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Facts
The assessee, a Co-operative Housing Society, claimed a deduction of Rs. 17,19,430/- under section 80P(2)(d) of the Income Tax Act, 1961, on interest income received from co-operative banks. The Assessing Officer disallowed the entire deduction. The CIT(A) allowed deduction on interest from fixed deposits (Rs. 12,34,905/-) but disallowed interest from savings accounts (Rs. 4,84,525/-), holding that savings accounts do not constitute 'investment' under section 80P(2)(d).
Held
The Tribunal held that the term 'investment' under section 80P(2)(d) is not qualified to be restricted to fixed deposits and includes interest derived from all investments with any other Co-operative Society, including Co-operative Banks. Relying on a coordinate bench decision, the Tribunal found that interest income from saving accounts is also covered under section 80P(2)(d). The reliance of the CIT(A) on section 194A to differentiate between investment and savings accounts was also found to be without merit.
Key Issues
Whether interest income received on saving accounts maintained with co-operative banks is eligible for deduction under section 80P(2)(d) of the Income Tax Act, 1961.
Sections Cited
80P(2)(d), 250, 143(1), 194A
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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned order dated 27/02/2024, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Joint Commissioner of Income Tax (Appeals), -3, Ahmedabad, [“learned JCIT(A)”], for the assessment year 2021- 22.
Maker Tower F Premises Co-Op Soc, Ltd.
In its appeal, the assessee has raised the following grounds:–
“1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the additions made to the total income of the Appellant by the learned Assessing Officer by denying the deduction under section 80P(2)(d) to the extent of Rs.4,84,525/- claimed by the appellant. The learned Assessing Officer and the learned CIT(Appeals) failed to appreciate that the Appellant is a Registered Premises Co-operative Society and is therefore eligible to deduction under section 80P(2)(d) of the Act. In respect of interest from the Co-operative Banks. The learned Assessing Officer and the learned CIT(Appeals) failed to appreciate the submissions made and explanations furnished by the Appellant and principles laid down by the courts in this behalf.”
The only dispute raised by the assessee is against the denial of deduction under section 80P(2)(d) of the Act on the interest income received on saving accounts maintained with the Co-operative Banks.
The brief facts of the case as emanating from the record are: The assessee is a Co-operative Housing Society and for the year under consideration filed its return of income on 07/12/2021 declaring total income of Rs.74,84,020/-, after claiming deduction amounting to Rs.17,19,430/- under section 80P(2)(d) of the Act. The return filed by the assessee was processed vide intimation dated 21/12/2022 issued under section 143(1) of the Act determining the total income of the assessee at Rs.92,03,450/-, after disallowing the deduction of Rs.17,19,430/- claimed under section 80P(2)(d) of the Act.
5. In the appeal against the intimation issued under section 143(1) of the Act, it was noticed by the learned JCIT(A) that out of the total interest income of Rs.17,19,430/- claimed under section 80P(2)(d) of the Act, the interest amounting to Rs.12,34,905/- is from fixed deposits in the Co-operative Banks and the balance interest of Rs.4,84,525/- has been received by the assessee Maker Tower F Premises Co-Op Soc, Ltd. Co-operative Banks. Agreeing with the submissions of the assessee, the learned JCIT(A), vide impugned order, held that the Co-operative Bank is also the Co-operative Society registered under the Co-operative Societies Act, 1972 or under any other law in force in the State Government/Central Government. Accordingly, the learned JCIT(A), held that every Co-operative Bank is a Co-operative Society for the purpose of section 80P(2)(d) of the Act and the Co-operative Banks from which the assessee has received interest are also Co-operative Societies for the purpose of section 80P(2)(d) of the Act. However, the learned JCIT(A), only granted relief to the assessee under section 80P(2)(d) of the Act in respect of interest income of Rs.12,34,905/- received from fixed deposits in the Co-operative Banks, and disallowed the interest income of Rs.4,84,525/- received on saving accounts maintained with the Co-operative Bank. As per the learned JCIT(A), the provisions of section 80P(2)(d) of the Act are only applicable in respect of interest income received on investments made with the Co-operative Banks and the interest on saving bank accounts maintained with the Co-operative Banks cannot be considered to be interest on investment with the Co-operative Banks. Thus, it was held that the amount kept in the saving accounts maintained with the Co-operative Banks is not an investment for the purpose of section 80P(2)(d) of the Act. Being aggrieved by the disallowance upheld by the learned JCIT(A), the assessee is in appeal before us.
6. We have considered the submissions of both sides and perused the material available on record. In the present case, it is undisputed that the assessee is a Co-operative Housing Society, and during the year under consideration, claimed deduction under section 80P(2)(d) of the Act with Page | 3 Maker Tower F Premises Co-Op Soc, Ltd. Rs.17,19,430/- received from the Co-operative Banks. Vide intimation issued under section 143(1) of the Act, the entire deduction claimed under section 80P(2)(d) of the Act was disallowed, however, the learned JCIT(A) restricted the disallowance to Rs.4,84,525/- being the interest income received on saving accounts maintained with the Co-operative Banks. As per the learned JCIT(A), section 80P(2)(d) of the Act only covers the interest received from investments with the Co-operative Societies, and interest income from saving accounts is not an investment for the purpose of 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 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;”
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 Maker Tower F Premises Co-Op Soc, Ltd. (ii) such investments should be with any other Co-operative Society.
In the present case, there is no dispute that the assessee is a Co- Operative Housing Society. 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. At this stage, 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 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 Co- operative Banks registered under the Maharashtra Co-operative Societies Act and earned interest, which was claimed as a deduction under section 80P(2)(d) of the Act.
In the present case, the learned JCIT(A) has not disputed that the Co- operative Banks are Co-operative Societies for the purpose of section 80P(2)(d) of the Act, and has also allowed the deduction in respect of interest income received from fixed deposits in the Co-operative Banks under section 80P(2)(d) of the Act. However, the learned JCIT(A) did not extent the same benefit in respect of interest income received on saving accounts maintained with the Co-operative Banks on the basis that there is a basic difference between interest on investments and interest on saving banks, and section 80P(2)(d) of the Act only covers the former. From a careful perusal of the provisions of section 80P(2)(d) of the Act, we find that the term “investment”
Maker Tower F Premises Co-Op Soc, Ltd. has not been qualified to be only the investment in the fixed deposits. Thus, from the provisions of section 80P(2)(d) of the Act, it is evident that the same includes interest derived from all investments with any other Co-operative Society, including Co-operative Banks. We find that while dealing with a similar issue, the Co-ordinate Bench of the Tribunal in Punjab State Federation of Co- operative House Building Societies Ltd Vs. ITO, [1982] 2 ITD 617 (Chd.), after considering the meaning of the word “investment” held that the section 80P(2)(d) of the Act also covers interest income from saving accounts. The relevant findings of the Co-ordinate Bench, in the aforesaid decision, are reproduced as follows: - “4. We have heard the parties and we are inclined to accept the claim of the assessee for the following reasons.
The fact that the assessee as well as the bank with which the deposits were placed are co-operative societies is not controverted. Insofar as the meaning of the word 'investment' is concerned, we do not have any help from the definitions given in the statute itself. The learned counsel for the assessee has relied upon the meaning of the word 'investment' found in the Chambers Twentieth Century Dictionary as any placing of money to secure income or profit. We also find that the word 'invest' (in the invest-ment clause in a will) has been interpreted to mean, inter alia, to apply money in the purchase of some property from which interest or profile is expected, and which property is purchased in order to be held for the sake of the income which it will yield : Stroud's Dictionary, 4th edition, p. 1419.
The savings bank account which the assessee had opened has to be understood in contrast to what the assessee could have done by placing the money in the current account. In the savings bank account, there are restrictions on withdrawals. For example, rule 6 of the Savings Bank Rule regarding deposits, stipulates that a depositor may withdraw money from his account not more than 12 times a month. The very name of the account is savings account and, therefore, by implication it is for the pur-pose of earning interest on savings. In our opinion. the narrow interpreta-tion given by the authorities below to deny the assessee deduction under section 80P(2)(d) is not justified. We, therefore, reverse their orders and direct that the said amount of interest be treated as exempt under section 8OP(2)(d) for the year under appeal.”
Maker Tower F Premises Co-Op Soc, Ltd.
We find that the learned JCIT(A), though referred to the aforesaid decision, however, disregarded the same on the basis that the same is very old, without distinguishing the same on facts or on law. Further, we find no merits in the reliance placed by the learned JCIT(A) upon the provisions of section 194A of the Act, in order to hold that the provisions of the Act differentiate interest on investment and interest on saving accounts, as the provisions of section 194A of the Act does not create any such distinction, and requires TDS to be deducted at the time of payment/credit of interest to the account of the payee, provided other conditions as laid down in the section are satisfied. Therefore, we are of the considered view that the assessee is also entitled to claim deduction under section 80P(2)(d) of the Act on the interest income received on saving accounts maintained with the Co-operative Banks. Accordingly, to this extent the impugned order passed by the learned JCIT(A) is set aside, and the Assessing Officer (“AO”) is directed to allow deduction of Rs.4,84,525/- being the interest income received on saving accounts maintained with the Co-operative Banks under section 80P(2)(d) of the Act. As a result, the sole ground raised by the assessee is allowed.
In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 25/07/2024