2024 (8) TMI 1471 - AT - Income Tax

Deduction u/s 80P(2) - assessee has nominal members and assessee has accepted deposits from nominal members - Assessee has given interest on the deposits to nominal members - HELD THAT - As relying on Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT Assessee is a Co-operative Credit Society, registered under Maharashtra Cooperative Societies Act, 1960. The assessee has provided credit facilities to its members. Assessee has claimed profit earned from providing credit facility to its members, exempt u/sec.80P(2)(a)(i) of the Act. Thus, all the conditions are fulfilled by assessee. Therefore, we hold that assessee is eligible for deduction u/sec.80P(2)(a)(i). Interest income earned from fixed deposits kept with various co-operative banks - Hon ble High Court of AP TS 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT held that Interest Income earned by investing Income derived from Business and Profession by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) - Revenue has not brought to our notice any contrary decision of Hon ble Jurisdictional High Court. The Hon ble Bombay High Court in the case of Smt.Godavaridevi Saraf 1977 (9) TMI 24 - BOMBAY HIGH COURT has held that in the absence of any contrary decision of Hon ble Jurisdictional High Court, decision of Non-Jurisdictional High Court is binding on the Tribunal. Therefore, we hold that assessee is eligible for deduction u/sec.80P(2)(a)(i) of the Act. Assessee appeal allowed.

Summary

Issues Involved:

1. Eligibility of deduction under Section 80P(2)(a)(i) of the Income Tax Act for interest income earned by a cooperative society from fixed deposits with cooperative banks.
2. Violation of the Maharashtra Cooperative Societies Act by accepting deposits from nominal members.
3. Applicability of precedents set by higher courts regarding Section 80P deductions.

Issue-wise Detailed Analysis:

1. Eligibility of Deduction under Section 80P(2)(a)(i):

The primary issue was whether the interest income earned by the cooperative society from fixed deposits with cooperative banks qualifies for deduction under Section 80P(2)(a)(i) of the Income Tax Act. The Revenue contended that the deduction was erroneously allowed by the CIT(A), citing decisions from the Gujarat and Karnataka High Courts which held that such income was not eligible for deduction under the specified section. However, the Tribunal referred to the Supreme Court's judgment in the Mavilayi Service Co-operative Bank Ltd. case, which emphasized a liberal interpretation of Section 80P to encourage cooperative societies. The Tribunal concluded that the cooperative society, being engaged in providing credit facilities to its members, fulfilled the conditions for deduction under Section 80P(2)(a)(i).

2. Violation of Maharashtra Cooperative Societies Act:

The Revenue argued that the cooperative society violated the Maharashtra Cooperative Societies Act by accepting deposits from nominal members, thus making it ineligible for deductions. The Tribunal examined the provisions of the Maharashtra Cooperative Societies Act, specifically Sections 19 and 43, which allow for the inclusion of nominal members and the acceptance of deposits from them. The Tribunal found no violation of the Act, as the society did not provide loans to nominal members and only accepted deposits, which is permissible under the Act.

3. Applicability of Precedents:

The Tribunal addressed the applicability of precedents by distinguishing the facts of the present case from those in the cited judgments of the Gujarat and Karnataka High Courts. The Tribunal relied on the Andhra Pradesh and Telangana High Court decision in Vavveru Co-operative Rural Bank Ltd., which supported the eligibility of interest income for deduction under Section 80P(2)(a) when such income is attributable to the business activities of the cooperative society. The Tribunal also noted the absence of any contrary decision from the jurisdictional High Court, thereby following the precedent set by the Andhra Pradesh and Telangana High Court.

Conclusion:

The Tribunal dismissed the Revenue's appeals for both assessment years, affirming the CIT(A)'s decision to allow the deduction under Section 80P(2)(a)(i). The Tribunal also allowed the assessee's cross objections, reinforcing the cooperative society's eligibility for the claimed deductions. The judgment underscored the importance of a liberal interpretation of Section 80P to support the cooperative sector, as intended by the legislature.