2021 (2) TMI 417 - AT - Income Tax

Disallowance u/s 80P(2)(d) - interest earned by the assessee society from cooperative banks - HELD THAT - As decided in own case 2018 (4) TMI 1854 - ITAT MUMBAI appellant would be entitled for claim of deduction under Sec. 80P(2)(d) of the Act in respect of interest and dividend income earned by it on the investments held with the co-operative bank i.e. MDC Co-operative Bank Ltd. Accordingly the AO is directed to allow the deduction u/s 80P(2)(d). Deduction u/s 80P(2)(a)(i) allowed being the income from business activity of providing credit facilities to its members - See SHRI VARDHAMAN URBAN CO-OPERATIVE CREDIT SOCIETY LTD. 2015 (9) TMI 1658 - KARNATAKA HIGH COURT and QUEPEM URBAN CO-OPERATIVE CREDIT SOCIETY LTD. 2015 (6) TMI 573 - BOMBAY HIGH COURT

Summary

Issues Involved:
1. Deduction under section 80P(2)(d) of the Income Tax Act, 1961.
2. Classification of the assessee as a co-operative bank under section 56(c)(ccv) of the Banking Regulation Act, 1949.
3. Eligibility for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.
4. Applicability of section 80P(4) of the Income Tax Act, 1961.
5. Comparison with the judgment in Quepem Urban Co-operative Credit Society Ltd. vs. AOT.

Issue-wise Detailed Analysis:

Issue No. 1 to 3: Deduction under section 80P(2)(d) of the Income Tax Act, 1961

The primary contention revolves around the disallowance of the claim under section 80P(2)(d). The assessee argued that the issue was covered by the decision of the ITAT in the assessee's own case (ITA No. 7634/M/2016). The CIT(A) found that the interest income from fixed deposits and dividend income from investments with other cooperative banks was rightly treated as income from other sources. Section 80P(2)(d) provides for full deduction of any income from interest or dividends derived by the cooperative society from its investments with any other cooperative society. The CIT(A) noted that the AO incorrectly disallowed the deduction on the ground that the interest income was received from a cooperative bank, which is a commercial bank. The CIT(A) emphasized that a cooperative bank is also a cooperative society registered under the Cooperative Societies Act, 1912, and thus eligible for deduction under section 80P(2)(d). The CIT(A) relied on various judicial precedents, including the ITAT Mumbai's decision in the assessee's own case for AY 2013-14, and concluded that the interest income earned from deposits with cooperative banks is eligible for deduction under section 80P(2)(d). The ITAT upheld the CIT(A)'s decision, affirming that the issue was correctly decided in favor of the assessee.

Issue No. 4 to 7: Eligibility for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961

The assessee, a cooperative credit society, claimed deduction under section 80P(2)(a)(i) for providing credit facilities to its members. The CIT(A) found that the assessee is not a cooperative bank as it does not hold a banking license from the RBI and its primary objective is not the business of banking but providing credit facilities to its members. The CIT(A) relied on several judicial decisions, including the Karnataka High Court's decision in Shri Vardhaman Urban Co-operative Credit Society Ltd. vs. CIT, which held that cooperative credit societies are eligible for deduction under section 80P(2)(a)(i) unless declared as a bank by the RBI. The CIT(A) also referred to the Bombay High Court's decision in Quepem Urban Co-operative Credit Society Ltd. vs. ACIT, which outlined the conditions under which a cooperative society can be considered a cooperative bank. The CIT(A) concluded that the assessee is eligible for deduction under section 80P(2)(a)(i) and directed the AO to allow the deduction. The ITAT upheld the CIT(A)'s decision, noting that the issue was covered by the ITAT's decision in the assessee's own case for AY 2013-14.

Conclusion:

The ITAT dismissed the revenue's appeal, upholding the CIT(A)'s findings that the assessee is entitled to deductions under sections 80P(2)(d) and 80P(2)(a)(i) of the Income Tax Act, 1961. The CIT(A) correctly applied judicial precedents and the provisions of the Income Tax Act, determining that the assessee, being a cooperative credit society and not a cooperative bank, is eligible for the claimed deductions. The ITAT affirmed that the CIT(A)'s decision was judicious and not liable to interference at the appellate stage.