2024 (1) TMI 948 - AT - Income Tax

Deduction u/s 80P(2)(d) - net interest income from Co. Op. banks - HELD THAT - As assessee is earning interest income from Mehsana District Co-op. Bank Ltd., which is a registered co-operative bank under Gujarat Co-operative Societies Act and is a member of the Co-operative Society; and the interest earned thereon comes under the purview of Section 80P(2)(d) of the Act as held in the case of Sabarkantha Dist. Co-op. Milk Producers Union Ltd. ( 2014 (6) TMI 977 - GUJARAT HIGH COURT ). Therefore, the assessee is eligible for deduction u/s 80P(2)(d) of the Act. As relates to the decisions of Citizen Co-operative Society Ltd ( 2017 (8) TMI 536 - SUPREME COURT ), Bangalore Club ( 2013 (1) TMI 343 - SUPREME COURT ) and the decision of Totagars Co-operative Sale Society, 2017 (7) TMI 1049 - KARNATAKA HIGH COURT will not be applicable in the light of decision of Hon ble Apex Court in the case of The Mavilayi Service Co-op. Bank Ltd. ( 2021 (1) TMI 488 - SUPREME COURT ) which clearly held that the deduction u/s 80P will exclude only co-operative banks, which are co-operative societies who must possess a licence from the RBI to do banking business. In fact, the interpretation taken by the Revenue appears to be on the wrong footing, and the co-operative banks which are the members of co-operative societies and the deposits made by the co-operative societies in such cooperative banks are eligible for deduction u/s 80P(2)(d) of the Act. Decided in favour of assessee.

Summary

Issues:
The appeal challenges the order of the Commissioner of Income-tax (Appeals) regarding the deduction claim under section 80P(2)(d) of the Income Tax Act for the Assessment Year 2018-19.

Details:
The assessee, a co-operative society, filed its return of income for AY 2018-19 claiming a deduction under section 80P of the Act. The Assessing Officer disallowed the interest income earned from a co-operative bank, treating it as income from other sources under section 56 of the Act.

The CIT(A) partly allowed the appeal, leading to the matter being brought before the ITAT.

The assessee cited the decision of the Gujarat High Court in CIT Vs. Sabarkantha District Co-operative Milk Producers Union Ltd., emphasizing that fixed deposits with banks and interest earned fall under section 80P(2)(d) of the Act.

In contrast, the Revenue argued that co-operative banks are excluded from section 80P based on the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd. vs. CIT and other relevant cases. They contended that exemption statutes must be interpreted strictly in favor of the Revenue.

After considering the arguments, the ITAT ruled in favor of the assessee. It held that interest income earned from a registered co-operative bank, which is a member of a co-operative society, qualifies for deduction under section 80P(2)(d) of the Act. The Tribunal found the Revenue's interpretation to be incorrect, emphasizing that co-operative banks associated with co-operative societies are eligible for the deduction.

Therefore, the ITAT allowed the appeal of the assessee, emphasizing the eligibility for deduction under section 80P(2)(d) in the case of interest income from co-operative banks.

Order pronounced on January 19, 2024.