2022 (8) TMI 568 - AT - Income Tax

Deduction claimed u/s 80P(2)(d) - interest income earned from deposits kept with a co-operative bank - A.R submitted that the co-operative banks also co-operative societies carrying on banking business and hence the interest earned on deposits kept with co-operative banks is to be treated as interest income earned from co-operative societies - HELD THAT - As identical issue has been adjudicated in the case of Kaliandas Udyog Bhavan Premises Co-op Society Ltd 2018 (4) TMI 1678 - ITAT MUMBAI and it has been decided in favour of the assessee as observed that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d). Thus interest income on deposits kept with co-operative banks is eligible for deduction u/s 80P(2)(d) - we set aside the order passed by Ld CIT(A) and direct the AO to allow deduction u/s 80P(2)(d) in respect of interest income earned from deposits kept with cooperative banks. Assessee appeal allowed.

Summary

Issues Involved:
1. Eligibility of deduction under Section 80P(2)(d) of the Income Tax Act for interest income earned from deposits with co-operative banks.

Issue-wise Detailed Analysis:

1. Eligibility of Deduction under Section 80P(2)(d) for Interest Income from Co-operative Banks:

The primary issue in this case was whether the assessee, a labour co-operative society, was entitled to claim a deduction under Section 80P(2)(d) of the Income Tax Act for interest income earned from deposits kept with co-operative banks.

The assessee contended that co-operative banks are also co-operative societies engaged in banking business, and hence, the interest earned from deposits with these banks should be treated as interest income earned from co-operative societies. Therefore, such interest income should be exempt under Section 80P(2)(d) of the Act. The assessee supported this argument by citing several case laws, including:
- Kaliandas Udyog Bhavan Premises Co-op Society Ltd vs. ITO (2018)(94 taxmann.com 15)(Mumbai – Trib.)
- M/s Vadasinor Pragati Samaj Co-operative Society Ltd vs. PCIT (ITA No.2539/Mum/2019 dated 13-12-2019)
- Merwanjee Cama Park Co-op Housing Society Ltd vs. ITO (2018)(62 ITR (Trib.) 770)(Mumbai)

The Department, represented by the Learned Departmental Representative (D.R.), supported the order passed by the Learned Commissioner of Income Tax (Appeals) [CIT(A)], which had confirmed the Assessing Officer's (AO) decision to reject the deduction claim. The CIT(A) held that co-operative banks cannot be considered co-operative societies within the meaning of Section 80P(2)(d).

Upon hearing the rival contentions and reviewing the records, the Tribunal noted that an identical issue had been adjudicated by the Mumbai bench in the case of Kaliandas Udyog Bhavan Premises Co-op Society Ltd. The Tribunal's decision in that case was in favor of the assessee, stating:
- The relevant statutory provision, Section 80P(2)(d), allows 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, which includes societies registered under the Co-operative Societies Act, 1912, or any other law for the time being in force.
- Despite the insertion of Sub-section (4) to Section 80P by the Finance Act, 2006, which excluded co-operative banks from claiming deductions under Section 80P, the interest income derived by a co-operative society from its investments with a co-operative bank remains eligible for deduction under Section 80P(2)(d).

The Tribunal also referenced the Pune bench's decision in Rena Sahakari Sakkar Karkhane Ltd Vs. PCIT (ITA No.1249/PUN/2018 dated 07-01-2022), which similarly held that interest income from deposits with co-operative banks is eligible for deduction under Section 80P(2)(d).

The Tribunal concluded that the lower authorities' view that the assessee was not entitled to the deduction was incorrect. The Tribunal set aside the CIT(A)'s order and directed the AO to allow the deduction under Section 80P(2)(d) for the interest income earned from deposits with co-operative banks.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, ruling that the interest income on deposits kept with co-operative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act. The order passed by the CIT(A) was set aside, and the AO was directed to allow the deduction.