2022 (12) TMI 644 - AT - Income Tax

Deduction on interest earned from Co-Operative Banks u/s 80P(2)(d) - Dividend Income AND Interest Income earned from another Co-Op Society - HELD THAT - In our considered view, Ld. CIT(A) has erred in law in holding that the observations in the case of State Bank of India 2016 (7) TMI 516 - GUJARAT HIGH COURT to the effect 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) of the Act have no binding effect on the jurisdictional Revenue Authorities. The Kolktata ITAT in the case of SubhlakshmiVanijya (P.) Ltd. 2015 (8) TMI 174 - ITAT KOLKATA has held that even the obiter of the jurisdictional High Court has a binding force on the lower authorities. Therefore, in our view, the Ld. CIT(A) has erred in law and in facts in holding that the above order of the jurisdictional Gujarat High Court in the case of State Bank of India Supra has no binding effect on the jurisdictional Revenue authorities. In the case of Surat Vankar Sahakari Sangh Ltd. 2016 (7) TMI 1217 - GUJARAT HIGH COURT held assessee-cooperative society was eligible for deduction under section 80P(2)(d) in respect of gross interest received from co-operative bank without adjusting interest paid to said bank. In the case of Surendranagar District Co-op. Milk Producers Union Ltd. 2019 (9) TMI 978 - ITAT RAJKOT held that assessee-co-operative society could not claim benefit of section 80P(2)(d) in respect of interest earned by it from deposits made with nationalised/private banks, however, said benefit was available in respect of interest earned on deposits made with co-operative bank. In the case Totagars Cooperative Sale Society 2017 (1) TMI 1100 - KARNATAKA HIGH COURT held 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) of the Act. Thus in our view, dividend income and interest earned by the assessee on surplus held with cooperative bank would be eligible for deduction under Sec.80P(2)(d) of the Act. Appeal of the assessee is allowed.

Summary

Issues:
1. Eligibility of the assessee to claim deduction on interest earned from Co-Operative Banks u/s 80P(2)(d) of the Income Tax Act, 1961.

Analysis:

Issue 1: Eligibility of the assessee to claim deduction on interest earned from Co-Operative Banks u/s 80P(2)(d) of the Act

The case involved the question of whether the assessee, a registered cooperative society, could claim a deduction on interest earned from its investments in a cooperative bank under section 80P(2)(d) of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed the deduction, citing the Karnataka High Court's decision that interest income earned from surplus deposits with a cooperative bank is not eligible for deduction under section 80P(2)(d). The CIT(A) upheld this decision, relying on the Karnataka High Court's ruling and dismissing the assessee's appeal. However, the ITAT Ahmedabad in a different case observed that interest earned on surplus funds from cooperative banks/societies should be allowable for deduction. The ITAT also noted conflicting decisions within its own judgments, with one case supporting the disallowance and the other allowing the deduction. Ultimately, the ITAT decided in favor of the assessee, following the decision of the Gujarat High Court and other relevant cases, allowing the deduction for the interest and dividend income earned by the assessee on surplus funds held with a cooperative bank under section 80P(2)(d) of the Act.

This detailed analysis covers the issues involved in the legal judgment, providing a comprehensive understanding of the case and the reasoning behind the decision.