2024 (11) TMI 423 - AT - Income Tax

Deduction u/s 80P(2)(d) for the Interest received by the Appellant from Co-operative Banks - HELD THAT - We find that only reason given for disallowance u/s.80P(2)(d) is relying upon the judgment of Supreme Court in Totagars Cooperative Societies Ltd. 2010 (2) TMI 3 - SUPREME COURT and decision of Totagars Cooperative Sale Society 2017 (7) TMI 1049 - KARNATAKA HIGH COURT . Now this issue is covered by the decision of Tribunal in the case of Premium Tower Co-operative Housing Society Ltd. 2023 (5) TMI 1301 - ITAT MUMBAI hold that assessee is eligible for deduction of interest income earned from cooperative bank. Thus, claim of deduction u/s.80P(2)(d) is allowed to the assessee.

Issues Involved:
1. Disallowance of deduction under Section 80P(2)(d) for interest received from cooperative banks.
2. Applicability of Section 80P(2)(a)(i) for interest income.
3. Interpretation and applicability of precedents, particularly the Totgars Cooperative Sale Society Ltd. case.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80P(2)(d):
The primary issue in the appeal was whether the assessee, a cooperative society, was entitled to a deduction under Section 80P(2)(d) of the Income Tax Act for interest income earned from fixed deposits with cooperative banks. The Assessing Officer (AO) disallowed the deduction, and this was upheld by the CIT(A), relying on the Supreme Court's decision in the case of Totgars Cooperative Sale Society Ltd. The AO argued that the interest income from cooperative banks did not qualify for deduction under Section 80P(2)(d) as it was not considered income derived from the business of providing credit facilities to members.

2. Applicability of Section 80P(2)(a)(i):
The assessee contended that the interest income should also be eligible for deduction under Section 80P(2)(a)(i), which pertains to income from carrying on the business of banking or providing credit facilities to its members. However, the CIT(A) and the AO held that the interest income from investments with cooperative banks did not fall under this provision, as it was not directly attributable to the business activities of the cooperative society.

3. Interpretation and Applicability of Precedents:
The judgment heavily relied on the precedent set by the Supreme Court in the Totgars Cooperative Sale Society Ltd. case, which held that interest income from investments not immediately required for business purposes does not qualify for deduction under Section 80P(2)(a)(i). The CIT(A) distinguished the facts of the present case from other judgments cited by the assessee, such as Mavilayi Service Co-operative Society Ltd. and Quepem Urban Co-op Credit Society Ltd., noting that these cases did not apply due to differences in factual circumstances or pending adjudication.

However, the Tribunal considered subsequent judgments, including those by the Karnataka High Court and Kerala High Court, which interpreted Section 80P(2)(d) more favorably for cooperative societies. These judgments recognized that cooperative banks are also cooperative societies, and thus, interest income from them should be eligible for deduction under Section 80P(2)(d).

The Tribunal concluded that the assessee is eligible for the deduction of interest income earned from cooperative banks under Section 80P(2)(d), as cooperative banks fall within the definition of cooperative societies for this purpose. This interpretation aligns with the broader understanding that cooperative societies engaged in banking activities can claim deductions on interest income from investments with other cooperative societies, including cooperative banks.

Conclusion:
The appeal was allowed, granting the assessee the deduction under Section 80P(2)(d) for interest income from cooperative banks. The Tribunal's decision reflects a broader interpretation that aligns with recent judicial trends favoring cooperative societies in similar contexts. The decision underscores the importance of considering the specific nature of income and the entity's activities when determining eligibility for deductions under Section 80P.

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