2025 (1) TMI 102 - AT - Income Tax

Disallowance u/s 80(P)(2)(a) (i) and 80P(2)(d) - interest had been received from co-operative banks - HELD THAT - As in the case of PCIT vs. Annasaheb Patil 2023 (5) TMI 372 - SC ORDER held that assessee being a credit society are entitled for exemption u/s. 80P(2) and they cannot be termed as public co-operative banks and therefore, Section 80P(4) shall not be applicable. Admittedly, here in this case the interest had been received from co-operative banks and law is well settled that credit co-operative society investments in co-operative bank claimed as allowable u/s.80P(2) because co-operative banks are also registered under co-operative society. Accordingly, respectfully following the earlier year precedents for A.Y.2017-18 2024 (4) TMI 1169 - ITAT MUMBAI the grounds raised by the Revenue in both the appeals are dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment primarily revolves around the following core issues:

1. Whether the CIT(A) erred in deleting the addition made by the Assessing Officer (AO) regarding the disallowance of deductions claimed under Section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, 1961.

2. Whether the CIT(A) correctly interpreted the definition of a "co-operative society" and the applicability of Section 80P(2)(d) concerning co-operative banks.

3. Whether the legislative intent behind the amendment of Section 80P, specifically the insertion of subsection (4), was correctly appreciated in the context of co-operative banks.

4. Whether the CIT(A) failed to consider relevant Supreme Court decisions that distinguish between co-operative societies and co-operative banks concerning eligibility for deductions under Section 80P.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deletion of Addition by CIT(A)

- Relevant Legal Framework and Precedents: Section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, 1961, provide deductions for income derived by co-operative societies. The AO disallowed these deductions, arguing that the entity did not qualify as a co-operative society under these sections.

- Court's Interpretation and Reasoning: The Tribunal referred to its previous decision in the assessee's case for A.Y. 2017-18, where it allowed the deduction under Section 80P(2)(d). The Tribunal emphasized that the provisions of Section 80P(2)(d) allow deductions for interest earned from deposits with other co-operative societies.

- Key Evidence and Findings: The Tribunal found that the assessee, a credit co-operative society, had made investments in a co-operative bank, which is registered under the Co-operative Societies Act.

- Application of Law to Facts: The Tribunal applied the definition of a "co-operative society" as per Section 2(19) of the Income Tax Act, which includes entities registered under any state law for co-operative societies.

- Treatment of Competing Arguments: The Tribunal dismissed the Revenue's argument that co-operative banks do not fall under the purview of co-operative societies for Section 80P(2)(d) deductions.

- Conclusions: The Tribunal concluded that the CIT(A) was correct in deleting the addition made by the AO, as the assessee was entitled to deductions under Section 80P(2)(d).

Issue 2: Interpretation of "Co-operative Society"

- Relevant Legal Framework and Precedents: Section 80P(2)(d) allows deductions for income derived from investments in other co-operative societies. The definition of "co-operative society" under Section 2(19) was central to the issue.

- Court's Interpretation and Reasoning: The Tribunal relied on the definition provided in the Income Tax Act and relevant case law, including the decision of the Madras High Court in Thorapadi Urban Co-op. Credit Society Ltd., which recognized co-operative banks as co-operative societies.

- Key Evidence and Findings: The Tribunal noted that the co-operative bank in question was registered under the Co-operative Societies Act, thus qualifying as a co-operative society.

- Application of Law to Facts: The Tribunal applied the statutory definition and case law to determine that co-operative banks are included within the scope of "co-operative societies" for Section 80P(2)(d).

- Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that co-operative banks should be excluded from the definition of co-operative societies for the purpose of Section 80P(2)(d).

- Conclusions: The Tribunal upheld the CIT(A)'s decision, affirming that the interest income from the co-operative bank was eligible for deduction.

Issue 3: Legislative Intent of Section 80P(4)

- Relevant Legal Framework and Precedents: The insertion of Section 80P(4) was intended to exclude certain co-operative banks from the benefits of Section 80P. The Tribunal examined the legislative intent and its applicability.

- Court's Interpretation and Reasoning: The Tribunal referred to the Supreme Court's decision in PCIT vs. Annasaheb Patil, which clarified that credit societies are not public co-operative banks and thus not subject to Section 80P(4).

- Key Evidence and Findings: The Tribunal found that the interest was received from a co-operative bank, which is distinct from a public co-operative bank.

- Application of Law to Facts: The Tribunal applied the Supreme Court's interpretation to conclude that Section 80P(4) did not apply to the assessee's case.

- Treatment of Competing Arguments: The Tribunal considered but ultimately dismissed the Revenue's interpretation of Section 80P(4) as excluding all co-operative banks from the benefits of Section 80P.

- Conclusions: The Tribunal concluded that the legislative intent of Section 80P(4) did not preclude the assessee from claiming deductions under Section 80P(2)(d).

3. SIGNIFICANT HOLDINGS

- The Tribunal affirmed that "the provisions of Section 80P(2)(d) of the Act envisage allowable deduction only against the interest earned by co-operative society on account of deposit made with any other co-operative society."

- The Tribunal held that "credit co-operative society investments in co-operative bank claimed as allowable u/s.80P(2) because co-operative banks are also registered under co-operative society."

- The final determination was to dismiss the Revenue's appeals, thereby upholding the CIT(A)'s decision to allow the deductions claimed by the assessee under Section 80P(2)(d).

In conclusion, the Tribunal's judgment reinforces the interpretation of co-operative societies under the Income Tax Act, allowing deductions for interest income from investments in co-operative banks, provided they are registered under the Co-operative Societies Act. The decision underscores the importance of statutory definitions and legislative intent in determining eligibility for tax deductions.