2023 (5) TMI 1177 - AT - Income Tax

Deduction u/s 80P - interest income received from the co-operative bank - AO denied the deduction claimed by the assessee u/s 80P by applying the provisions of section 80P(4) since the assessee is providing credit facilities to its members - HELD THAT - Section 80P(4) is of relevance only in a case where the assessee, who is a co-operative bank, claims a deduction under section 80P - we find no merits in the aforesaid reasoning adopted by the learned CIT(A) in denying deduction under section 80P(2)(d) of the Act to the assessee. In a recent decision in PCIT vs Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. 2023 (5) TMI 372 - SC ORDER held that a taxpayer who is merely giving credit to its members cannot be said to be the Co-operative Banks/Banks under the Banking Regulation Act and the banking activities under the Banking Regulation Act are altogether different. Therefore, held that the assessee, a co-operative credit society, could not be termed a bank/co-operative bank and that being a credit society, it was entitled to exemption under section 80(P)(2) of the Act. Thus, there is also no basis in the finding of the AO that section 80P(4) is applicable to the assessee. Regarding the claim of deduction under section 80P(2)(d) of the Act, it is also 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 is allowable as a deduction under section 80P(2)(d) of the Act. Thus we uphold the plea of the assessee and direct the AO to grant deduction under section 80P(2)(d) of the Act to the assessee in respect of interest income earned from investment with co-operative bank. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves a challenge to an order passed under section 250 of the Income Tax Act, 1961 by the Commissioner of Income Tax (Appeals) related to the denial of deduction under section 80P claimed by the assessee for the assessment year 2017-18.

Summary of Judgment:

Issue 1: Denial of deduction under section 80P:
The assessee, a co-operative credit society, filed an appeal against the denial of deduction under section 80P of the Income Tax Act. The Assessing Officer (AO) denied the deduction claimed by the assessee under section 80P of the Act, citing section 80P(4) as applicable to co-operative societies providing credit facilities. The Commissioner of Income Tax (Appeals) upheld the denial, stating that the assessee deposited money with a bank covered under section 80P(4). However, the Tribunal held that section 80P(4) is relevant only for co-operative banks, not credit societies. The Tribunal cited a Supreme Court decision to support its view that a credit society is entitled to exemption under section 80P(2) and that section 80P(4) does not apply to the assessee.

Issue 2: Interpretation of section 80P(2)(d) of the Act:
The Tribunal analyzed the provisions of section 80P(2)(d) of the Act, which allows deduction for income derived by a co-operative society from investments with another co-operative society. The Tribunal noted that the assessee, being a co-operative society, invested funds in a District Central Co-operative Bank and earned interest, which was claimed as a deduction under section 80P. The Tribunal referred to previous decisions and held that interest earned from co-operative banks is allowable as a deduction under section 80P(2)(d) of the Act. The Tribunal directed the Assessing Officer to grant the deduction to the assessee for the interest income earned from the investment with the co-operative bank.

In conclusion, the Tribunal allowed the appeal by the assessee, directing the Assessing Officer to grant the deduction under section 80P(2)(d) of the Act for the interest income earned from the investment with the co-operative bank.