2020 (12) TMI 970 - AT - Income Tax

Disallowance of deduction u/s 80P(2)(d) - interest received on deposit kept with co-operative bank - AO disallowed the claim of deduction by stating that the co-operative bank is different than a co-operative society, as per provisions of section 80P(2) - 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: Eligibility of deduction under section 80P(2)(d) of the Income Tax Act for interest income derived by a Co-operative Society from investments with a Cooperative Bank.

Analysis:
1. Background: The appeal was against the disallowance of a deduction under section 80P(2)(a)(i)/80P(2)(d) of the Act concerning interest income earned by a Co-operative Credit Society from fixed deposits with a Co-operative Bank.

2. Legal Provisions: The Tribunal examined section 80P(2)(d) of the Act, which allows deduction for interest income derived by a Co-operative Society from investments with another Co-operative Society. The insertion of subsection (4) to section 80P by the Finance Act 2006 excluded Cooperative banks from the exemption provided to Co-operative societies.

3. Judicial Interpretation: The Tribunal referred to the case of Kaliandas Udyog Bhavan Premises Co-op Society Ltd. Vs. ITO and held that interest income from investments with a Co-operative bank is 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 with any other Co-operative Society, the deduction is available.

4. Precedents: The Tribunal cited cases such as Land and Cooperative Housing Society Ltd., Sea Green Cooperative Housing and Society Ltd., and Marwanjee Cama Park Cooperative Housing Society Ltd., along with judgments from the High Courts of Karnataka and Gujarat supporting the eligibility of deduction under section 80P(2)(d) for interest income from Co-operative bank investments.

5. Contrary Views: The judgment highlighted a conflicting decision from the Hon'ble Karnataka High court in another case, which held that interest income from deposits with a Co-operative bank does not qualify for deduction under section 80P(2)(d) of the Act. However, the Tribunal followed the earlier favorable judgments.

6. Decision: The Tribunal relied on the decision of the Hon'ble Karnataka High Court in the case of Totagars Co-operative Sale Society and the Hon'ble Gujarat High Court in the case of Vankar Sahakari Sangh to allow the deduction claimed by the assessee under section 80P(2)(d) for interest income from investments with Co-operative banks. The Tribunal applied the principle of favoring the assessee in case of conflicting decisions from non-jurisdictional High Courts.

7. Conclusion: The Tribunal allowed the appeal by the assessee, emphasizing the eligibility of the deduction under section 80P(2)(d) of the Act for interest income derived from investments with Co-operative banks. The decision was based on the interpretation of relevant legal provisions, precedents, and the principle of favoring the assessee in case of conflicting judgments.