K 720 T GANAPATHIPALAYAM PACS LIMITED,ERODE vs. ITO WARD 2(1), ERODE

The assessee is a co-operative Society registered under the Tamilnadu Co-op Societies Act 1983 and engaged in activities of providing credit facilities to its members. The assessee has earned interest of Rs 21,68,133/- from Erode Central Co-op Bank Ltd and claimed deduction of same u/s 80P(2)(d) of the Act. The Assessing Officer disallowed the claim holding that a co-operative bank is urban commercial bank and does not fall under the purview of co-operative society referred in section 80P(2)(d) of the Act. The Ld. CIT(A) has dismissed the appeal of assessee holding that interest earned from the Co-operative bank is neither allowable u/s 80P(2)(a)(i) or 80P(2)(d)

The Ld. Counsel for the assessee has argued that the issue is squarely covered by the Hon'ble Madras High Court in the case of Thorapadi Urban Co-op Credit Society Limited & Another Vs ITO [WP. Nos.11172, 11174, 11177 and 11180 of 2023 and WMP Nos. 11034, 11038, 11044 and 11048 of 2023 dated 10.10.2023 and the same has been followed by the Co-ordinate Bench of Hon'ble ITAT, Chennai in the case of the Erode City Municipal Corporation Emp. Co-op. T & C Limited K831 vs. The Assessing Officer, Ward-1(1), Erode in ITA Nos.509 & 510/Chny/2024 order dated 22.07.2024 in respect of interest income received from the Co-operative Bank. :- 2 -:

The Ld. DR relied on the order of the authorities below.

We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The assessing officer has disallowed the claim of deduction u/s 80P(2)(d) of interest Rs 21,68,133/- from Erode Central Co-Op Bank Ltd on the ground that co-operative banks are not co-operative society as referred in section 80p(2)(d) of the Act. On identical facts, the Co- ordinate Bench of this Tribunal in the case of the Erode City Municipal Corporation Emp. Co-op. T & C Limited K831 vs. The Assessing Officer, Ward-1(1), Erode, supra held the interest earned from co- operative bank registered under Co-oprative society Act are eligible for deduction u/s 80P(2)(d) as under:

We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We find that the issue ‘whether the assessee Co-operative Society is entitled for a deduction for the interest income received from the Co- operative Bank' is covered in favour of the assessee by a judgment of the Hon'ble Juri ictional High Court of Madras in the case of Thorapadi Urban Co-op Credit Society Limited & Another Vs ITO [WP. Nos.11172, 11174, 11177 and 11180 of 2023 and WMP Nos. 11034, 11038, 11044 and 11048 of 2023 dated 10.10.2023. The judgment of the Hon'ble Juri ictional High Court of Madras reads as under: ‘’8. The main issue is to decide in the present case is as to whether the petitioner Co~operative Society is entitled for a deduction for the interest income received from the Co~operative Bank? :- 3 -:

It would be appropriate to extract hereunder the relevant portion of Section 80P(2)(d). 80 P. 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) to (c) (d) "in respect of any income by way of interest or dividends derived y the co-operative society from its investment with any other co-operative society, the whole of such income”

A reading of the above said provision makes it clear that in the event if any Co-operative Society derived income by way of interest from investment made in any other Co-operative Society the whole such interest is eligible for deduction. Now the issue is as to whether the Co-operative Bank would fall within the purview of the term Co-operative Society-. In the present case, the petitioner produced a document to show that the Co-operative Bank, where they have made investments was registered under the Tamil Nadu Co- operative Societies Act, 1983 on 20.5.2003. In this regard, he also produced a copy of the Certificate of Incorporation of the said Co- operative Bank. Therefore, it is clear that the investment made by the petitioner is a Co~operative Bank registered under the Co- operative Societies Act. The Income Tax Act, 1961 has also defined –Co-operative Society- under Section 2(19) as follows: “2(19). “Co-operative society“ means a co-operative 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 co~ operative societies.

A reading of the above definition would make it clear that Co- operative Society- means a Co-operative Society registered under Co-operative Societies Act, 1912. Thus, a Co-operative Society referred therein is only a co-operative society as defined under the Act, be it a Co-operative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Co- operative bank.

The learned counsel for the respondent referred to the judgment of the Hon-ble Supreme Court rendered in Totgars Co-operative Sale Society Ltd., v. Income-tax Officer, Karnataka, wherein the issue came up for consideration as to whether the interest income received by a Co-operative Bank from its members by way of providing the credit facilities to its members is eligible for deduction or not. :- 4 -: Ultimately the Hon-ble Supreme Court found that under Section 80P(2)(a)(i), the same is eligible for deduction. Therefore, the law laid down by the Hon-ble Supreme Court is not applicable for in the present case as the eligibility of deduction of interest has to be decided under Section 80P(2)(d) and not under Section 80P(2)(a)(i). The learned counsel has also relied upon other judgments which are not applicable for the present facts of the present case.

At this juncture, it would be appropriate to refer a judgment passed by a Division Bench of this Court in Commissioner of Income Tax Salem v. The Salem Agricultural Producers Co-operative Marketing Society Ltd” in Tax Case Appeal No.5 of 2015, wherein, apart from other substantial issues, the following issue has been framed for consideration, which reads as under: Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is to be treated as primary agricultural society and is carrying on the business of banking or providing credit facilities to its members and is entitled for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 with respect to the interest received from Class B members who were involved in non- agricultural society?”. While answering to the above, the Division Bench held that the respondent therein, which is a Co-operative society, is entitled to avail the benefit under 80P(2)(d) of the Act. The judgment was rendered on 10.08.2016, where the judgement rendered by the Hon- ble Supreme Court in 2010 was considered”.

Hence considering byelaw and respectfully following the judgment of Hon'ble Juri ictional High Court of Madras, we allow

As the facts are identical, by respectfully following the order of the Co-ordinate Bench of this Tribunal in the case of the Erode City Municipal Corporation Emp. Co-op. T & C Limited K831 vs. The Assessing Officer, Ward-1(1), Erode, supra, we hold that the assessee is eligible for deduction u/s. 80P(2)(d) of the Act of Rs. 21,68,133/- :- 5 -: received from Erode Central Co-Op Bank Ltd. In view of the above,

In the result, the appeal filed by the assessee is allowed. Order pronounced on 21st August, 2024. (यस यस विश्वनेत्र रवि) (SS Viswanethra Ravi) न्यायिक सदस्य / Judicial Member चेन्नई/Chennai, दिनांक/Dated: 21st August, 2024. EDN/- आदेश की प्रतिलिपि अग्रेषित/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT, Coimbatore 4. विभागीय प्रतिनिधि/DR 5. गार्ड फाईल/GF (जगदीश) (Jagadish) लेखा सदस्य / Accountant Member :- 6 -: ITA No.963/Chny/2024", "summary": { "facts": "The assessee, a co-operative society, earned interest of Rs. 21,68,133/- from Erode Central Co-op Bank Ltd. The Assessing Officer disallowed this interest income deduction under Section 80P(2)(d) of the Act, stating that a co-operative bank is not a co-operative society for the purpose of this section. The CIT(A) upheld this disallowance.", "held": "The Tribunal observed that the Co-operative Bank in question was registered under the Tamil Nadu Co-operative Societies Act, 1983. Following the judgments of the Madras High Court and a co-ordinate bench of the ITAT, the Tribunal held that interest income derived by a co-operative society from an investment in another co-operative society is eligible for deduction under Section 80P(2)(d).", "result": "Allowed", "sections": [ "80P(2)(d)", "80P(2)(a)(i)", "2(19)" ], "issues": "Whether interest income earned from a co-operative bank is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961." } }