INCOME TAX OFFICER - 25(2)(1) MUMBAI, MUMBAI vs. MUMBAI POSTAL EMPLOYEES CO-OPERATIVE CREDIT SOCIETY LTD, MUMBAI

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.

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.

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

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:

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

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 ITA Nos. 3229 & 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:-

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

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