INCOME TAX OFFICER-24(1)(4), MUMBAI vs. CITISCAPE CO-OP HOUSING SOCIETY LIMITED, MUMBAI

The assessee is a co-operative housing society. It earned interest on deposits kept with Co-operative banks and claimed the interest income as exempt u/s 80P(2)(d) of the Act. Sec. 80P(2)(d) provides that the interest income or dividend derived by a co-operative society from its investments with any other co-operative society is deductible u/s 80P of the Act. The assessee took the view that the co-operative banks are basically co-operative societies

The AO took the view that the income of co-operative banks is not deductible u/s 80P of the Act in terms of sec. 80P(4) of the Act and consequently the provisions of sec.80P cannot be availed by the assessee in respect of income received from co-operative bank. Accordingly the AO reopened the assessments of both the years under consideration and rejected the claim for deduction u/s 80P(2)(d) of the Act in respect of interest income received from co-operative banks.

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.

The Ld D.R submitted that the Hon’ble Karnataka High had delivered the decision reported in 392 ITR 74 on January 5, 2017. However, in its subsequent decision in the case of very same assessee, the Hon’ble Karnataka High Court has taken a different view, viz., in the case of The Principal CIT Vs. The Totagars Co-operative Sale Society (Income tax Appeal No.100066 of 2016 & others dated 16-06-2017). The Hon’ble Karnataka High Court has expressed the view that the interest income earned from co-operative banks is not different from the interest earned from Scheduled bank and hence clause (d) of Section 80P(2) of the Act would not apply to interest earned from deposits kept with co-operative bank.

On the contrary, the Ld A.R submitted that the fact that the cooperative banks are basically co-operative societies only cannot be denied. He submitted that the Hon’ble High Court of Himachal Pradesh has taken the view in the case of CIT Vs. Kangra Co-operative bank Ltd (2009)(309 ITR 106) that co-

I heard the parties and perused the record. I notice that the Hon’ble Karnataka High Court has initially taken the following view in the case of Totagars Co-operative Sale Society Ltd (392 ITR 74) “....the word “co-operative bank” is a word of limited extent, which merely demarcates and identifies a particular species of the genus Co-operative Societies. Co-operative society can be of different nature, and can be involved in different activities; the Cooperative society Bank is merely a variety of the 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”.......

However, the very same Hon’ble Karnataka High Court in the very same assessee’s case in of 2016 & others dated 16-06-2017 has taken the view that the interest income earned by a co-operative society from a co-operative bank is not deductible u/s 80P(2)(d) of the Act.

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

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.

In the result, both the appeals of the revenue are dismissed. Order has been pronounced in the Court on 8.12.2017.