2020 (8) TMI 559 - AT - Income Tax

Deductions u/s 80P(2)(a)(i) - interest and dividend earned from investments with other cooperative banks/societies - HELD THAT - Issue involved in present appeal filed by the assessee is squarely covered in favour of the assessee by the decision in the case of M/s. Quepem Urban Credit Society Ltd. vs ACIT 2015 (6) TMI 573 - BOMBAY HIGH COURT where under identical set of facts, the Hon ble High Court held that interest and dividend earned from investments with other cooperative banks/societies is entitled for deductions u/s 80P(2)(a)(i). In the case of Mahapalika Kshetra Madhyamik Shikshak Sahakari Patsanstha Maryadit 2019 (11) TMI 407 - ITAT MUMBAI had considered an identical issue and held that where assessee, a co-operative credit society had not undertaken any of banking business and was providing credit facilities to its members only and not to general public, it would not hit by provisions of section 80P(4) and thus, entitled for deduction u/s 80P(2)(a)(i) of the I.T.Act, 1961. In this case, on perusal of facts available on record, there is no dispute with regard to the fact that the assessee is not carried out any banking business to public at large, but was engaged in the providing credit facilities to its members only. Income earned by the assessee, including interest and dividend received from investments with other co-operative society/co-operative banks is entitled for deduction u/s 80P(2)(a)(i) - we direct the Ld. AO to allow the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act, 1961, in respect of interest and dividend earned from investments with other co-operative banks/societies. - Decided in favour of assessee.

Summary

Issues:
1. Deduction under section 80P (2) (a) (i) of the Act for interest income earned by the Appellant on deposits with co-operative banks and other banks.
2. Allowance of Deduction under section 80P (2) (d) for income from Other Sources of the Appellant.

Analysis:
1. The appeal was filed against the order of the Ld. Commissioner of Income Tax (Appeals) regarding the denial of deduction under section 80P (2) (a) (i) for interest income earned by the assessee on deposits with co-operative banks and other banks. The Ld. AO assessed the interest on FD and dividends received from co-operative societies/banks as income from other sources, relying on a Supreme Court decision. The Ld.CIT(A) partly allowed the appeal, holding that the assessee is eligible for deduction under section 80P (2) (d) only for investments held with a co-operative bank, not for interest income from a scheduled bank. The assessee challenged this decision before the ITAT Mumbai.

2. During the hearing, the Ld. AR for the assessee cited a relevant ITAT Mumbai case where it was held that a cooperative credit society providing financial assistance to its members only, not to the general public, is entitled to deduction under section 80P(2)(a)(i). The Ld. DR supported the Ld.CIT(A)'s order, arguing that the assessee is entitled to deductions for interest earned from co-operative banks under section 80P(2)(d). The ITAT Mumbai found that the issue was similar to a decision by the Bombay High Court, which allowed deductions for interest and dividends earned from investments with co-operative banks/societies under section 80P(2)(a)(i). It was also noted that a similar issue was considered by the ITAT Mumbai 'D' bench, resulting in a favorable decision for the assessee. As the assessee was not engaged in banking business with the general public but only provided credit facilities to its members, the ITAT directed the Ld. AO to allow the deduction under section 80P(2)(a)(i) for interest and dividends earned from investments with co-operative banks/societies.

In conclusion, the ITAT Mumbai allowed the appeal filed by the assessee, directing the Ld. AO to grant the benefit of deduction under section 80P(2)(a)(i) for interest and dividends earned from investments with co-operative banks/societies.