2023 (5) TMI 1301 - AT - Income Tax

Disallowance u/s. 80P(2)(d) - interest income earned from cooperative bank - HELD THAT - Section 80P(2)(d) specifies any income by way of interest or dividend which is otherwise taxable under the head income from other sources, deduction is allowable if the same is derived from investment made with any other cooperative societies. As following the judgment of Totagars Cooperative Sale Society 2010 (2) TMI 3 - SUPREME COURT and in the case of PCIT vs. Percoorkada Service Co. Bank Ltd. 2021 (12) TMI 1084 - KERALA HIGH COURT we hold that assessee is eligible for deduction of interest income earned from cooperative bank. Decided in favour of assessee.

Summary

Issues involved: Allowability of deduction u/s 80P(2)(d) for interest received from cooperative banks.

The judgment deals with the appeal filed by the assessee against the order passed by NFAC, Delhi u/s 143(3) for A.Y. 2015-16, challenging the disallowance made u/s 80P(2)(d) of Rs.13,85,628. The assessee, a cooperative housing society, earned interest income on fixed deposits and recurring deposits with cooperative banks, claiming deduction u/s 80P(2)(d). The AO denied the deduction, stating that cooperative banks are commercial banks and not covered under the purview of cooperative society u/s 80P(2)(d). The CIT(A) upheld this decision, referencing relevant case laws.

The main issue was the allowability of deduction u/s 80P(2)(d) for interest received from cooperative banks. The CIT(A) held that the benefit of deduction under Section 80P(2)(d) only applies to income earned by a cooperative society engaged in providing banking facilities to its members, not to interest earned from investments in cooperative banks. The question was whether interest earned from investments in cooperative banks qualifies as interest earned from a cooperative society for the purpose of claiming deduction u/s 80P(2)(d).

Section 80P provides for deduction of income for cooperative societies, with sub-section 2 mentioning income from interest or dividends derived from investments with other cooperative societies as deductible. However, sub-section 4 carves out an exception for cooperative banks. The judgment referred to previous cases where it was held that cooperative banks are to be treated as cooperative societies. The Kerala High Court also confirmed that interest income earned from cooperative banks is eligible for deduction u/s 80P(2)(d), as it constitutes income from other sources derived from investments made with cooperative societies.

In conclusion, following the judgments of the Karnataka High Court and Kerala High Court, the ITAT allowed the deduction u/s 80P(2)(d) for the interest income earned from cooperative banks, ruling in favor of the assessee.