2024 (11) TMI 971 - HC - Income Tax

Revision u/s 263 - Deduction u/s 80P - taxability of the interest earned by assessee from the investment made with the Co-operative bank - HELD THAT - The controversy sought to be canvassed with regard to deduction u/s 80P(2)(d) of the Act is no more res integra in view of the decision of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. 2022 (1) TMI 1309 - GUJARAT HIGH COURT as well as in case of State Bank of India 2016 (7) TMI 516 - GUJARAT HIGH COURT wherein it was held that the deduction of u/s 80P(2)(d) of the Act is available to the cooperative societies on the income earned as interest on the investment made with the cooperative bank which in turn, is a cooperative society itself. Provisions of section 80P(2)(d) would be applicable in the facts of the case and the PCIT was not justified in invoking revisional powers under section 263 of the Act which is rightly reversed by the Tribunal holding that the cooperative bank is a cooperative society registered under the Gujarat State Cooperative Societies Act and in view of the various decisions of the Court, the Tribunal after following the same has come to the conclusion that the assessment was not erroneous allowing deduction of section 80P(2)(d) of the Act which is in consonance with the various decisions of the Court as a twin condition invoking section 263 as to the assessment being erroneous and prejudicial to the interest of the revenue are not being fulfilled. Decided in favour of assessee.

Issues Involved:

1. Eligibility of interest income from cooperative banks for deduction under Section 80P(2)(d) of the Income Tax Act.
2. Application of Section 80P(4) regarding exclusion of cooperative banks from tax benefits.
3. The correctness of the Tribunal's reliance on prior judicial decisions.
4. Legality of the Principal Commissioner of Income Tax's (PCIT) invocation of revisional powers under Section 263.

Issue-wise Detailed Analysis:

1. Eligibility of Interest Income for Deduction under Section 80P(2)(d):

The primary issue was whether the interest income earned by the assessee from investments in cooperative banks qualifies for deduction under Section 80P(2)(d) of the Income Tax Act. The Tribunal had ruled in favor of the assessee, allowing the deduction. The Revenue argued that cooperative banks are not considered cooperative societies under Section 80P(4), thus disqualifying them from such deductions. However, the Court referred to its own precedents and the Supreme Court's interpretation, emphasizing that cooperative banks are indeed cooperative societies under the Gujarat State Cooperative Societies Act, thereby qualifying for deductions under Section 80P(2)(d).

2. Application of Section 80P(4):

The Revenue contended that Section 80P(4) excludes cooperative banks from tax benefits, aligning them with commercial banks. The Court examined the legislative intent and previous judicial interpretations, concluding that Section 80P(4) applies specifically to cooperative banks that function like commercial banks, not to cooperative societies investing in cooperative banks. Thus, the Court found that Section 80P(4) does not preclude the deduction under Section 80P(2)(d) for interest income from cooperative banks.

3. Tribunal's Reliance on Prior Judicial Decisions:

The Tribunal had relied on several judicial precedents, including decisions from the Supreme Court and the Gujarat High Court, to support its ruling. The Revenue argued that these decisions were not applicable due to changes in the law, particularly the insertion of Section 80P(4). The Court, however, upheld the Tribunal's reliance, noting that the decisions were still relevant and applicable, as they correctly interpreted the relationship between cooperative societies and cooperative banks under the Income Tax Act.

4. Legality of PCIT's Invocation of Section 263:

The PCIT had invoked Section 263 to revise the Assessing Officer's order, arguing it was erroneous and prejudicial to the Revenue's interest. The Tribunal reversed this action, and the Court supported the Tribunal's view. It held that the conditions for invoking Section 263-namely, that the order is both erroneous and prejudicial-were not met. The Court emphasized that the Tribunal correctly found the assessment was not erroneous, as the deduction under Section 80P(2)(d) was legally permissible.

Conclusion:

The Court concluded that the Tribunal's decision to allow the deduction under Section 80P(2)(d) was correct and in line with established legal principles. The invocation of Section 263 by the PCIT was deemed unjustified. Consequently, the Court dismissed the Revenue's appeals, affirming the Tribunal's orders and reinforcing the interpretation that cooperative banks are cooperative societies eligible for deductions on interest income under Section 80P(2)(d).

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