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2025 (3) TMI 411 - HC - Income TaxDenial of deduction u/s 80P(2)(d) - interest earned from investments made in any bank not being cooperative society - HELD THAT - As decided Ashwinkumnar Arban Co-operative Society Ltd. 2024 (11) TMI 971 - GUJARAT HIGH COURT held that the assessee has furnished evidence that Surat District Cooperative Bank is a cooperative society registered under Gujarat State Cooperative Societies Act. We find that in a series of decisions the various Benches of the Tribunals held that the cooperative banks are primarily cooperative societies and interest earned on deposits with such cooperative bank is exempt under Section 80P(2)(d) of the Act. As decided in Surat Vankar Sahakari Sangh Ltd. 2016 (7) TMI 1217 - GUJARAT HIGH COURT also held that the assessee cooperative society was eligible for deduction under section 80P(2)(d) in respect of gross interest received from cooperative bank without adjusting interest paid to said bank. Such decision of Surat Vankar Sahakari Sangh Ltd. 2016 (7) TMI 1217 - GUJARAT HIGH COURT has been followed in a serious of decisions by me or by the Division Bench of Surat Tribunal. Therefore no merit in the grounds of appeal raised by the revenue - Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are: (i) Whether the Tribunal erred in deleting the addition of Rs. 9,56,635/- on account of denial of deduction under Section 80P(2)(d) of the Income Tax Act, 1961, by ignoring the Supreme Court's decision in Totgars Cooperative Sale Society Ltd., which held that interest earned from investments in non-cooperative society banks is not deductible under Section 80P(2)(d). (ii) Whether the Tribunal overlooked the Karnataka High Court's finding that cooperative banks are not a species of cooperative societies entitled to deductions under Section 80P, as approved by the Gujarat High Court in Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. (iii) Whether the Tribunal erred by relying on a decision of the Gujarat High Court that pertained to assessment years before Section 80P(4) was inserted by the Finance Act 2006. (iv) Whether the Tribunal erred in dismissing the Revenue's appeal by ignoring that only income received from members is eligible for deduction under Section 80P(2)(a). ISSUE-WISE DETAILED ANALYSIS Issue (i): Deduction under Section 80P(2)(d) The relevant legal framework involves Section 80P(2)(d) of the Income Tax Act, which allows deductions for income earned by cooperative societies from investments with other cooperative societies. The Supreme Court in Totgars Cooperative Sale Society Ltd. clarified that interest from non-cooperative society banks is not deductible under this section. The Court interpreted that the Tribunal correctly allowed the deduction because the interest was earned from a cooperative bank, which qualifies as a cooperative society under the Gujarat State Cooperative Societies Act. The Tribunal's reasoning was supported by the Gujarat High Court's precedent in Sabarkantha District Co-operative Milk Producers Union Ltd., affirming that cooperative banks are cooperative societies for Section 80P(2)(d) purposes. Key evidence included the cooperative status of Surat District Cooperative Bank, which was not disputed. The Tribunal applied the law to the facts by confirming the cooperative nature of the bank, thus entitling the assessee to the deduction. The competing argument from the Revenue relied on the interpretation that cooperative banks do not qualify for the deduction, based on the Supreme Court's decision in Totgars. However, the Tribunal found this inapplicable as the bank in question was a registered cooperative society. Issue (ii): Interpretation of Cooperative Banks The legal framework here involves the interpretation of cooperative banks under Section 80P. The Karnataka High Court's decision, supported by the Gujarat High Court, suggested cooperative banks are not entitled to the same deductions as cooperative societies. The Court's reasoning aligned with the Tribunal's finding that the cooperative bank in question was indeed a cooperative society, thus eligible for deductions. The Tribunal's reliance on the Gujarat High Court's decision in Surat Vankar Sahakari Sangh Ltd. was deemed appropriate, as it supported the deduction eligibility for interest from cooperative banks. The Revenue's argument that cooperative banks are distinct from cooperative societies was not upheld, as the Tribunal and the Court found the bank's registration under the Cooperative Societies Act sufficient for deduction eligibility. Issue (iii): Reliance on Pre-2007 Decisions The introduction of Section 80P(4) in 2006, which excludes certain cooperative banks from deductions, was central to this issue. The Tribunal relied on a decision predating this amendment. The Court found no error in this reliance, as the Tribunal's decision was consistent with the current legal understanding that cooperative banks, as cooperative societies, are eligible for deductions. The Tribunal's reliance on past decisions was justified by their continued applicability under current law. Issue (iv): Income from Members The legal question involved whether only income from members qualifies for deductions under Section 80P(2)(a). The Tribunal dismissed the Revenue's appeal, affirming that the interest income from the cooperative bank was eligible for deduction. The Court supported the Tribunal's interpretation that the cooperative bank's interest income fell within the scope of Section 80P(2)(d), which does not restrict deductions to member-derived income. SIGNIFICANT HOLDINGS The Court upheld the Tribunal's findings, affirming that cooperative banks are cooperative societies eligible for deductions under Section 80P(2)(d). The Court emphasized the cooperative movement's furtherance as a legislative intent, supporting deductions for cooperative societies. Key principles established include the interpretation of cooperative banks as cooperative societies under the Income Tax Act, affirming their eligibility for deductions. The Court concluded that no substantial question of law arose from the Tribunal's order, dismissing the Revenue's appeal. The Court's agreement with the Tribunal's application of law and facts underscores the cooperative banks' inclusion within Section 80P's beneficial provisions, reinforcing the cooperative sector's growth and support through tax deductions.
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