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Facts
The appeals concern the allowability of deduction under Section 80P(2)(d) of the Income Tax Act for interest earned by cooperative societies from deposits in cooperative banks. The Assessing Officer disallowed this deduction, but the CIT(A) granted relief. The Revenue appealed these decisions.
Held
The Tribunal held that cooperative societies are entitled to claim deduction under Section 80P(2)(d) for interest income earned from investments with cooperative banks, as a cooperative bank itself is a type of cooperative society. The appeals concerning the deletion of additions for ground rent and miscellaneous receipts were also dismissed.
Key Issues
Whether interest income earned by a cooperative society from deposits in a cooperative bank is eligible for deduction under Section 80P(2)(d) of the Income Tax Act. Whether amounts received as ground rent and from the sale of old plant material are taxable additions.
Sections Cited
80P(2)(d), 143(3), 80P(2)(a)(i), 80P(4), 2(19)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, F BENCH, MUMBAI
Per Rahul Chaudhary, Judicial Member:
These are 2 appeals pertaining to Assessment Years 2014-15 and 2017-18 preferred by the Revenue against two separate orders, each dated 21/07/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’]. Since the appeals involve common issues the same were heard together and are being disposed by way of a common order.
ITA No. 3301 & 3302/Mum/2023 (Assessment Years: 2014-15 & 2017-18)
We would first take up appeal for the Assessment Year 2017-18 which has been preferred by the Revenue challenging the order, dated 21/07/2023, passed by the CIT(A), whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment, dated 16/12/2019, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised following grounds of appeal:
“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 the Income Tax Act in respect of interest earned from deposits in cooperative bank ignoring that whether the deposits and investment of surplus funds of assessee not immediately required for its purposes, is made with Scheduled Bank or Nationalized 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 of its operational income from its activity as cooperative housing society, the same would continue to be fully taxable and will not be eligible for deduction under section 80P(2)(d) of the Act.
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 the Income Tax Act in respect of interest earned from deposits, though Hon’b1e Karnataka High Court in a detailed judgment discussing the law and various related issues in the case of PCIT Vs Totagar’s Cooperative Salee Society(395 ITR 6 11) has specifically decided the Question of Law about the allowability of interest earned from deposits with Cooperative Bank u/s. 80P(2) (d) of the Income Tax Act in favour of the Revenue.
Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in deleting the addition made by Assessing Officer in respect of Ground rent of Rs. 8,02,032/- and miscellaneous income of Rs. 25,000/- without appreciating the fact that these amounts were received from non-members of the society which do not fall within the purview of principle of mutuality.” (Assessment Years: 2014-15 & 2017-18)
Brief facts of the case are that the Assessee, a Co-operative Society, filed return of income for the Assessment Year 2017-18 on 28/09/2017 declaring total income at INR 4,28,210/- after claiming deduction under Section 80P(2)(d) of the Act. The return of income was processed under Section 143(1) of the Act. Subsequently, the case of the Appellant was selected for scrutiny and order under Section 143(3) of the Act was passed on 16/12/2019 assessing total income of the Appellant at INR 2,69,58,985/-. The Assessing Officer, inter alia, made addition of INR 2,40,79,087/- and INR 11,02,502/- in respect of interest from co-operative bank on fixed deposits and interest on saving account balance, respectively, on the ground that aforesaid interest income earned from co-operative banks was not eligible for deduction under Section 80P(2)(d) of the Act. Further, the Assessing Officer also made addition of INR 8,02,032/- in respect of the ground rent collected by the Assessee from its member as well as addition of INR 25,000/- in respect of receipt from sale of cooling tower plant material by the Assessee.
Being aggrieved, the Assessee preferred appeal before the CIT(A) against the Assessment Order, dated 16/12/2019, challenging the above additions/disallowances. The CIT(A) vide, order dated 21/07/2023, granted relief to the Assessee accepting the claim for deduction under Section 80P(2)(d) of the Act in respect of interest income from co-operative bank, and by deleting the abovesaid additions of INR 8,02,032/- and INR 25,000/- made by the Assessing Officer.
Being aggrieved, the Revenue has preferred the present appeal against the order passed by the CIT(A) on the grounds reproduced in paragraph 2 above.
Ground No. 1 and 2 raised by the Revenue are directed against the order of CIT(A) allowing Assessee’s claim for deduction under Section (Assessment Years: 2014-15 & 2017-18) 80P(2)(d) of the Act in respect of interest income from co-operative bank.
We note that the Assessing Officer had made aggregate addition of INR 2,51,81,589/- [INR 2,40,79,087/- + INR 11,02,502] in respect of interest income from co-operative bank on the ground that a co- operative bank is not a co-operative society and therefore, interest received from a co-operative bank is not eligible for deduction under Section 80P(2)(d) of the Act. The CIT(A) reversed the decision of the Assessing Officer and accepted Assessee’s claim for deduction under Section 80P(2)(d) of the Act in respect of the aforesaid interest income. Therefore, the Revenue is now in appeal before us on this issue
Having considered the rival submission and on perusal of the record, we find that the issue raised in the present appeal stands decided in favour of the Assessee by various decisions of the Tribunal wherein the Tribunal has held that benefit of deduction under Section 80P(2)(d) of the Act would be available in respect of interest income from a co- operative bank as it continues to be a co-operative society. The Mumbai Bench of the Tribunal has, in the case of Lands End Co-operative Housing Society Ltd. Vs. ITO : 3566/Mum/2014, vide order dated 15/01/2016, held as under:
“8. 3. We have heard………….
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From the close perusal of the provisions of …………………………Now will evaluate the assessee's case in the light of the decision of the Hon'ble Supreme court. The Honble Supreme Court in the case of Totagar's Co-operative Sale Society Ltd.(Supra) held that a society has surplus funds which are invested in short term deposits where the society is engaged in the business of banking or providing credit facilities to its members in that case the said income from short term deposits shall be treated and assessed as income from other sources and deduction (Assessment Years: 2014-15 & 2017-18) u/s 80(P)(2)(a)(i) would not be available meaning thereby that deduction u/s 80(P)(2)(a)(i) is available only in respect of income which is assessable as business income and not as income from other sources. Whereas in distinction to this, the provisions of section 80(P)(2)(d) of the Act provides for deduction in respect of income of a co-op society by way of interest or dividend from its investments with other coop society if such income is included in the gross total income of such coop society. In view these facts and circumstances we are of the considered view that the assessee is entitled to the deduction of Rs. 14,88,107/- in respect of interest received/derived by it on deposits with coop. banks and therefore the appeal of the assessee is allowed by reversing the order of the CIT(A). The AO is directed accordingly.” (Emphasis supplied)
Similarly, in the case of Kaliandas Udyog Bhavan Premises vs. ITO: ITA No. 6547/Mum/2017, dated 24.04.2018, the Mumbai Bench of the Tribunal has, after examining the judgment of the Hon’ble Supreme (2010) 322 ITR 283 and taking into account the insertion of 80P(4) vide the Finance Act, 2006, allowed deduction to a co-operative society under Section 80P(2)(d) of the Act in respect of interest income from a co-operative bank observing that the judgment of Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd vs. ITO: (2010) 322 ITR 283 (SC) was wrongly relied upon by the Revenue as the adjudication by the Hon’ble Supreme Court in the aforesaid case was in context of Section 80P(2)(a)(i) of the Act, and not on the entitlement of a co-operative society towards deduction under Section 80P(2)(d) of the Act in respect of the interest income received from co- operative bank. The relevant extract of the decision of the Tribunal reads as under:
“7. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to be in agreement with the view taken by the lower authorities. Before proceeding further we may herein reproduce the relevant extract of the said statutory provision, viz Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. (Assessment Years: 2014-15 & 2017-18)
“80P(2)(d) (1) Where in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.
(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, from a perusal of the aforesaid Sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee cooperative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other cooperative society. We though are in agreement with the observations of the lower authorities that with the insertion of Sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, but however, are unable to subscribe to their view that the same shall also jeopardise the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of the interest income on their investments parked with a co-operative bank. We have given a thoughtful consideration to the issue before us and are of the considered view that as long as it is proved that the interest income is being derived by a co-operative society from its (Assessment Years: 2014-15 & 2017-18) investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We may herein observe that the term “co- operative society‟ had been defined under Sec. 2(19) of the Act, as under: “(19) “Co-operative society” means a cooperative 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 cooperative societies;”
We are of the considered view, that though the co-operative bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but however, as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being enforced in any state for the registration of cooperative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank, would be entitled for claim of deduction under Sec.80P(2)(d) of the Act.
We shall now advert to the judicial pronouncements that had been relied upon by the authorized representatives for both the parties and the lower authorities. We find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) for the interest income derived from its investments held with a cooperative bank is covered in favour of the assessee in the following cases:
(i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 32 (Mum)
(ii) M/s Sea Green Cooperative Housing and Society Ltd. Vs. ITO21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017
(iii) Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITORange-20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017. We further find that the Hon'ble High Court of Karnataka in the case of (Assessment Years: 2014-15 & 2017-18) Sale Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had also held that the interest income earned by the assessee on its investments held with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, as had been relied upon by the ld. A.R, also makes it clear beyond any scope of doubt, that the purpose behind enactment of sub-section (4) of Sec. 80P was to provide that the cooperative banks which are functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. We are of the considered view that the reliance placed by the CIT(A) on the judgment of the Hon’ble Supreme (2010) 322 ITR 283(S.C.) being distinguishable on facts, thus, had wrongly been relied upon by him. The adjudication by the Hon’ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a co-operative society towards deduction under Sec. 80P(2)(d) on the interest income on the investments parked with a co-operative bank. We further find that the reliance place by the ld. D.R on the order of the ITAT “F” bench, Mumbai in the case of M/s Vaibhav Cooperative Credit Society Vs. ITO-15(3)(4) (ITA No. 5819/Mum/2014, dated 17.03.2017 is also distinguishable on facts. We find that the said order was passed by the Tribunal in context of adjudication of the entitlement of the assessee co-operative bank towards claim of deduction under Sec.80P(2)(a)(i) of the Act. We find that it was in the backdrop of the aforesaid facts that the Tribunal after carrying out a conjoint reading of Sec, 80P(2)(a)(i) r.w. Sec. 80P(4) had adjudicated the issue before them. We are afraid that the reliance placed by the ld. D.R on the aforesaid order of the Tribunal being distinguishable on facts, thus, would be of no assistance for adjudication of the issue before us. Still further, the reliance placed by the Ld. D.R on the order of the ITAT ‘SMC’ Bench, Mumbai in the case of Shri Sai Datta Co-operative Credit Society Ltd. Vs. ITO (ITA No. 2379/Mum/2015, dated 15.01.2016, would also not be of any assistance, for the reason that in the said matter the Tribunal had set aside the issue to the file of the assessing officer for fresh examination, That as regards the reliance placed by the ld. D.R on the judgment of the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars co-operative Sale Society (2017) 395 ITR 611 (Karn), the High Court had concluded that a co-operative society would not be entitled to claim of deduction under Section 80P(2)(d). We however (Assessment Years: 2014-15 & 2017-18) find that as held by the Hon'ble High Court of Bombay in the case of K. 11 (Bom), where there is a conflict between the decisions of non- juri ictional High Court’s, then a view which is in favour of the assessee is to be preferred as against that taken against him. Thus, taking support from the aforesaid judicial pronouncement of the Hon’ble High Court of juri iction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a co- operative society on its investments held with a co operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.
We thus in the backdrop of our aforesaid observations are unable to persuade ourselves to be in agreement with the view taken by the lower authorities that the assessee would not be entitled for claim of deduction under Sec. 80P(2)(d), in respect of the interest income on the investments made with the co-operative bank. We thus set aside the order of the lower authorities and conclude that the interest income of Rs.27,48,553/- earned by the assessee on the investments held with the co-operative bank would be entitled for claim of deduction under Sec. 80P(2)(d).” (Emphasis supplied)
We note that same view has been taken by the Tribunal in the case of M/s Sea Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31/03/2017, Mystique Rose Cooperative Housing Society Ltd.: vs. ITO 22(2)(3) (ITA No. 1290/Mum/2021) dated 30/03/2022 and Sonmarg Co-operative Housing Society Limited vs. CIT(A): (ITA No. 1334/Mum/2021) dated 29/03/2022. 12. We are in agreement with the above decisions of the Tribunal and therefore, hold that the Assessee is entitled to claim deduction under Section 80P(2)(d) of the Act in respect of interest income from co- operative banks aggregating to INR 2,51,81,589/- [INR 2,40,79,087/- (Assessment Years: 2014-15 & 2017-18) + INR 11,02,502]. Accordingly, we do not find any infirmity in the order passed by CIT(A) on this issue. Therefore, Ground No.1 and 2 raised by the Revenue are dismissed.
Ground No. 3 raised by the Revenue pertains to order of CIT(A) deleting addition of INR 8,02,032/- in respect of ground rent collected by the Assessee from members and miscellaneous receipt of INR 25,000/- arising from sale of cooling tower plant.
We have heard the rival submissions and perused the material on record.
We note that the CIT(A) had deleted the addition of INR 8,02,032/- returning categorical finding that the aforesaid amount was collected from the members of the society towards ground rent and was paid to Mumbai Collector’s Office; and therefore, no addition was warranted. The aforesaid factual finding returned by the CIT(A) has not been controverted during the appellate proceedings before us. Therefore, concurring with the view taken by the CIT(A), we decline to interfere with the order passed by the CIT(A) in this regard.
As regards the addition of INR 25,000/- made by the Assessing Officer, the CIT(A) has returned the finding that the aforesaid receipt is capital in nature as the same arose on account of sale of cooling tower plant materials in respect of which the Assessee had neither claimed deduction nor depreciation during the relevant previous year or in any of the preceding previous years. There is nothing on record to controvert the aforesaid finding returned by the CIT(A) and therefore, we decline to interfere with the order of CIT(A) deleting the addition of the aforesaid amount of INR 25,000/- holding the same to be capital receipt. In view of the aforesaid, Ground No. 3 raised by the Revenue is dismissed. (Assessment Years: 2014-15 & 2017-18)
We would next take up appeal for the Assessment Year 2014-15 which has been preferred by the Revenue challenging the order, dated 21/07/2023, passed by the CIT(A), whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment, dated 16/12/2019, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised following grounds of appeal:
“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 the Income Tax Act in respect of interest earned from deposits in cooperative bank ignoring that whether the deposits and investment of surplus funds of assessee not immediately required for its purposes, is made with Scheduled Bank or Nationalized Banks or with cooperative Bariks 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 of its operational income from its activity as cooperative housing society, the same would continue to be fully taxable and will not be eligible for deduction under section 80P(2)(d) of the Act.”
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 the Income Tax Act in respect of interest earned from deposits, though Hon’b1e Karnataka High Court in a detailed judgment discussing the law and various related issues in the case of PCIT Vs Totagar’s Cooperative Salee Society(395 ITR 6 11) has specifically decided the Question of Law about the allowability of interest earned from deposits with Cooperative Bank u/s. 80P(2) (d) of the Income Tax Act in favour of the Revenue.”
Both the sides agreed that Ground No. 1 & 2 raised in the present appeal are identical to Ground No. 1 & 2 raised in appeal pertaining to the Assessment Year 2014-15, and therefore, our finding/adjudication in relation to the latter shall apply mutatis mutandis to the latter. Accordingly, adopting the reasoning given in paragraph 7 to 11 above, the order of CIT(A) accepting Assessee’s (Assessment Years: 2014-15 & 2017-18) claim for deduction under Section 80P(2)(d) of the Act in respect of interest income received from Co-operative Bank is sustained and Ground No. 1 & 2 raised by the Revenue in the present appeal are dismissed.
In result, both the appeals preferred by the Revenue are dismissed.
Order pronounced on 29.04.2024. (Om Prakash Kant) Judicial Member मुंबई Mumbai; िदनांक Dated : 29.04.2024 Alindra, PS (Assessment Years: 2014-15 & 2017-18) आदेश की "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""थ" / The Respondent. 3. आयकर आयु"/ The CIT
"धान आयकर आयु" / Pr.CIT 5. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard file.
आदेशानुसार/ BY ORDER, स"ािपत "ित //// उप/सहायक पंजीकार /(Dy./Asstt.