2025 (2) TMI 115 - AT - Income Tax

Deduction u/s 80P(2)(d) - interest income earned from investment with Cooperative Banks - HELD THAT - The issue is covered in favour of the Assessee as the identical deduction as claimed u/s 80P(2)(d) of the Act has been allowed in favour of the Assessees by various courts including by the Tribunal in the case of Pathare Prabhu Co-operative Housing Society Ltd. 2023 (7) TMI 1272 - ITAT MUMBAI uphold the plea of the assessee and direct the AO to grant the deduction under section 80P(2)(d) of the Act to the assessee in respect of interest income earned from investment with Cooperative Banks. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue considered in this appeal is whether the Assessee is entitled to a deduction under section 80P(2)(d) of the Income Tax Act, 1961, for interest income earned from investments in fixed deposits with a co-operative bank.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

Section 80P of the Income Tax Act provides deductions in respect of income earned by co-operative societies. Specifically, section 80P(2)(d) allows for the deduction of income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society. The term "co-operative society" is defined under section 2(19) of the Act.

The Assessee's claim for deduction was initially denied based on section 80P(4), which excludes certain co-operative banks from claiming deductions under section 80P. However, the Supreme Court in Mavilayi Service Cooperative Bank Ltd. v. CIT clarified that section 80P(4) applies only to co-operative banks that are also co-operative societies possessing a license from the RBI to conduct banking business.

Court's Interpretation and Reasoning

The Tribunal examined the provisions of section 80P(2)(d) and the definition of "co-operative society" under section 2(19). It noted that the deduction under section 80P(2)(d) requires two conditions: the income must be by way of interest or dividend, and it must be derived from investments with another co-operative society.

The Tribunal also referred to the decision in Pathare Prabhu Co-operative Housing Society Ltd. vs. ITO, where it was held that interest income from co-operative banks is eligible for deduction under section 80P(2)(d), as co-operative banks are considered co-operative societies under the Act.

Key Evidence and Findings

The Assessee, a registered co-operative housing society, earned interest income from investments in a co-operative bank. The Tribunal found no dispute regarding the Assessee's status as a co-operative society. The Tribunal noted that the Assessee's investments were made in accordance with the Maharashtra Co-operative Societies Act, 1960, which mandates certain investment modes for co-operative societies.

Application of Law to Facts

The Tribunal applied the legal framework to the facts, concluding that the Assessee's interest income from the co-operative bank qualifies for deduction under section 80P(2)(d). The Tribunal emphasized that section 80P(4) does not apply to the Assessee, as it is not a co-operative bank but a co-operative society.

Treatment of Competing Arguments

The Tribunal addressed the argument that section 80P(4) excludes co-operative banks from deductions under section 80P. It clarified that this exclusion applies only to co-operative banks that operate like commercial banks, which is not the case for the Assessee. The Tribunal also considered divergent views from the Karnataka High Court regarding the eligibility of interest income from co-operative banks for deduction under section 80P(2)(d). It chose to follow the interpretation favoring the Assessee, as guided by the Supreme Court's principle in CIT v. Vegetable Products Ltd.

Conclusions

The Tribunal concluded that the Assessee is entitled to the deduction under section 80P(2)(d) for interest income earned from investments with co-operative banks. It directed the Assessing Officer to grant the deduction and set aside the impugned order of the Commissioner of Income Tax (Appeals).

SIGNIFICANT HOLDINGS

The Tribunal held that section 80P(2)(d) allows for the deduction of interest income earned by a co-operative society from investments with co-operative banks, as co-operative banks are considered co-operative societies under the Act. It emphasized that section 80P(4) does not apply to co-operative societies that are not co-operative banks.

The Tribunal adopted the principle that when two reasonable interpretations of a taxing provision are possible, the interpretation favoring the Assessee should be adopted. This principle was derived from the Supreme Court's decision in CIT v. Vegetable Products Ltd.

The final determination was in favor of the Assessee, allowing the deduction under section 80P(2)(d) and deleting the addition made by the Assessing Officer.