Loading judgment…
Facts
The assessee, a cooperative credit society, claimed deductions under Section 80P(2)(d) and 80P(2)(a)(i) of the Income Tax Act for interest and dividend income earned from deposits in cooperative banks. The Assessing Officer disallowed these claims, holding that cooperative banks are excluded under Section 80P(4). The CIT(A) allowed the deduction under Section 80P(2)(d). The Revenue appealed this decision.
Held
The Tribunal held that Section 80P(4) of the Act is relevant only when the assessee itself is a cooperative bank, which is not the case here. Relying on Supreme Court judgments and coordinate bench decisions, the Tribunal ruled that interest and dividend income earned by a cooperative society from investments in other cooperative banks are eligible for deduction under Section 80P(2)(d). The grounds raised by the Revenue were dismissed.
Key Issues
Whether interest and dividend income earned by a cooperative society from investments in cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, especially in light of Section 80P(4) and amendments to Section 194A.
Sections Cited
80P(2)(d), 80P(4), 194A(3)(v), 143(2), 142(1), 80P(2)(a)(i)
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
The present appeal by the Revenue and cross-objection by the assessee have been filed challenging the impugned order dated 09/02/2024, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, New Delhi, [“learned CIT(A)”], for the assessment year 2018-19.
In its appeal, the Revenue has raised the following grounds:-
“1. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct in allowing deduction u/s 80P(2)(d) of Income Tax Act in respect of interest earned from deposits from _ cooperative bank 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 Cogperative Society” and requiring them to deduct income tax at source under Section 194A’ of the Act that also makes the legislative intent clear that the Co- operative Banks are not that specie of gneus cooperative society, which are entitled to claim deduction under the special provision 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 deduction u/s 80P(2)(d) of Income Tax Act, 1961 in respect of interest earned from deposits in cooperative bank ignoring the fact that words used in section 80P(4) are “in relation to” that can include within its ambit and scope even the interest income earned by the assessee, from a Cooperative bank and this exclusion by Section 80P(4) of the Act even though without any amendment in Section 80P(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 im not considering whether the deposits and investments made with Scheduled Bank or Nationalised banks or with Cooperative Banks does not make a difference as far as the character of the income earned by assessee is concerned and it does not partake the character Uf its operational i 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 deduction u/s 80P(2)(d) of Income Tax Act, 1961 in respect of interest earned from deposits, though Hon’ble Karnataka High Court in a detailed judgment discussing the law and various related issues Page | 2
Mumbai Postal Employees Co-operative Credit Society Ltd. CO. No.57/Mum/2024 in the case of PCIT vs. Totagar’s Co-operative Sales Society (395 ITR 611) has specifically decided the Question of Law about the allowability of interest earned from deposits with co-operative banks u/s 80P(2)(d) of the Income tax Act in favour of Revenue”.
The brief facts of the case as emanating from the record are: The assessee is a co-operative credit society registered under the Maharashtra Co- operative Societies Act, 1960, and is engaged in the business of advancing loans and providing credit facilities to its members. For the year under consideration, the assessee filed its return of income on 27/09/2018 declaring a total income at Rs.Nil, after claiming deduction of Rs.45,37,500 earned as dividend from the Co-operative Banks under section 80P(2)(d) of the Act, and deduction of Rs. 1,69,39,302 earned as interest from the Co-operative Banks under section 80P(2)(a)(i) of the Act. The return filed by the assessee was selected for complete scrutiny, inter-alia, on the issue of deduction from total income under Chapter VI-A of the Act, and accordingly, statutory notices under section 143(2) as well as under section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was proposed to disallow the claim of Rs.2,14,77,402 under section 80P(2)(a)(i) and under section 80P(2)(d) of the Act. In response thereto, the assessee submitted that the investment in the Co-operative Banks was made under compulsion of statutory mandate, and the interest income is fallout of the compliance of the statutory mandate in section 66 of the Maharashtra State Co-operative Societies Act. The assessee further submitted that these deposits also provide fallback alternative in distress situations of large withdrawal and helps to set off cost though partially and keep effective cost of deposit lower.
Mumbai Postal Employees Co-operative Credit Society Ltd. CO. No.57/Mum/2024 Thus, it was submitted that investments of funds with the Co-operative Banks is purely on account of business expediency.
The Assessing Officer (“AO”) vide order dated 26/03/2021 passed under section 143(3) read with section 143(3A) and 143(3B) of the Act held that interest and dividend income received by the assessee is not allowable under section 80P(2)(d) of the Act. The AO further held that the assessee has invested/deposited funds in the Co-operative Bank, which has been excluded under the provisions of section 80P(4) of the Act for the purpose of section 80P of the Act, and therefore, the assessee is eligible for deduction claimed in view of the provisions of section 80P(4) of the Act. The AO held that interest or dividend earned by the assessee from the co-operative society is covered under the provisions of section 80P(2)(d) of the Act, however Co-operative Banks is not included within the meaning of the provisions of section 80P(2)(d) of the Act. The AO also held that the Co-operative Bank may have corporate structure or skeleton of co-operative society but its business is entirely different, and that is a banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. The AO further held that the assessee was earning interest income out of the surplus funds which are invested in the Co-operative Banks, and their activities do not fall under any activities mentioned in section 80P(2) of the Act. Accordingly, the AO disallowed the interest of Rs. 1,69,39,902 under section 80P(2)(a)(i) of the Act, and disallowed the dividend of Rs.45,37,500 under section 80P(2)(d) of the Act.
Mumbai Postal Employees Co-operative Credit Society Ltd. CO. No.57/Mum/2024 5. The learned CIT(A), vide impugned order, accepted the alternative contention of the assessee of claim of deduction under section 80P(2)(d) of the Act in respect of the interest and dividend received from the Co-operative Banks. Being aggrieved, the Revenue is in appeal before us. On the other hand, the assessee has filed the cross-objection claiming deduction under section 80P(2)(a)(i) of the Act in respect of interest and dividend income received from the Co-operative Banks.
We have considered the submissions of both sides and perused the material available on record. The only dispute raised by the Revenue is against the allowance of deduction under section 80P(2)(d) of the Act by the learned CIT(A) on the interest and dividend income earned by the assessee from the Co-operative Banks. As per the assessee, it earned interest income of Rs. 1,69,39,902 from the Mumbai District Central Co-operative Bank, and dividend income of Rs.45,37,500 from the Co-operative Banks. The assessee claimed deduction in respect of dividend earned from the Co-operative Banks under section 80P(2)(d) of the Act, and interest earned from the Co-operative Banks was claimed as deduction under section 80P(2)(a)(i) of the Act. However, the AO denied the deduction claimed by the assessee under section 80P(2) of the Act. The learned CIT(A) accepted the alternative claim of the assessee and allowed the deduction in respect of interest and dividend income under section 80P(2)(d) of the Act.
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 Page | 5
Mumbai Postal Employees Co-operative Credit Society Ltd. CO. No.57/Mum/2024 referred to in sub-section (2) to section 80P shall be allowed as a deduction to an assessee being a co-operative 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 co- operative society from its investments with any other co-operative society, the whole of such income;”
8. 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 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 “co-operative 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 ;”
In the present case, there is no dispute that the assessee is a Co- operative Society, which is engaged in the business of advancing loans and providing credit facilities to its members. 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 Mumbai Postal Employees Co-operative Credit Society Ltd. CO. No.57/Mum/2024 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 Co- operative Bank. Accordingly, the assessee kept the deposits in District Central Co-operative Banks and earned interest and dividend, which was claimed as a deduction under section 80P(2)(d) of the Act. It is pertinent to note that the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. v/s 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. Thus, we are of the considered view that section 80P(4) of the Act is of relevance only in a case where the assessee, who is a Co-operative Bank, claims a deduction under section 80P of the Act, which is not the fact of the present case. We also find that in PCIT v/s Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. [2023] 150 taxmann.com 173 (SC), the Hon’ble Supreme Court held that a taxpayer who is merely giving credit to its members cannot be said to be the Co-operative Banks/Banks under the Banking Regulation Act and the banking activities under the Banking Regulation Act are altogether different. Therefore, the Hon’ble Supreme Court held that the assessee, a co-operative credit society, could not be termed a bank/Co-operative Bank and that being a credit society, it was entitled to exemption under section 80(P)(2) of the Act.
Mumbai Postal Employees Co-operative Credit Society Ltd. CO. No.57/Mum/2024 Therefore, we find no merits in the aforesaid reasoning adopted by the AO in denying deduction under section 80P(2)(d) of the Act to the assessee
As regards the claim of deduction under section 80P(2)(d) of the Act, it is also pertinent to note that all Co-operative Banks are Co-operative Societies but vice versa is not true. We find that the coordinate benches of the Tribunal have consistently taken a view in favour of the assessee and held that even the interest earned from the Co-operative Banks is allowable as a deduction under section 80P(2)(d) of the Act. We find that the coordinate bench of the Tribunal in Jansevak Co–operative Society Ltd. vs ITO, in & 3230/Mum./2022, vide order dated 23/02/2023 allowed the deduction claimed by the assessee under section 80P(2)(d) of the Act, by observing as under:-
“7. Hon’ble High Court of Karnataka in case of Pr. CIT & Anr. Vs. Totgar’s Co- operative Sale Society Ltd. (2017) 292 ITR 74 (Kar.) and Hon’ble Gujarat High Court in case of State Bank of India vs. CIT (2016) 389 ITR 578 (Guj.) had also held that interest income earned by a co-operative society on its investment held with co-operative bank would be eligible for claim of deduction under section 80P(2)(d) of the Act. We are of the considered view that the Ld. CIT(A) has erred in upholding the denial of deduction by the AO to the assessee under section 80P(2)(d) of the Act.
So following the decision rendered by Hon’ble Karnataka High Court (supra) and Hon’ble Gujarat High Court (supra) and order passed by the coordinate Bench of the Tribunal discussed in preceding paras, we are of the considered view that assessee society who has earned an amount of Rs.16,76,460 and Rs.87,93,570/- for A.Y. 2013-14 and A.Y. 2018-19 respectively from its investment of surplus fund parked with co-operative banks is entitled for deduction under section 80P(2)(d) of the Act.
9. In view of what has been discussed above, we are of the considered view that the Ld. CIT(A) has erred in upholding the denial of deduction by the AO to the assessee society claimed under section 80P(2)(d) of the Act, hence, AO is directed to allow the same.”
Therefore, in view of the aforesaid findings, we uphold the plea of the assessee and find no infirmity in the impugned order passed by the learned
Mumbai Postal Employees Co-operative Credit Society Ltd. CO. No.57/Mum/2024 CIT(A) in allowing deduction claimed under section 80P(2)(d) of the Act in respect of interest and dividend income earned from the Co-operative Banks. As a result, the grounds raised by the Revenue are dismissed.
Since the claim of the assessee under section 80P(2)(d) of the Act has been allowed, the ground raised by the assessee in its cross-objection claiming deduction under section 80P(2)(a)(i) of the Act has become academic, and therefore are dismissed as infructuous.
In the result, the appeal by the Revenue and cross-objection by the assessee are dismissed. Order pronounced in the open Court on 26/07/2024