the investment in Citizen Credit Cooperative Bank Ltd., Sahrawat Cooperative Bank Ltd. and Maharashtra Bank Ltd.
7. It is therefore argued that the appeal be allowed and impugned order be set aside. The Ld. DR on the other hand supported the decision of the Ld. CIT(A) and argued that since the interest has not been earned from the deposit with another co-operative society but from a co-operative bank Page | 4 The Mangalorean Gardens Homes Co-operative Hsg. Soc. Ltd.; A.Y. 2017-18 doing commercial business and as such the appellant was not entitled to the disallowance u/s. 80P(2)(d) of the Act for the interest so earned.
We have considered the submissions made on behalf of the parties and examined the record. The Ld. Coordinate Bench in case of referred (supra) in para 3 and 4 has observed as under:
3. “Accordingly, the Ld. AO relying upon the decision of Hon'ble Karnataka High Court in the case of Principal Commissioner of Income Tax, Hubballi vs. Totagars Co-operative Sale Society (2017) 83 taxmann.com 140 (Karnataka) disallowed the claim u/s. 80P(2)(d). The Learned CIT(A) too has confirmed the said addition following the same judgment of Hon'ble Karnataka High Court.
Before us it has been brought on record that this issue has come before the Tribunal in several cases wherein after discussing the decision of Hon'ble Karnataka High Court, claim of section 80P (2)(d) has been allowed interest received from co-operative banks of the co-operative societies. For sake of ready reference, the decision of ITAT order No. 1195/Mum/2023, dated 10.7.2023, in case of Rustomjee Aspiree Premises Co-op. Soc. Ltd., wherein the Tribunal after referring to various decisions has allowed the claim of deduction. Mostly according to the decision of Hon'ble Kerala High Court in the case of PCIT vs. Percoorkada Services Company Bank Ltd. (2022) 442 ITR 141 (Kerala), the claim of deduction of interest income is allowed.” 9. The same issue has been decided recently by the Ld. Coordinate Bench in Shah and Nahar Industrial Premises A2 Co- op. Soc. Ltd. Vs. National e-Assessment Centre, New Delhi/Asst. CIT, Circle-22(3), order dated 21.06.2024 and one of us was member of the “6. We have heard the parties and perused the material available on record. We notice that the Co-ordinate Bench has been consistently holding that the income derived by way of interest from Co-operative Banks is also eligible for deduction under section 80P(2)(d). The relevant observations of the coordinate bench in Kona Seema Co-operative Housing Society Ltd. (supra) where it is held that – "5. We have considered the submissions of both sides and perused the material available on record. The dispute raised by the assessee is against the denial of deduction claimed under section 80P(2)(d) of the Act in respect of interest income received from the Co-operative Banks. The assessee is a Cooperative Housing Society and during the assessment year 2015-16 earned interest income of Rs. 5,74,097 from the investments made in Saraswat Cooperative Bank Ltd and Maharashtra State Co-operative Bank Ltd.
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 Cooperative Society. Further, section 80P(2)(d) of the Act, reads as under: “80P. Deduction in respect of income of co-operative societies. (1) ...... (2) The sums referred to in sub-section (1) shall be the following, namely: – (a) ..... (b) ..... (c) ..... (d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society, the whole of such income;”
7. 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 Page | 6 The Mangalorean Gardens Homes Co-operative Hsg. Soc. Ltd.; A.Y. 2017-18 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 ‘cooperative society’ is defined under section 2(19) of the Act as under: “(19) "co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ;”
8. In the present case, there is no dispute that the assessee is a Cooperative 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 Co-operative Bank or the State Cooperative Bank. Accordingly, the assessee kept the deposits in Saraswat Cooperative Bank Ltd and Maharashtra State Co-operative Bank Ltd and earned interest, which was claimed as a deduction under section 80P(2)(d) of the Act. The deduction under section 80P(2)(d) of the Act was denied on the basis that the Saraswat Co-operative Bank Ltd and Maharashtra State Co-operative Bank Ltd are multi-state scheduled banks and therefore interest derived will not qualify for deduction under section 80P(2)(d) of the Act. However, from the perusal of section 80P(2)(d) of the Act, it is sufficiently evident that there is no restriction on claiming deduction under the said section in respect of interest income earned from the Cooperative society operating in multiple states. Further, section 80P(4) of the Act is of relevance only in a case where the taxpayer, who is a Co-operative Bank, claims a deduction under section 80P of the Act which is not the facts of the present case. We find that the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs CIT, Calicut, [2021] 431 ITR 1 (SC) 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 (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. Therefore, we find no merits in the reasoning adopted by the learned CIT(A) in denying deduction under section 80P(2)(d) of the Act to the assessee. As a result, grounds no. 4 and 5 raised in assessee’s appeal are allowed."
We also noticed that in a recent decision the Co-ordinate bench in the case of Shivsahyadri Sahakari Patpedhi Maryadit (supra) has held a similar view by following the decision of the Hon'ble Madras High Court in the case of Thorapadi Urban Co-operative Credit Society Vs. ITO (2023) 156 taxmann.com 419 Page | 7 The Mangalorean Gardens Homes Co-operative Hsg. Soc. Ltd.; A.Y. 2017-18 (Madras). The relevant observations of the Co-ordinate Bench are extracted below: “8. We have considered the submissions made. As noticed earlier, the issue stands concluded by the decisions of this Tribunal as referred to above. Even the Hon’ble Madras High Court in the case of Thorapadi Urban Co-op. Credit Society Ltd. (supra) has held thus in paras 8 to 10 of its order :- 8. The main issue is to decide in the present case is as to whether the petitioner Co-operative Society is entitled for a deduction for the interest income received from the Co-operative Bank? 9. It would be appropriate to extract hereunder the relevant portion of Section 80P(2)(d). "80 P. Deduction in respect of income of co- operative societies: (1) ……………… (2) The sums referred to in sub-section (1) shall be the following, namely: - (a) to (c)........... (d) "in respect of any income by way of interest or dividends derived by the co-operative society from its investment with any other co-operative society, the whole of such income”
A reading of the above said provision makes it clear that in the event if any Co-operative Society derived income by way of interest from investment made in any other Co-operative Society the whole such interest is eligible for deduction. Now the issue is as to whether the Co- operative Bank would fall within the purview of the term 'Co-operative Society'. In the present case, the petitioner produced a document to show that the Cooperative Bank, where they have made investments was registered under the Tamil Nadu Co-operative Societies Act, 1983 on 20.5.2003. In this regard, he also produced a copy of the Certificate of Incorporation of the said Co-operative Bank. Therefore, it is clear that the investment made by the petitioner is a Co- operative Bank registered under the Co-operative Societies Act. The Income Tax Act, 1961 has also defined 'Co-operative Society' under Section 2(19) as follows: "2(19), "Co-operative society" means a co-operative society registered under the Co- operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of cooperative societies. ‘ The Mangalorean Gardens Homes Co-operative Hsg. Soc. Ltd.; A.Y. 2017-18 10. A reading of the above definition would make it clear that 'Cooperative Society' means a Co- operative Society registered under Cooperative Societies Act, 1912. Thus, a Co-operative Society referred therein is only a co-operative society as defined under the Act, be it a Cooperative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Co-operative bank.”
9. In that view of the matter, we find that the appeal has to succeed.
8. From the perusal of records, we noticed that the assessee has placed the surplus funds in deposits with various Co-operative Banks and has received interest income on the same. The assessee while filing the return of income has claimed such interest as a deduction under section 80P(2)(d). We notice that the lower authorities have denied the benefit of deduction for all the AYs under consideration for the reason that the interest received from Co-operative Bank is not eligible for deduction under section 80P(2)(d). These facts are identical to the facts adjudicated in the above judicial pronouncements. Therefore, respectfully following the above decisions, we hold that the assessee is entitled for deduction under section 80P(2)(d) towards income derived from deposits with Co-operative Bank for AY 2017-18, 2018-19 & 2020-21. Accordingly, the AO is directed to allow the deduction claimed by the assessee for these AYs.”
In the case before us, it is evident from the facts that for A.Y. 2017-18, as per the return of income filed by the assessee on 12.10.2017, the assessee has claimed deduction of Rs. 50,16,434/- u/s. 80P(2)(d) of the Act in respect of the interest earned for investment in Citizen Cooperative Bank Ltd., Sahrawat Cooperative Bank Ltd. and Maharashtra State Bank Ltd. The assessee has claimed the said interest amount as deduction u/s. 80P(2)(d) of the Act but the same was not allowed by the lower authorities i.e., the Income Tax Officer u/s. 143(3) of the Act and in appeal by the Ld. CIT(A) u/s. 250 of the Act vide impugned order.
The Mangalorean Gardens Homes Co-operative Hsg. Soc. Ltd.; A.Y. 2017-18 11. Since the facts of the case of the Ld. Coordinate Bench in referred (supra) as well as in referred (supra) were same and similar, therefore the findings returned by the Ld. Coordinate Bench as reproduced above mutatis mutandis applies to the facts and circumstances of the present case.
For the above reasons, we therefore order that the assessee is entitled for deduction u/s. 80P(2)(d) of the Act towards the income received from deposit with Co-operative Bank. Accordingly, the Ld. AO is directed to allow the deduction claimed by the assessee.
The grounds in the appeal are accordingly allowed and the appeal is disposed off in above terms.
In the result, appeal filed by the assessee is allowed in the above terms.