2024 (7) TMI 874 - AT - Income Tax

Deduction u/s. 80P(2)(d) - income earned by the assessee on fixed deposit with Surat District Cooperative Bank - deposit in cooperative banks lacks the degree of proximity between the members of the society with that of cooperative bank - CIT(A) held that the assessee has furnished evidence that Surat District Cooperative Bank is a cooperative society registered under Gujarat State Cooperative Societies Act HELD THAT - As decided in the case of Surat Vankar Sahakari Sangh Ltd. 2016 (7) TMI 1217 - GUJARAT HIGH COURT that the assessee cooperative society was eligible for deduction under section 80P(2)(d) in respect of gross interest received from cooperative bank without adjusting interest paid to said bank. Decided in favour of assessee.

Summary

Issues:
- Appeal against order of National Faceless Appeal Centre for AY 2014-15.
- Allowance of deduction u/s. 80P(2)(d) of the I.T. Act.
- Degree of proximity between members of society and cooperative bank.
- Exclusion of cooperative banks from definition of "cooperative society."
- Differentiation between cooperative banks and cooperative societies.
- Compliance with show cause notice.
- Eligibility of interest income from cooperative bank for deduction.
- Legal position regarding cooperative banks as cooperative societies.
- Application of precedents and decisions in similar cases.

Analysis:
1. The appeal pertains to the order of the National Faceless Appeal Centre for the Assessment Year 2014-15. The primary issue raised is the allowance of deduction under section 80P(2)(d) of the Income Tax Act amounting to Rs. 9,56,635. The Revenue challenges this allowance based on the lack of proximity between the members of the society and the cooperative bank, citing legal principles of mutuality.

2. The Revenue argues that the cooperative banks should not be considered cooperative societies and, therefore, the interest income earned from such banks should not be eligible for deduction under section 80P(2)(d). The Department contends that the cooperative banks are distinct from cooperative societies, and the income must be derived from investments with other cooperative societies to qualify for the deduction.

3. The Authorised Representative of the assessee supports the order of the Commissioner of Income Tax (Appeals) (CIT(A)), emphasizing compliance with the show cause notice and the exemption of interest income earned from a fixed deposit with the Surat District Cooperative Bank under section 80P(2)(d). The AR asserts that cooperative banks are primarily cooperative societies, backed by legal precedents and decisions.

4. Upon review of submissions and lower authorities' orders, the Judicial Member finds that the Assessing Officer disallowed the deduction under section 80P(2)(d) for the interest income earned from the Surat District Cooperative Bank. The CIT(A) allowed relief to the assessee based on evidence that the bank is a registered cooperative society under the Gujarat State Cooperative Societies Act. Legal precedents and decisions establish that cooperative banks are considered cooperative societies, making interest income from such banks exempt under section 80P(2)(d).

5. The Judicial Member upholds the order of the CIT(A) and dismisses the Revenue's appeal, citing various decisions and the legal position that interest earned on deposits with cooperative banks qualifies for deduction under section 80P(2)(d). The judgment is based on the principle that cooperative banks are essentially cooperative societies, as affirmed by the Gujarat High Court and other tribunal decisions. The dismissal of the appeal renders the issue of tax effect academic, leading to the final decision to dismiss the Revenue's appeal.

In conclusion, the judgment affirms the eligibility of interest income from cooperative banks for deduction under section 80P(2)(d) of the Income Tax Act, emphasizing the legal status of cooperative banks as cooperative societies supported by relevant legal precedents and decisions.