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Facts
The assessee, a cooperative housing society, filed its return of income declaring 'Nil' income. The CPC made a prima facie adjustment disallowing a claim of Rs. 1,65,447/- for interest income earned from a cooperative bank, against the assessee's claim for deduction under Section 80P(2)(d). The assessee filed a rectification application, which was rejected.
Held
The Tribunal held that a cooperative bank is a type of cooperative society and that the interest earned by the assessee from investments made in a cooperative bank is eligible for deduction under Section 80P(2)(d). The initial adjustment by the CPC was beyond the scope of Section 143(1)(a) as the return was filed within the due date.
Key Issues
Whether interest income earned by a cooperative society from a cooperative bank is eligible for deduction under Section 80P(2)(d), and if the disallowance by CPC was within the scope of Section 143(1)(a).
Sections Cited
154, 143(1), 80P(2)(d), 80P(2)(a)(i), 80P(1), 80P, 139(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ BENCH
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against order dated 24/11/2023 passed by NFAC, Delhi for the AY.2021-22 in relation to the rectification application u/s.154 / 143(1).
The only ground raised by the assessee is with regard to disallowance of deduction u/s.80P(2)(d) amounting to Aashna Enclave Co-operative Housing Society Limited Rs.1,65,447/- in respect of interest received by the assessee co-operative housing society from co-operative bank.
The brief facts are that assessee is a co-operative housing society and has filed its return of income on 17/12/2021 declaring total income of Rs.’ Nil’. The return of income was filed on the due date along with audited accounts, whereas the due date for filing of return of income for A.Y.2021-22 was 15th March 2022. Thus, the return of income was filed within the due date. Despite that, CPC has made prima facie adjustment disallowing the entire claim of Rs.1,65,450/-. Against the intimation dated 19/10/2022, assessee filed an application for rectification u/s.154 on 09/01/2023. Immediately on 09/01/2023 itself CPC passed rectification order u/s.154 confirming the payment and disallowance of deduction u/s.80P(2)(d).
First of all, the prima facie adjustment u/s.143(1)(a) can be made within the scope of Section 143(1)(a) for the following adjustments. a) the total income or loss shall be computed after making the following ( adjustments, namely:- (i) any arithmetical error in the return; [***] (ⅱ) an incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) disallowance of loss claimed was disalb set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; Aashna Enclave Co-operative Housing Society Limited (iv) disallowance of expenditure for increase in income indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under ""[section 10AA or under any of the provisions of Chapter VI-A under the heading "C-Deductions in respect of certain incomes", if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: 5. Thus, disallowance of deduction claimed under Chapter VIA can be made if the return is submitted beyond the due date specified u/s.139(1). Here in this case, the return of income has been filed within the due date. Thus, the prima facie adjustment is beyond the scope of Section 143(1)(a) and accordingly, the claim of deduction u/s.80P could not have been disallowed. 6. In any case, this issue is covered by the series of decisions of the Hon’ble High Court and the Tribunal. For the sake of ready reference, the decision in the case of Premium Tower Co-operative Housing Society Ltd is reproduced hereunder:-
4. After hearing both the parties and on perusal of the impugned order, we find that the only issue is with respect of allowability of deduction of Rs.13,85,628/- claimed u/s. 80 P(2)(d) on account of interest received by the assessee from various cooperative banks. The ld. CIT(A) has held that the provision of Section 80 P(2)(d) and Section 80 P(2)(a)(i) only extend the benefit of deduction towards income earned by cooperative society engaged in the business of providing banking facility to its members and does not extend to the interest received from the investments made in the cooperative Aashna Enclave Co-operative Housing Society Limited banks. The ld. AO has invoked Section 80P (4) holding that since investments have been made in the cooperative banks and therefore, deduction is to be denied. Here, we are not dealing with, whether assessee can be treated as cooperative bank or not. Here the issue is, assessee had made investment in the cooperative banks, whether interest earned from such investment falls in the category of interest earned from cooperative society or not so as to get benefit u/s 80 P(2)(d)? 5. Section 80P provides that in case of assessee being a cooperative society, the gross total income which includes any income referred to sub-section 2 shall be deducted in accordance with subject to provision of this section. Sub-section 2 of section 80P Clause (a) states that, “in the case of cooperative society engaged in cooperative business of banking and providing credit facilities to its members or ………, the whole of amount of profit and gains of the business attributable to anyone or more or such activity.
Clause (d) of Sub-section 2 of Section 80P reads as under:- (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; 6. Sub section 4 of section 80P carves out of exception that the provision of this section will not apply in relation to any cooperative bank. Further explanation provides that the definition of cooperative bank and primary cooperative bank. The said provision reads as under:- (4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation. For the purposes of this sub-section- (a) co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949) (b) "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for Aashna Enclave Co-operative Housing Society Limited long-term credit for agricultural and rural development activities.] 7. Thus, assessee being a cooperative society cannot be reckoned as cooperative bank carrying out banking business. The Hon’ble Jurisdictional High court in the case of Quepem Urban Co-operative Credit Society Ltd. vs. ACIT reported in (2015) 377 ITR 272 (Bom), after analyzing the relevant provision of Section 80P including Sub-section (4) had categorically held that cooperative banks are to be treated as cooperative society. In so far as deduction of interest earned on investment made in cooperative bank, Clause (d) of section 80P(2) provides that any income by way of interest on dividend derived from cooperative societies from its investment with any other cooperative societies, the whole of such income is deductable u/s 80P. The cooperative bank has been defined in part 5 of the Banking Regulation Act 1949. Section 56(ccv) provides that primary cooperative bank means cooperative societies other than a primary agriculture society. This view had come up for the Hon’ble Karnataka High Court in the case of PCIT vs. Totagars Co-operative Sale Society (2017) 392 ITR 74 (Kar.) dated 5th Jan. 2017, wherein the Hon’ble High Court had observed as under:- 1. Whether the learned Tribunal was justified in deleting the additions made by the Assessing Authority being the disallowed deduction claimed u/S 80P(2)(d) of the Income Tax Act and in the light of the decision of the Supreme Court with regard to the same exact assessee as the present one, namely, The Totgars Co-operative Sale Society Ltd., Vs. Income Tax Officer in Civil Appeal Nos.1622 to 1629/2010 decided by the Apex Court on 08.02.2010 or not? 2. Whether, in the facts and circumstances of the case, the Tribunal is justified in not following the decision rendered by the Hon'ble Supreme Court in Civil Appeal No. 1622 of 2010, wherein the Apex Court has to be held that the words used in Section 80P "the whole of the amount of profits and gains of business" emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society and as such interest earned on funds which are not required for Aashna Enclave Co-operative Housing Society Limited business purposes falls under the category of "other income" taxable under the Income Tax Act? 6. According to the learned counsel, the present appeal should be admitted on these two substantial questions of law.
7. However, the contention being taken by the learned counsel is untenable. For the issue that was before the ITAT, was a limited one, namely whether for the purpose of Section 80P(2)(d) of the Act, a Co- operative Bank should be considered as a Co-operative Society or not? For, if a Co- operative Bank is considered to be a Co-operative Society, then any interest earned by the Co-operative Society from a Co- operative Bank would necessarily be deductable under Section 80P(1) of the Act.
8. The issue whether a Co-operative Bank is considered to be a Co-operative Society is no longer res integra. For the said issue has been decided by the ITAT itself in different cases. Moreover the word "Co- operative Society" are the words of a large extent, and denotes a genus, whereas the word "Co- operative Bank" is a word of limited extent, which merely demarcates and identifies a particular species of the genus Co- operative Societies. Co-Operative Society can be of different nature, and can be involved in different activities; the Co-operative Society Bank is merely a variety of the Co- operative Societies. Thus the Co- operative Bank which is a species of the genus would necessarily be covered by the word "Co-operative Society".
9. Furthermore, even according to Section 56(i)(ccv) of the Banking Regulations Act, 1949, defines a primary Co- Operative Society bank as the meaning of Co- Operative Society. Therefore, a Co-operative Society Bank would be included in the words 'Co-operative Society'.
Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the I.T. Act, the said amount of interest earned from a Co- operative Society Bank would be deductable from the gross income of the Co- Aashna Enclave Co-operative Housing Society Limited operative Society in order to assess its total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent.
11. The learned counsel has relied on the case of The Totgars Co-operative Sale Society Ltd. Vs. Income Tax Officer, (supra). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the I.T. Act. For, in the present case the interpretation that is required is of Section 80P(2)(d) of the I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case.
This view has further been reiterated by the judgment of Hon’ble Kerala High Court in the case of PCIT vs. Percoorkada Service Co. Bank Ltd. (2022) 442 ITR 141 (Kerala) dated 01.11.2021, wherein one of the question before the Hon’ble High Court was, whether the interest income earned from deposits with the banks is eligible for deduction u/s 80P(2). The Hon’ble Kerala High Court has also considered the judgment of Hon’ble Supreme Court in the case of Totagars Cooperative Societies Ltd. 322 ITR 323, wherein the Hon’ble High Court has held that interest income earned from district cooperative bank or state cooperative bank, come within the ambit of section 80P (2)(d), therefore the income constitutes income from other sources and it is eligible for deduction covered u/s 80P(2)(d). Otherwise section 80P(2)(d) specifies any income by way of interest or dividend which is otherwise taxable under the head income from other sources, deduction is allowable if the same is derived from investment made with any other cooperative societies.
In contravention, section 80P (2)(a) provides income from carrying out various activities which is in the nature of business. Irrespective whether the interest income derived from activities as provided in section 80P (2)(a) which is otherwise the business income for which deduction is allowable, if there is any interest income which is earned on deposits or investment made with cooperative societies, the same must fall Aashna Enclave Co-operative Housing Society Limited in the category activity or the business, but still is eligible for deduction under the specific provision of section 80P(2)(d). Thus, the interest derived by the assessee from cooperative bank is eligible for deduction u/s 80P(2)(d) because as noted above, cooperative are also cooperative societies for this purpose. This has been held so by the Hon’ble Karnataka High Court and latest judgment of Hon’ble Kerala High Court.
10. Lastly, in so far as judgment of Hon’ble Karnataka High Court in the case of Totagars Cooperative Sale Society (395 ITR 611), which has been referred and relied upon by the Ld. CIT(A), the Hon’ble High Court has held against and observed that income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or cooperative bank. Therefore, section 80P(2)(d) would not apply on the facts of that case. However, as noted above in one of the judgment, the Hon’ble Karnataka High Court has held the same issue in favour of the assessee.
Therefore, following the judgment of Hon’ble Karnataka High Court in the case of Totagars Cooperative Sale Society (2017) 392 ITR 74 (Kar.) dated 5th Jan. 2017 and judgment of Hon’ble Kerala High Court in the case of PCIT vs. Percoorkada Service Co. Bank Ltd. (supra), we hold that assessee is eligible for deduction of interest income earned from cooperative bank.
Thus, claim of deduction u/s.80P(2)(d) is allowed to the assessee.
Accordingly, following the aforesaid decision the claim of assessee is allowed.
In the result, appeal of the assessee is allowed. Order pronounced on 28th Jun, 2024.