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2023 (1) TMI 825 - AT - Income TaxDeduction u/s 80P(2)(d) - interest income earned by the Co-operative Society on its investment made with co-operative bank - HELD THAT - The co-ordinate Bench of the Tribunal in case of Palm Court M Premises Co-operative Society Ltd. 2022 (9) TMI 650 - ITAT MUMBAI decided the issue in favour of the assessee by distinguishing the judgment rendered by Hon'ble Supreme Court in case of Totgar's Co-operative Sale Society Ltd. 2010 (2) TMI 3 - SUPREME COURT wherein it is held that interest income earned by the Co-operative Society on its investment made with co-operative bank would be eligible for claim of deduction under section 80P(2)(d). Hon'ble High Court of Karnataka in case of Pr. CIT Anr.Vs. Totgar's Co-operative Sale Society Ltd. 2017 (1) TMI 1100 - KARNATAKA HIGH COURT and State Bank of India 2016 (7) TMI 516 - GUJARAT HIGH COURT had held that interest income earned by a co-operative society on its investment held with co-operative bank would be eligible for claim of deduction under section 80P(2)(d) of the Act. Thus assessee society who has earned an amount from its investment of surplus fund deposited with co-operative banks is entitled for deduction under section 80P(2)(d) of the Act. Resultantly, the Ld. CIT(A) has erred in upholding the denial of deduction by the AO to the assessee under section 80P(2)(d). Deduction u/s. 80P (2)(a)(i) - Claim disallowed on the ground that since the Assessee is not undertaken banking business activities it s not entitle for the deduction and also on the ground that section 80P(4) is applicable only to Co-Operative Banks and not to the credit Co-Operative Societies - HELD THAT - This issue is also no longer Res-Integra having been decided by the Co-Ordinate Bench of Tribunal in case of The KEM Hospital Sheth GSM College Employees Co-Operative Credit Society Ltd. 2018 (6) TMI 1746 - ITAT MUMBAI . Assessee Co-Operative Credit Society being not a primary Co-operative Bank is not hit by the provision of section 80P(4), made available on the statute vide Finance Act at 2006 with effect from 01.04.2007. More over it is also Mandatory for a Co-Operative Society to seek license from the Reserve Bank of India to form and operate as Co-Operative Bank. Since the Assessee Society has only provided Financial Assistance/Credit to its Member it cannot be treated as a Co-Operative Bank, hence entitled for deduction u/s. 80P (2)(a)(i). See QUEPEM URBAN CO-OPERATIVE CREDIT SOCIETY LTD 2015 (6) TMI 573 - BOMBAY HIGH COURT Assessee appeal allowed.
Issues Involved:
1. Reopening of assessment beyond four years. 2. Deduction under Section 80P(2)(a)(i) and Section 80P(4) of the Income Tax Act. 3. Treatment of the assessee as a cooperative bank. 4. Deduction under Section 80P(2)(d) of the Income Tax Act. 5. Disallowances under Section 40(a)(ia) and their inclusion in the deduction under Section 80P(2)(a)(i). 6. Applicability of Section 80P(4) to cooperative societies. Issue-wise Detailed Analysis: 1. Reopening of Assessment Beyond Four Years: The appellant contended that the reopening of the assessment beyond four years was without jurisdiction since there was no failure on the part of the assessee to disclose material facts. The tribunal did not specifically address this issue in the judgment, focusing instead on the substantive tax deductions under dispute. 2. Deduction under Section 80P(2)(a)(i) and Section 80P(4): The tribunal examined whether the assessee, a cooperative credit society, was entitled to deductions under Section 80P(2)(a)(i). The CIT(A) had disallowed these deductions by invoking Section 80P(4), which applies to cooperative banks. The tribunal referenced the case of The KEM Hospital & Sheth GSM College Employees Co-Operative Credit Society Ltd., concluding that the assessee, not being a primary cooperative bank, was not subject to Section 80P(4). The tribunal upheld that the assessee was entitled to deductions under Section 80P(2)(a)(i). 3. Treatment of the Assessee as a Cooperative Bank: The CIT(A) treated the assessee as a cooperative bank, thus denying deductions under Section 80P(2)(a)(i). The tribunal found this treatment incorrect, emphasizing that the assessee, a cooperative credit society, did not undertake banking business activities and was not authorized by the Reserve Bank of India to operate as a cooperative bank. Consequently, the tribunal ruled that the assessee should not be treated as a cooperative bank and was eligible for deductions under Section 80P(2)(a)(i). 4. Deduction under Section 80P(2)(d): The tribunal considered whether the interest income earned by the cooperative society from investments with cooperative banks was deductible under Section 80P(2)(d). The CIT(A) had disallowed these deductions. However, the tribunal referenced several cases, including the Palm Court M Premises Co-operative Society Ltd., and concluded that the interest income from cooperative banks was indeed eligible for deduction under Section 80P(2)(d). The tribunal emphasized that cooperative banks, despite the insertion of Section 80P(4), remain cooperative societies, and thus, the interest income derived from them qualifies for the deduction. 5. Disallowances under Section 40(a)(ia) and Their Inclusion in the Deduction under Section 80P(2)(a)(i): The assessee argued that disallowances made under Section 40(a)(ia) should be included in the quantum of deduction under Section 80P(2)(a)(i). The tribunal did not provide a specific ruling on this argument, focusing instead on the broader eligibility for deductions under Section 80P. 6. Applicability of Section 80P(4) to Cooperative Societies: The tribunal reiterated that Section 80P(4) applies only to cooperative banks and not to cooperative societies that are not banks. This interpretation was supported by previous tribunal decisions and the Hon'ble Bombay High Court's ruling in Quepem Urban Co-operative Credit Society Ltd. v. Assistant Commissioner of Income-Tax. The tribunal concluded that the assessee, being a cooperative credit society, was not affected by Section 80P(4) and was entitled to deductions under Section 80P(2)(a)(i) and Section 80P(2)(d). Conclusion: The tribunal allowed both appeals filed by the assessee, granting the deductions under Section 80P(2)(a)(i) and Section 80P(2)(d), and ruled that the assessee was not a cooperative bank subject to Section 80P(4). The CIT(A)'s disallowances were overturned, and the tribunal's decision was pronounced on 17.01.2023.
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