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Facts
The assessee, a cooperative society, filed its return declaring total income at nil after claiming deduction under Section 80P. The Assessing Officer disallowed the deduction for interest and dividend income earned from investments in cooperative banks, citing Section 80P(4). The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal considered that although cooperative banks are excluded from the benefit of Section 80P(4), a cooperative society registered under the Cooperative Societies Act, which derives interest income from investments in a cooperative bank, is still entitled to deduction under Section 80P(2)(d). Previous decisions of coordinate benches were also referred to.
Key Issues
Whether interest and dividend income earned from investments in cooperative banks are eligible for deduction under Section 80P(2)(a)(i) or 80P(2)(d) for a cooperative society, despite the provisions of Section 80P(4).
Sections Cited
80P(2)(a)(i), 80P(2)(d), 80P(4)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
आदेश / O R D E R Per Amarjit Singh (AM): The present appeal filed by the assessee is directed against the order of ld. CIT(A) NFAC of the Income Tax Act, 1961 for A.Y. 2017-18. The assessee has raised the following grounds before us: “1. On facts, in circumstances of the case and in law, the learned CIT-A NFAC, erred in confirming disallowance by A.O. of Rs. 1,97,79,808/- u/s 80P(2)(a)(i) of the Income Tax Act, 1961.
2. On facts, in circumstances of the case and in law, the learned CIT-A NFAC, erred in confirming disallowance by A.O. of Rs.1,97,79,808/- u/s 80P(2)(d) of the Income Tax Act, 1961.
3. Without prejudice to Ground Nos. 2 & 3, the learned CIT-A- NFAC erred in confirming disallowance of proportionate deduction for cost of funds deployed in fixed deposits and shares.
4. The appellant craves leave to add, alter, modify or delete above Ground of Appeal.”
P a g e | Mumbai Postal Employees Co-operative Credit Society ltd. vs. ITO-17(2)(4) 2. Fact in brief is that assessee is a Credit Cooperative Society registered under the Maharashtra Cooperative Society Act 1960 and its membership is open to employees of department of India post within the State of Maharashtra. All business during the year was done only with its members. During the year the assessee has filed return of income on 12.10.2017 declaring total income at Rs.nil after claiming deduction u/s 80P of Rs.19,21,62,128/-. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 28.09.2018. During the course of assessment the assessing officer observed that assessee has shown gross total income from business at Rs.19,21,62,128/- and claimed the whole amount as deduction u/s 80P(2)(a)(i) of the Act. The AO further observed that assessee has credited interest receipt of Rs.152,42,308/- and dividend of Rs.45,37,500/- received from cooperative banks in its profit and loss account. The AO observed that earning interest/dividend from investment in Cooperative Bank was not the object of the business of the assessee therefore, the same was no eligible for deduction in terms of provision of Sec. 80P(2)(a)(i) of the Act. The assessing officer also observed that assessee was not eligible for deduction u/s 80P(2)(d) of the Act in view of the provision of Sec. 80P(4) inserted by the Finance Act 2006 w.e.f 01.04.2007 which specifically excludes cooperative bank from the definition of cooperative societies for the purpose of benefit of Sec. 80P. He further stated that Sec.80P(4) of the Act say that such deduction shall not be allowed to the cooperative banks and cooperative banks are not included in the cooperative societies for the purpose of Sec. 80P(2)(d) of the Act. Therefore, the assessing officer concluded that benefit of 80P cannot be given either u/s 80P(2)(d)(i) as claimed by the assessee or 80P(2)(d) of the Act, therefore, deduction u/s 80P(2)(a)(i) to the extent of Rs.197,79,808/- being interest income/dividend received P a g e | Mumbai Postal Employees Co-operative Credit Society ltd. vs. ITO-17(2)(4) from cooperative bank was rejected and also not allowed as deduction u/s 80P(2)(d) of the Act.
Aggrieved, the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.
During the course of appellate proceeding before us the assessee has filed paper book comprising detail and copies of document filed before the assessing officer and ld. CIT(A). The ld. Counsel also referred the decision of ITAT in the case of Mumbai Postal Employees Co- operative Credit Society Ltd. Vs. ITO, Ward 17(2)(1) vide & 1051/Mum/2023 dated 16.08.2023. The ld. Counsel after referring the detail of submission made before the CIT(A) submitted that assessee has made detailed submission along with the various judicial pronouncements and requested to allow the deduction u/s 80P(2)(a)(i) or alternatively u/s 80P(2)(d) of the Act, however, the ld. CIT(A) has dismissed the appeal of the assessee without any justification. On the other hand, the ld. D.R supported the order of lower authorities.
Heard both the sides and perused the material on record. The assessee is a cooperative society registered under the Maharashtra Cooperative Society Act. The AO and CIT(A) has denied deduction under Section 80P(2)(a)(i) and 80P(2)(d) of the Act as discussed supra in this order. The AO was of the view that deduction u/s 80P(2)(d) is not available to any co-operative society when investment was made in any cooperative bank except two cooperative bank mentioned in the sub- section (4) of Section 80P. We consider that assessee society is not a co- operative bank and it is engaged in providing credit facilities to its members. The society does not provide any cheque book facility, Demand draft, pay order or other similar facilities to its members. We have also perused the decision of the coordinate bench of the ITAT vide P a g e | Mumbai Postal Employees Co-operative Credit Society ltd. vs. ITO-17(2)(4) & 1051/Mum/2023. The relevant extract of the decision in the said order is reproduced as under: “6. Heard both the side and perused the material on record. The assessee is a cooperative society registered under the Maharashtra Cooperative Society Act. It is engaged in providing credit to its members. During the year the assessee has shown net profit of Rs.17,73,07,795/- against which it has claimed deduction u/s 80P(2)(a)(i) of the Act. The income earned by the assessee is comprised business of providing loans to members, interest on deposit maintained with Mumbai District Central Co-op Bank and dividend on shares of that bank. The ld. Pr.CIT was of the view that such interest income and dividend income are not profits and gains of business of providing credit facilities to its members as mandated by section 80P(2)(a)(i) of the Act. The ld. Pr.CIT also observed that even deduction u/s 80P(2)(d) cannot be given when there is investment in any cooperative bank and that the income from investment in the cooperative bank after insertion of sub-section (4) of the section 80P is not eligible to deduction. However, we consider though the Cooperative Bank pursuant to the insertion of sub-section (4) of Sec. 80P is no more be entitled for claim of deduction u/s 80P of the Act, but a cooperative bank continue to be a cooperative society registered under the Co-operative Society Act. Even the interest income derived by a cooperative society from its investment held with a cooperative bank would be entitled for claim of deduction u/s 80P(2)(d) of the Act as held in the various decisions of the coordinate benches of the ITAT Mumbai.
Some of the decision of the ITAT wherein the claim of deduction u/s 80P(2)(d) was allowed on the interest income earned from deposit with cooperative bank are as under:
(i) Mittal Park Cooperative Housing Society Ltd. Vs. Asst. Director of Income Tax, Mum, W(125) (95) CPC, Bengaluru, (Ld. ADIT). (ii) Mittal Park Cooperative Housing Society Vs. ITO, Ward 25 (3)(1), Mumbai (iii) Kaliandas Udyog Bhavan Premises Coop Society Ltd. Vs. ITO 21(1)(2). (iv) Aqua Cooperative Housing Society Limited Vs ITO 21(1)(2) (v) Sea Green Cooperative Housing Society Ltd. Vs. ITO 21(3)(2)
P a g e | Mumbai Postal Employees Co-operative Credit Society ltd. vs. ITO-17(2)(4) (vi) lands’ End Cooperative Housing Society Ltd. Vs. ITO 16(1)(3) (vii) The Nutan Laxmi Chs Ltd. Mumbai Vs. ITO 19(2)(4) (viii) M/s Palmera Cooperative Housing Society Ltd. Vs. ACIT, 19(2) 7. In the case of Kaliandas Udyog Bhavan Premises Coop. Society Ltd. Vs. ITO vide dated 25.04.2018 it is held that though the cooperative bank pursuant to the insertion of subsection (4) of Sec. 80P is no more be entitled for claim of deduction u/s 80P of the Act, but however, as a cooperative bank continued to be a cooperative society registered under the Cooperative Society Act, therefore, the interest income earned by a cooperative society from its investment held that cooperative bank would be entitled for claim of deduction u/s 80P(2)(d).