2023 (3) TMI 46 - AT - Income Tax

Denial of deduction u/s 80P(2)(d) - interest income received from various co-operative banks - HELD THAT - Revenue denied the deduction under section 80P(2)(d) on the basis that the interest income earned from co-operative bank is not covered under the aforesaid provisions and the said provision only grants deduction in respect of interest earned from co-operative society. In this regard, it is pertinent to note that all co-operative banks are co-operative societies but vice versa is not true. We find that the coordinate benches of the Tribunal have consistently taken a view in favour of the assessee and held that even the interest earned from the co-operative banks are allowable as deduction u/s 80P(2)(d). As regards the decision of in Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT on which reliance has been placed by the learned CIT(A) as well as by the DR, we find that the said decision only clarifies the aspect that section 80P(4) is a proviso to the main provision and excludes only co-operative banks, which are co-operative societies and also possesses a licence from RBI to do banking business - we are of the considered view that the aforesaid decision is of relevance only in a case where the assessee, who is a co-operative bank, claims a deduction u/s 80P of the Act - such is not the facts of the present case. Therefore, in view of the above and respectfully following the decision of the coordinate bench, we uphold the plea of the assessee and direct the AO to grant deduction u/s 80P(2)(d) to the assessee in respect of interest income earned from investment with co-operative banks. Accordingly, we set aside the impugned order passed by the learned CIT(A). As a result, ground No. 1 raised by the assessee is allowed.

Summary

Issues:
- Disallowance of deduction claimed under section 80P(2)(d) of the Income Tax Act, 1961
- Denial of deduction under section 80P(2)(a)(i) of the Act

Analysis:

1. The appeal was filed by the assessee challenging the order passed by the Commissioner of Income Tax (Appeals) under section 250 of the Income Tax Act, 1961 for the assessment year 2018-19. The assessee raised grounds against the disallowance of deduction claimed under section 80P(2)(d) and section 80P(2)(a)(i) of the Act. The Assessing Officer disallowed the deduction claimed by the assessee in respect of interest and dividend earned from investments with co-operative banks under section 80P(2)(d) of the Act, stating that the provision did not extend to deductions from investments made with co-operative banks.

2. The learned Commissioner of Income Tax (Appeals) dismissed the appeal and held that deduction under section 80P(2)(d) of the Act is not allowable for interest earned from deposits kept in a co-operative bank. The assessee contended that the interest income received from various co-operative banks should be allowed as a deduction under section 80P(2)(d) of the Act. The Tribunal considered the provisions of section 80P(1) and 80P(2)(d) of the Act, emphasizing that two conditions needed to be satisfied for the deduction, namely earning interest from investments with another co-operative society.

3. The term "co-operative society" was defined under section 2(19) of the Act, and the Tribunal noted that all co-operative banks are co-operative societies but not vice versa. The Tribunal referred to previous decisions where interest earned from co-operative banks was allowed as a deduction under section 80P(2)(d) of the Act. The Tribunal also distinguished the decision of the Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs CIT, Calicut, clarifying that section 80P(4) excludes only co-operative banks that are licensed by the RBI to do banking business.

4. Ultimately, the Tribunal upheld the plea of the assessee and directed the Assessing Officer to grant deduction under section 80P(2)(d) of the Act for the interest income earned from investments with co-operative banks. The impugned order passed by the Commissioner of Income Tax (Appeals) was set aside, and the appeal by the assessee was partly allowed. Ground No. 2 raised by the assessee was rendered academic and dismissed as infructuous.

This detailed analysis of the judgment highlights the issues involved, the arguments presented, the legal interpretation of relevant provisions, and the final decision rendered by the Tribunal.