2024 (5) TMI 1514 - AT - Income Tax

Disallowing deduction claimed u/s 80P(2)(a)(i) and 80P(2)(d) - Assessee engaged in the business of banking and therefore hit by the provisions of Section 80P(4) - HELD THAT - On perusal of the above extract of the judgment in the case of Mavilayi Service Co-operative Bank Ltd 2021 (1) TMI 488 - SUPREME COURT it is clear that the provision of Section 80P(4) are attracted only in case of co-operative society holding a banking license issued by the Reserve Bank of India (RBI). The Assessee is not registered with RBI under Banking Regulation Act 1949 and does not hold any license issued by RBI. Accordingly we hold that provisions of Section 80P(4) are not attached in the case of the Appellant and that the Assessee is entitled to claim deduction under Section 80P(2)(a)(i) of the Act being a cooperative society not holding a license issued by Reserve Bank of India and transacting only with its members. Whether deduction under 80P(2)(d) of the Act would be available to the Appellant in respect of interest income received from co-operative bank? - Nature of income is not a relevant consideration while considering the eligibility for deduction u/s 80P(2)(d) of the Act. Further the Impact of insertion of Section 80P(4) of the Act is that a co-operative bank would no more be entitled for claim of deduction under Section 80P however the interest income derived by a co-operative society from a co-operative bank would continue to be eligible for deduction under Section 80P(2)(d) of the Act irrespective of the fact that such interest income is in the nature of profits and gains of business or income from other sources as Section 80P(2)(d) uses the expression any income and not profits gains of business . Our view draws strength from the decision of the Tribunal in the case of Kaliandas Udyog Bhavan Premises Co-operative Society Ltd 2018 (4) TMI 1678 - ITAT MUMBAI taking into account the insertion of Section 80P(4) of the Act vide the Finance Act 2006 the Mumbai Bench of the Tribunal held that a co-operative society would be eligible to claim deduction under Section 80P(2)(d) of the Act in respect of interest received from a cooperative bank as such cooperative bank continues to be a co-operative society. Even after insertion of Section 80P(4) of the Act deduction under Section 80P(2)(d) of the Act was allowable in respect of interest received by a co-operative society from a co-operative bank. Thus allow deduction as claimed by the Appellant u/s 80P(2)(a)(i) and 80P(2)(d). Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the Assessee, a co-operative credit society, is entitled to claim deductions under Section 80P(2)(a)(i) of the Income Tax Act, 1961, despite the application of Section 80P(4).

2. Whether the Assessee is entitled to claim deductions under Section 80P(2)(d) of the Income Tax Act, 1961, for interest income earned from investments in co-operative banks.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deduction under Section 80P(2)(a)(i)

- Relevant Legal Framework and Precedents: Section 80P(2)(a)(i) provides deductions for income earned by co-operative societies engaged in providing credit facilities to their members. Section 80P(4) excludes co-operative banks from such deductions. The Supreme Court's judgment in Citizen Co-operative Society Ltd. vs. ACIT and Mavilayi Service Co-operative Bank Ltd. vs. CIT are pivotal in interpreting these provisions.

- Court's Interpretation and Reasoning: The Tribunal noted that Section 80P(4) applies only to co-operative societies holding a banking license issued by the Reserve Bank of India (RBI). Since the Assessee does not hold such a license, Section 80P(4) does not apply. The Tribunal emphasized the benevolent nature of Section 80P and the need for a liberal interpretation in favor of the Assessee.

- Key Evidence and Findings: The Assessee operates only with its members, satisfying the concept of mutuality, and does not engage in business with non-members.

- Application of Law to Facts: The Tribunal applied the Supreme Court's principles, concluding that the Assessee is not a co-operative bank under Section 80P(4) and is thus entitled to deductions under Section 80P(2)(a)(i).

- Treatment of Competing Arguments: The Tribunal rejected the Revenue's reliance on Citizen Co-operative Society Ltd., clarifying that the Assessee's operations do not equate to a co-operative bank.

- Conclusions: The Assessee is entitled to claim deductions under Section 80P(2)(a)(i) as it is not affected by Section 80P(4).

Issue 2: Deduction under Section 80P(2)(d)

- Relevant Legal Framework and Precedents: Section 80P(2)(d) allows deductions for income by way of interest or dividends derived from investments with other co-operative societies. The Tribunal referred to the Supreme Court's judgment in Totgars Cooperative Sale Society Ltd. vs. ITO and various Tribunal decisions.

- Court's Interpretation and Reasoning: The Tribunal held that Section 80P(2)(d) uses the term "any income," which includes interest income from co-operative banks. The nature of income (whether business or other sources) is irrelevant for Section 80P(2)(d).

- Key Evidence and Findings: The Assessee's interest income from co-operative banks qualifies for deduction under Section 80P(2)(d).

- Application of Law to Facts: The Tribunal applied the legal principles to conclude that interest income from co-operative banks is deductible under Section 80P(2)(d).

- Treatment of Competing Arguments: The Tribunal considered and dismissed the Revenue's arguments against the deduction, relying on favorable precedents.

- Conclusions: The Assessee is entitled to deductions under Section 80P(2)(d) for interest income from co-operative banks.

SIGNIFICANT HOLDINGS

- Verbatim Quotes of Crucial Legal Reasoning: "Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favor of the assessee."

- Core Principles Established: The Tribunal reaffirmed that Section 80P(4) applies only to co-operative banks with RBI licenses, and Section 80P(2)(d) allows deductions for interest income from co-operative banks, irrespective of the income's nature.

- Final Determinations on Each Issue: The Tribunal allowed the Assessee's claims for deductions under both Section 80P(2)(a)(i) and Section 80P(2)(d), overturning the decisions of the Assessing Officer and CIT(A).