2019 (7) TMI 1811 - AT - Income Tax

Deduction u/s.80P(2)(d) - whether the assessee a cooperative society is entitled for deduction u/s.80P(2)(d) of the Act from the interest income earned from other cooperative banks/societies? - HELD THAT - As relying on KSHATRIY GADKARI MARATHA COOPERATIVE CREDIT SOCIETY LTD. case 2019 (4) TMI 1932 - ITAT MUMBAI we hold that the assessee a cooperative society is eligible for deduction u/s.80P(2)(d) of the Act in respect of the interest income earned by the assessee from either any other cooperative society or from a cooperative bank. Grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Whether the assessee, a cooperative society, is entitled to a deduction under Section 80P(2)(d) of the Income Tax Act, 1961, for interest income earned from deposits in cooperative banks.

Detailed Analysis:

Issue 1: Deduction under Section 80P(2)(d) for Interest Income from Cooperative Banks
Grounds of Appeal:
The assessee contested the disallowance of ?22,48,120 claimed as a deduction under Section 80P(2)(d) for interest earned from cooperative banks. The key arguments included:
- The interest was earned from a cooperative bank, which is a cooperative society per Section 2(19) of the Act.
- The deduction under Section 80P(2)(d) should be available irrespective of whether the income is classified as business income or income from other sources.
- Section 80P(4) applies to cooperative banks, not cooperative housing societies.
- The CIT(A) erred by relying on the ITAT decision in Vaibhav Co-operative Credit Society v. ITO instead of the Lands End Co-operative Housing Society Ltd. v. ITO.

Assessee's Argument:
The assessee's counsel cited various decisions, including Kaliandas Udyog Bhavan Premises Co-op Hsg Society v. ITO, which favored the assessee's entitlement to the deduction under Section 80P(2)(d).

Department's Argument:
The Department's representative supported the orders of the lower authorities, which disallowed the deduction.

Tribunal's Findings:
The Tribunal reviewed the rival submissions and the orders of the lower authorities. It found that similar issues had been decided in favor of the assessee by various Coordinate Benches. Specifically, the Tribunal noted:
- The Assessing Officer had denied the deduction under Section 80P(2)(a)(i), treating the assessee as a cooperative bank, which was not applicable in this case.
- The CIT(A) allowed the deduction under Section 80P(2)(a)(i) for income from providing credit facilities to members but denied it for interest income from cooperative banks, relying on the Supreme Court decision in Totgar Cooperative Sales Society Ltd. v. ITO.

Legal Provisions and Precedents:
The Tribunal referred to Section 80P(2)(d), which allows a deduction for interest or dividends derived from investments with any other cooperative society. It emphasized that:
- The Supreme Court decision in Totgar Cooperative Sales Society Ltd. v. ITO pertained to Section 80P(2)(a)(i) and was not relevant to Section 80P(2)(d).
- The Karnataka High Court in Pr.CIT v. Totgar Cooperative Sales Society Ltd. clarified that a cooperative bank is considered a cooperative society for the purpose of Section 80P(2)(d).

Conclusion:
The Tribunal concluded that the assessee, a cooperative society, is entitled to a deduction under Section 80P(2)(d) for interest income earned from cooperative banks. It followed the precedent set by the Karnataka High Court and other Coordinate Bench decisions, which supported the assessee's claim. The Tribunal allowed the assessee's appeal and directed that the deduction be granted.

Order:
The appeal of the assessee was allowed, and the order was pronounced in the open court on July 26, 2019.