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Facts
The assessee, a credit co-operative society, claimed deduction under Section 80P(2)(a)(i) for interest income received from banks. The Assessing Officer disallowed this deduction, invoking Section 80P(4) which excludes cooperative banks from certain deductions. The CIT(A) allowed the deduction for interest from other co-operative banks but not from scheduled banks, directing the AO to compute accordingly.
Held
The Tribunal held that the assessee, being a credit co-operative society and not a co-operative bank, is eligible for deduction under Section 80P(2)(d) for interest income received from its investments with other co-operative societies, including co-operative banks. Section 80P(4) does not apply to the assessee.
Key Issues
Whether the assessee, a credit co-operative society, is eligible for deduction under Section 80P for interest income earned from deposits with other co-operative banks, and whether Section 80P(4) applies.
Sections Cited
194A(3)(v), 80P, 80P(2)(a)(i), 80P(2)(d), 80P(4), 143(2), 143(3), 142(1), 2(19)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI PRASHANT MAHARISHI
PER PRASHANT MAHARISHI, ACCOUNTANT MEMBER:
ITA 475/Mum/2024 is filed by the Income Tax Officer 25(1)(1), Mumbai against the appellate order passed by the National Faceless Appeal Centre, Delhi (‘ld. CIT(A)’) for A.Y. 2014-15 dated 18.01.2024 wherein the appeal filed by the assessee against the assessment order passed u/s 143(3) of the Act dated 30.12.2016 was partly allowed.
The ld. Assessing Officer has aggrieved and has preferred this appeal raising following four grounds of appeal:
“1. Whether on the facts and circumstances of the case and in law, the Ld. CITA) was justified ignoring the amendment made by Finance Act, 2015 in section 194A(3)v) of the Act which excludes the Cooperative Banks from the definition of "Cooperative Society" and requiring them to deduct income tax at source under 194A of the Act that also makes the legislative intent clear that the Co-operative Banks are not that specie of genus cooperative society, which are entitled to claim deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act,"
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in allowing the deduction u/s 80P(2Xd) of the I.T. Act, 1961 in respect of interest earned from cooperative banks ignoring the fact that the words used in section 8OP(4) are "in relation to” that can include within its ambit and scope even the interest income earned by the assessee, from a Co-operative Bank and this exclusion by Section 80P(4) of the Act even though without any amendment in Section 8OP(2)(d) of the Act is sufficient to deny the claim of the assessee for deduction under Section 80P(2(d) of the Act."
3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was. Correct in not considering whether the deposits and investment of surplus funds of assessee not immediately required for its purposes, is made with Scheduled Bank or Nationalized Banks or with Cooperative Banks does not make a difference as far as the character of the income earned by the assessee is concerned and it does not partake the character of its operational income. the same would continue to be fully taxable and will not be eligible for deduction under Section 80P(2)(d) of the Act." 4. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in allowing the deduction u/s 80P(2)(d) of the 1.T.Act, 1961 in respect of interest earned from deposits, though the Hon'ble Karnataka High Court in a detailed judgment discussing the law and various related issues in the case decided the Question of Law about the allowability of interest earned from deposits with co-operative bank u's 80P(2)\d) gf the Act in favour of the Revenue."
5. The appellant craves leave to amend or alter or add a new ground which may be necessary.”
The brief fact of the case shows that assessee’s main source of income is a co-operative society providing financial assistance to its member. Assessee filed its return of income on 26.09.2014 declaring Rs. Nil as total income. The case was selected for limited scrutiny u/s 143(2) notice dated 01.092015 was issued. Notice u/s 142(1) was also issued on 07.09.2016. The ld. Assessing Officer looked at the computation of the total income wherein the assessee claimed deduction of Rs. 2,63,61,174/- u/s 80P(2)(a)(i) of the Act. The Assessing Officer questioned the deductibility of interest income received by the assessee from banks. The assessee vide letter dated 03.12.2016 submitted that interest received on fixed deposit is not taxable u/s 80P of the Act. The AO noted that assessee is a co-operative society engaged in the banking activities, therefore, the provisions of section 80P(4) is applicable in the case of the assessee and assessee is not entitled to deduction u/s 80P of the Act. Therefore, the claim of the deduction of Rs. 2,63,61,174/- was disallowed. Accordingly, total income of the assessee was computed at Rs. 2,63,61,170/- by assessment order passed u/s 143(3) of the Act dated 30.12.2016.
Assessee aggrieved with the order of the ld. AO preferred before the ld. CIT(A). Before ld. CIT(A), it was contended that assessee is a co- operative society carrying business of credit society for its members and is not a co-operative bank and, therefore, the provisions of section 80P(4) are not applicable to the assessee. Accordingly, assessee claimed that interest on deposit received by the assessee qualifies for deduction u/s 80P(2)(a)(i) of the Act. The ld. CIT(A) considering the decision of Hon’ble Supreme Court in 431 ITR 1 held that income arising in the form of interest from investment by the assessee with other co-operative banks would be eligible for deduction u/s 80P(2)(d) of the Act. He further held that the interest
received by the assessee from Scheduled Bank would not be eligible for deduction. He directed the jurisdictional Assessing Officer to compute the deduction accordingly. Against this appellate order, the ld. AO is in appeal.
We have heard the rival contentions and perused the order of the ld. Lower Authorities. The controversy involved in this appeal that whether the assessee being a credit co-operative society transacting the business with its members has placed certain deposits with other co-operative societies which are cooperative banks. The AO held that assessee is a co-operative bank as it carries on all the banking activities except the issue of cheque books. Therefore, he held that by virtue of provisions of section 80P(4) of the Act, the assessee is not entitled to deduction u/s 80P(2)(a)(i) on the interest received. We find that the ld. CIT(A) has categorically held that assessee is not a co-operative bank but is a credit co-operative society, therefore, provisions of section 80P(4) does not apply to the assessee. He, therefore, held that if the assessee is receiving any interest and dividend income on its investment with any other co- operative societies including co-operative banks, the assessee would be entitled to deduction of whole of such income u/s 80P(2)(d) of the Act. Looking to the provisions of section 80P, section 2(19) of the Act, we do not find any infirmity in the order of the ld. CIT(A). Accordingly, all the grounds of the appeal of ld. AO are dismissed. Accordingly, the appeal of the Assessing Officer is dismissed.
Order pronounced in the open court on 19.08.2024.