2020 (12) TMI 926 - AT - Income Tax

Deduction u/s 80P - interest derived from investments with the cooperative banks - HELD THAT - The Hon'ble Karnataka High court in the case of PCIT vs. Totagars Cooperative Sale Society 2017 (1) TMI 1100 - KARNATAKA HIGH COURT has held that for the purpose of section 80P(2)(d) Co-operative Bank should be considered as cooperative society. Similar view has been taken by the Hon'ble Gujarat High court in the case of Surat Vankar Sahakari Sangh Ltd. vs. ACIT 2016 (7) TMI 1217 - GUJARAT HIGH COURT On the same issue in the case of PCIT vs. Totagars Co-operative Sale Society 2017 (7) TMI 1049 - KARNATAKA HIGH COURT has taken a contrary view holding that interest income earned from deposit with the cooperative bank does not qualify for deduction under section 80P(2)(d) of the Act. It would be relevant to mention here that the Hon'ble High Court while rendering the later judgement has not considered the earlier decision rendered in the case of Totagars Co-operative Sale Society (supra). No judgement from Hon'ble Jurisdictional High court on the issue of eligibility of deduction under section 80P(2)(d) of the Act on interest income derived by a Cooperative Society from a Cooperative Bank has been brought to our notice. The Hon'ble Bombay High Court in the case of K. Subramanian Vs. Siemens India Ltd. 1983 (4) TMI 3 - BOMBAY HIGH COURT has held that when two conflicting decisions of non-jurisdictional High Courts are available, the view that favours the assessee is to be preferred. Accordingly, following the decision of Hon'ble Karnataka High Court in the case of Totagars Cooperative Sale Society (supra) and the decision in the case of Hon'ble Gujarat High Court in the case of Vankar Sahakari Sangh (supra) the deduction claimed by the assessee under section 80P(2)(d) of the Act in respect interest derived from investments with the cooperative banks is allowed. I find merit in the grounds of appeal raised by the assessee. The impugned order is set aside and the appeal of assessee is allowed.

Summary

Issues:
1. Eligibility of deduction under section 80P(2)(d) of the Income Tax Act for interest income derived by a Cooperative Society from investments with Co-operative Banks.

Analysis:
The case involved the question of whether interest income earned by a Cooperative Housing Society from investments with Co-operative Banks is eligible for deduction under section 80P(2)(d) of the Income Tax Act. The Assessing Officer disallowed the deduction, citing the insertion of sub-section (4) to section 80P, which excluded Co-operative Banks from the purview of the deduction. The Commissioner of Income Tax (Appeals) upheld this decision based on a judgment of the Hon'ble Karnataka High Court. However, the Appellate Tribunal, after considering various legal provisions and precedents, including the case of Kaliandas Udyog Bhavan Premises Co-op Society Ltd. Vs. ITO, held that interest income derived by a Cooperative Society from investments with Co-operative Banks is indeed eligible for deduction under section 80P(2)(d) of the Act.

The Tribunal emphasized that as long as the interest income is derived from investments made by the Cooperative Society with any other Cooperative Society, the claim of deduction under section 80P(2)(d) is valid. The Tribunal also referred to the definition of a "Co-operative Society" under the Act and concluded that even though Co-operative Banks were excluded from claiming the deduction under section 80P, they are still considered Cooperative Societies under the law. The Tribunal highlighted previous judicial decisions and a CBDT Circular to support its interpretation of the law, ultimately allowing the deduction claimed by the assessee.

The judgment discussed conflicting views from different High Courts, particularly the judgments of the Hon'ble Karnataka High Court in different cases. Despite the conflicting decisions, the Tribunal followed the principle that when faced with conflicting decisions of non-jurisdictional High Courts, the view favoring the assessee should be preferred. Therefore, the Tribunal allowed the deduction claimed by the assessee under section 80P(2)(d) of the Act for interest income derived from investments with Cooperative Banks. The impugned order was set aside, and the appeal of the assessee was allowed, in line with the decisions of the Hon'ble Karnataka High Court and the Hon'ble Gujarat High Court on similar issues.

In conclusion, the Appellate Tribunal's judgment clarified the eligibility of Cooperative Societies to claim deductions under section 80P(2)(d) for interest income derived from investments with Co-operative Banks, providing a detailed analysis of legal provisions, precedents, and conflicting High Court decisions to support its decision in favor of the assessee.