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2024 (7) TMI 1592 - AT - Income TaxDeductions claimed u/s 80P - interest income earned from investments in co-operative and nationalized banks - HELD THAT - In the case of Totagars Co-operative Sale Society 2010 (2) TMI 3 - SUPREME COURT where the order of the Hon ble Apex Court is followed. The co-operative bank and co-operative society are held to be the same entity and co-operative bank originated from the co-operative society. Accordingly the Hon ble Court held that the interest earned from co-operative bank or co-operative society has no difference. The orders of the Co-ordinate benches of ITAT Mumbai have considered the issue and are in favour of the assessee Reserve Bank Staff and Officers co-op credit society Ltd. 2024 (1) TMI 1034 - ITAT MUMBAI Here in our considered view we respectfully follow the order in the case of CIT vs Vegetable Products Ltd 1973 (1) TMI 1 - SUPREME COURT that the Hon ble Court has laid down a principle that if two reasonable constructions of taxing provision are possible that construction which favour the assessee must be adopted . Neither of the rival parties are able to submit any contrary order of the Hon ble Jurisdictional High on this issue. Interest from co-operative bank and the nationalized bank. But during the hearing AR was unable to distinguish the part of interest related to co-operative bank and related to nationalized bank. Accordingly we remit the matter to the file of AO for verification of interest income and allow the deduction u/s 80(P)(2)(d) to interest earned from cooperative bank.
The judgment involves an appeal by a co-operative credit society against the order of the National Faceless Appeal Centre (NFAC), which upheld the decision of the Income-tax Officer to disallow deductions claimed under Section 80P of the Income-tax Act, 1961, for the assessment year 2017-18. The core issues revolve around the eligibility of the society to claim deductions on interest income earned from investments in co-operative and nationalized banks under Section 80P(2)(d) and Section 80P(2)(a)(i) of the Act.
Issues Presented and Considered: The primary legal questions considered were:
Issue-Wise Detailed Analysis: Relevant Legal Framework and Precedents: Section 80P of the Income-tax Act provides deductions to co-operative societies on certain types of income. Specifically, Section 80P(2)(d) allows deductions on income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society. The court considered various precedents, including decisions from the Supreme Court and High Courts, which have interpreted the applicability of Section 80P(2)(d) to interest income from co-operative banks. Court's Interpretation and Reasoning: The Tribunal analyzed the distinction between co-operative banks and co-operative societies, referencing the Supreme Court's decision in Kerala State Co-Operative Agricultural & Rural Development Bank Ltd. v. Assessing Officer, which clarified that a co-operative credit society is not a co-operative bank within the meaning of the Banking Regulation Act. The court concluded that the society is entitled to deductions under Section 80P as it is not a co-operative bank. Key Evidence and Findings: The Tribunal noted that the assessee's interest income from co-operative banks was previously allowed under similar circumstances, as evidenced by prior ITAT and High Court decisions. The Tribunal also acknowledged that the assessee failed to distinguish between interest income from co-operative banks and nationalized banks during the proceedings. Application of Law to Facts: The Tribunal applied the principle that if two reasonable interpretations of a tax provision are possible, the interpretation favoring the assessee should be adopted, as established in CIT vs. Vegetable Products Ltd. The Tribunal found that interest income from co-operative banks qualifies for deduction under Section 80P(2)(d). Treatment of Competing Arguments: The Tribunal considered arguments from the Department, which relied on the Gujarat High Court's decision in Katlary Kariyana Merchant Sahakari Sarafi Mandli Ltd vs. ACIT, where it was held that co-operative banks are distinct from co-operative societies for tax purposes. However, the Tribunal preferred the interpretation that aligns with the Supreme Court's decision, which supports the assessee's claim. Conclusions: The Tribunal concluded that the assessee is entitled to deductions under Section 80P(2)(d) for interest income from co-operative banks. The matter was remitted to the Assessing Officer for verification of the interest income source to distinguish between co-operative and nationalized banks. Significant Holdings: Core Principles Established: The Tribunal reaffirmed the principle that co-operative societies are eligible for deductions under Section 80P(2)(d) for interest income from co-operative banks, provided the bank is not a co-operative bank within the meaning of the Banking Regulation Act. Final Determinations on Each Issue: The appeal was allowed, with the Tribunal directing the Assessing Officer to verify the interest income source and allow the deduction for interest earned from co-operative banks under Section 80P(2)(d).
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