2019 (4) TMI 1933 - AT - Income Tax

Disallowance of deduction u/s 80P(2)(d) - interest received on deposit kept with co-operative bank - AO disallowed the claim of deduction by stating that the co-operative bank is different than a co-operative society, as per provisions of section 80P(2) - HELD THAT - We respectfully follow the view taken by Totagars Cooperative Sale Society 2017 (1) TMI 1100 - KARNATAKA HIGH COURT and State Bank Of India Vs. CIT 2016 (7) TMI 516 - GUJARAT HIGH COURT wherein it was observed that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. We 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. - Appeal of Revenue is dismissed.

Summary

Issues:
Interpretation of Sec. 80P(2)(d) for deduction eligibility on interest income from cooperative bank investments.

Analysis:
The appeal involved the question of whether a co-operative society was entitled to a deduction under Sec. 80P(2)(d) of the Income Tax Act, 1961 for interest income earned from investments in a cooperative bank. The assessee, a co-operative housing society, received interest income from Shamrao Vithal Co-operative Bank and claimed deduction under Sec. 80P(2)(d). The Assessing Officer (AO) disallowed the claim, considering the interest income as taxable under the head "Income from other sources." The AO relied on a Supreme Court judgment and concluded that the interest income did not qualify for deduction under Sec. 80P. The CIT(A) upheld the AO's decision, leading the assessee to appeal to the ITAT.

The ITAT analyzed Sec. 80P(2)(d) which allows deduction for interest income derived by a co-operative society from investments with another co-operative society. The ITAT emphasized that the interest income must be derived from investments made with another co-operative society to qualify for the deduction. Despite the amendment excluding co-operative banks from Sec. 80P benefits, the ITAT clarified that a co-operative bank, being a co-operative society, still allows a co-operative society to claim deductions under Sec. 80P(2)(d) for interest income earned on investments with the bank. The ITAT referenced various tribunal decisions and high court judgments supporting this interpretation.

The ITAT distinguished the Supreme Court judgment relied upon by the lower authorities, emphasizing that it was not directly related to the entitlement of a co-operative society to claim deductions under Sec. 80P(2)(d) for interest income from investments in a co-operative bank. Relying on precedents and CBDT Circulars, the ITAT concluded that the interest income earned by the co-operative society from investments in the co-operative bank was indeed eligible for deduction under Sec. 80P(2)(d). Therefore, the ITAT allowed the appeal, setting aside the lower authorities' decision and granting the deduction for the interest income earned by the assessee on investments with the co-operative bank.

In conclusion, the ITAT's detailed analysis of Sec. 80P(2)(d) highlighted the eligibility criteria for deductions on interest income from cooperative bank investments for co-operative societies. The judgment clarified the law's application, citing relevant legal provisions, precedents, and circulars to support its decision in favor of the assessee.