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Facts
The assessee, a cooperative society engaged in milk products processing and trading, invested excess funds in Pudukkottai District Central Cooperative Bank and earned interest. The AO disallowed the deduction claimed under Section 80P(2)(d) of the Income Tax Act, treating the bank as distinct from a cooperative society. The CIT(A) affirmed this order.
Held
The Tribunal held that the Pudukkottai District Central Cooperative Bank is registered under the Tamil Nadu State Co-operative Societies Act, 1983, and therefore, the assessee is eligible for deduction of interest earned under Section 80P(2)(d) of the Act. The decision was based on Supreme Court and High Court precedents.
Key Issues
Whether interest income earned by a cooperative society from its investment in a cooperative bank is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961, when the cooperative bank is also registered as a cooperative society.
Sections Cited
80P(2)(d), 2(19), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE
आदेश /O R D E R
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 31.03.2024 and pertains to assessment year 2018-19.
The assessee has raised the following grounds of appeal:
:-2-: ITA. No: 1434/Chny/2024 1. The order of the ld. CIT (A) in confirming the Id. AO's order is contrary to law, facts and opposed to the principles of natural justice and fair procedure.
2. The Ld. CIT (A) has erred in confirming the Id. AO's order in completing the assessment without considering information and submissions placed on the records.
The Ld. CIT (A) has erred in confirming disallowance of interest earnings from investments placed in cooperative banks without contemplating the definition of cooperative societies, under the wrong impression that the interest received from the cooperative bank is not eligible for a deduction under Section 80P(2)( d). The Income Tax Act, 1961 has defined 'Co-operative Society' under Section 2(19) as follows: "2(19). "Co-operative society" means a co-operative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co- operative societies" Further, as per the definition of the term Co-Operative Bank under the Banking Regulation Act, 1949 read with NABARD Act, 1981, Co-Operative Banks are CoOperative Societies. (Part-V-Section 56(c) (ccvii) of the Banking Regulation Act and Section 2(d) of the NABARD Act). Thus, a co-operative society as defined under the Act, may be a Co-operative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Co-operative bank.
4. The ld. CIT (A) has failed to appreciate that the Pudukkottai District Central Cooperative Bank is a Co-operative Society which is registered under Tamil Nadu Cooperative Societies Act 1983, therefore not a bank per se governed by RBI. Further, once it is governed by Co-operative Societies Act, the appellant is eligible for claim of deduction u/s 80P(2)( d) of the Act, which is extracted below for quick reference: "80 P. Deduction in respect of income of cooperative societies: (2) The sums referred to in sub-section (1) shall be the following, namely (d) "in respect of any income by way of interest or dividends derived by the cooperative society from its investment with any other co-operative society, the whole of such income"
:-3-: ITA. No: 1434/Chny/2024 5. Hence, the disallowance of interest income u/s 80P(2)(d) may kindly be deleted to meet justice. 6. The appellant craves leave to amend, alter, add or delete any of the above grounds of appeal.
3. The brief facts of the case are that, the appellant is a co- operative society engaged in processing and trading in milk products and filed its return of income for the AY 2018-19 on 11/10/2018 declaring a total income of Rs.1,59,26,240/-. The case was selected for complete scrutiny and the assessment order was passed u/s.143(3) r.w.s. 143(3A) and 143(3B) of the IT Act, 1961 on 17/2/2021 by disallowing the claim of deduction of Rs.36,98,155/- u/s.80P(2)(d) in respect of interest income earned from Pudukkottai District Central Cooperative Bank on the ground that the deduction is available in the above section is only for the interest received from the co-operative society and not from the co- operative bank. Aggrieved by the addition, the appellant preferred an appeal before the ld. CIT (A), who has affirmed the ld. AO's order, hence the present appeal.
The ld.AR of the assessee assailing the action of the Ld.CIT(A), stated that the impugned order has been passed by not following the judgments of Hon’ble supreme Court, High courts and the ITAT.
:-4-: ITA. No: 1434/Chny/2024 The action of AO and that of Ld.CIT(A) is erroneous, since the interest income earned on deposits made at of Chennai Central Cooperative bank and Tamil Nadu State apex co operative bank Ltd is allowable deduction to assessee both under section U/s.80P(2)(a)(i) as well as U/s.80P(2)(d).
The Ld.AR also stated that the AO and that of Ld.CIT(A) have erred in confirming disallowance of interest earnings from investments placed in cooperative banks without contemplating the definition of cooperative societies, under the wrong impression that the interest received from the cooperative bank is not eligible for a deduction under Section 80P(2)(d). The Income Tax Act, 1961 has defined 'Co-operative Society' under Section 2(19) as follows:
"2(19). "Co-operative society" means a co-operative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co- operative societies" Further, as per the definition of the term Co-Operative Bank under the Banking Regulation Act, 1949 read with NABARD Act, 1981, Co-Operative Banks are CoOperative Societies. (Part-V-Section 56(c) (ccvii) of the Banking Regulation Act and Section 2(d) of the NABARD Act). Thus, a co-operative society as defined under the Act, may be a Co- operative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Co-operative bank. In :-5-: ITA. No: 1434/Chny/2024 support of the claim of the assessee, the ld.AR furnished the certificate from the Pudukkottai District Central Cooperative bank that they are registered under Tamilnadu State Co-operative Societies Act, 1983.
Further, the ld. AR stated that the Pudukkottai District Central Cooperative bank was registered as a cooperative society and the books of accounts of the bank is audited by the Auditors of the Cooperative Audit Department, Government of Tamilnadu. Therefore, it is clearly a cooperative society and the interest earned from the deposits kept in that society is eligible for deduction u/s.80P(2)(d) of the Act. In light of the above facts and details, the ld. AR pleaded for allowing the appeal of the assessee by setting aside the impugned order.
Per contra, the ld.DR stated that the interest income earned by the society is to be assessed under the head ‘Income from other sources’ and hence not eligible for deduction u/s.80P(2)(d) of the Act. Further, deposits are made in cooperative banks, and hence the interest earned by the society is not eligible to claim deduction u/s.80P(2)(d) of the Act. Hence, prayed for confirming the impugned order of the Ld.CIT(A).
:-6-: ITA. No: 1434/Chny/2024 8. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, the assessee is a credit co-operative society engaged in processing and trading in milk products. Apart from regular income of the society, the excess funds have been invested in the Pudukkottai District Central Cooperative bank, has earned interest during the Assessment year. We noted that Pudukkottai District Central Cooperative bank has been registered under Tamilnadu State Co-operative Societies Act, 1983. Therefore, the assessee is eligible for deduction of interest earned u/s.80P(2)(d) of the Act, once the cooperative bank is registered under Tamilnadu State Co- operative Societies Act, 1983, in view of the decision of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative bank ltd., & Ors. Vs. CIT, 123 Taxmann.com 161 (SC). Similar view has been taken by the Tribunal in the case of Tamilnadu co-operative State Agriculture and Rual Development Bank Ltd in to 33/CHNY/2021 dated 29/04/2022 following the decision of Hon’ble Supreme Court in the case of Mavilayi Service Co-operative bank ltd., & Ors. Vs. CIT (supra) and the Hon’ble Madras High Court in the case of S-1308, Ammapet Primary Agricultural Co-operative bank ltd., in TCA Nos.882 & 891 of 2018.
:-7-: ITA. No: 1434/Chny/2024 9. In the facts and circumstances of the case and respectfully following the decisions of the Hon’ble courts (supra), we allow the claim of interest earned by the assessee on investment made in Pudukkottai District Central Cooperative bank as eligible deduction U/s.80P(2)(d) of the Act and set aside the impugned order passed by the Ld.CIT(A). Accordingly, the appeal of the assessee is allowed.