2023 (5) TMI 948 - AT - Income Tax

Deduction u/s. 80P(2)(d) - interest income earned from other cooperative banks/societies - HELD THAT - From a perusal of Sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee cooperative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. What is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other cooperative society. We though are in agreement with the observations of the lower authorities that with the insertion of Sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, but however, are unable to subscribe to their view that the same shall also jeopardise the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of the interest income on their investments parked with a co-operative bank. As long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. Though the co-operative bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but however, as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being enforced in any state for the registration of cooperative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank, would be entitled for claim of deduction under Sec.80P(2)(d). Thus 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. Denial of deduction under section 80P(2)(d) of the Income Tax Act.
2. Eligibility of a cooperative society for deduction on interest income earned from investments in cooperative banks/societies.

Summary:

1. Denial of Deduction under Section 80P(2)(d):
The assessee appealed against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, which confirmed the action of the Assistant Director of Income Tax, CPC, in denying the deduction of Rs. 3,61,674/- under section 80P(2)(d) of the Income Tax Act. The assessee contended that the cooperative society made investments as per statutory requirements and did not fall within the restrictions of sub-section (4) of section 80P.

2. Eligibility for Deduction on Interest Income:
The tribunal considered whether the assessee, a cooperative society, is entitled to deduction under section 80P(2)(d) on interest income earned from other cooperative banks/societies. The tribunal referenced several Coordinate Bench decisions favoring the assessee, notably in the case of Kshatriy Gadkari Maratha Cooperative Credit Society Ltd., where it was held that a cooperative society, not being a cooperative bank, is entitled to such deductions.

The tribunal observed that the provisions of section 80P(2)(d) are clear, allowing deduction on interest or dividends derived from investments with any other cooperative society. The decision of the Hon'ble Supreme Court in The Totgar Cooperative Sales Society Limited v. ITO, which dealt with interest on surplus funds, was deemed inapplicable to the present case, which focuses on interest income from investments in cooperative banks/societies.

The tribunal also cited the Hon'ble Karnataka High Court's decision in Pr.CIT v. Totgar Cooperative Sales Society Limited, which clarified that a cooperative society includes a cooperative bank for the purpose of section 80P(2)(d). Therefore, interest received from a cooperative bank is eligible for deduction.

Conclusion:
The tribunal concluded that the assessee, a cooperative society, is eligible for deduction under section 80P(2)(d) for interest income earned from investments in cooperative banks or societies. The appeal filed by the assessee was allowed. The order was pronounced in the open court on 27th April, 2023.