2025 (1) TMI 445 - AT - Income Tax

Deduction claimed u/s 80P(2)(d) - interest received from Bank deposits from Co-operative Banks and Nationalized Bank - AO denied deduction and taxed the interest income as income from other sources u/s 56 - HELD THAT - This issue is no more res integra by the very recent Jurisdictional High Court judgment in the case of Ashwinkumar Arban Cooperative Society Ltd. 2024 (11) TMI 971 - GUJARAT HIGH COURT which has considered Karnataka High Court 2017 (1) TMI 1100 - KARNATAKA HIGH COURT and Supreme Court judgment in the case of Totagars Coopeartive Sale Society 2010 (2) TMI 3 - SUPREME COURT and amendment in Section 194C(3)(v) of the Act and held that the interest earned on the investment made with the Coopearitve Society which was carried out the banking business, the assessee cannot be denied the deduction u/s. 80P(2)(d) - Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment are:

Whether the assessee, a cooperative society, is entitled to claim deductions under Section 80P(2)(d) of the Income Tax Act, 1961, for interest income earned from deposits made in cooperative banks and nationalized banks.
Whether the interest income should be classified as "income from other sources" under Section 56 of the Income Tax Act, thereby disallowing the deductions claimed under Section 80P.
Whether the provisions of Section 80P(4) exclude cooperative banks from the definition of cooperative societies, thus affecting the eligibility for deductions under Section 80P(2)(d).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility for Deductions under Section 80P(2)(d)

Relevant Legal Framework and Precedents: Section 80P(2)(d) of the Income Tax Act provides deductions for income derived by a cooperative society from investments with other cooperative societies. The judgment references several precedents, including the Gujarat High Court's decisions in the cases of State Bank of India vs. CIT and Surat Vankar Sahakari Sangh Ltd. vs. ACIT.
Court's Interpretation and Reasoning: The court held that the interest income earned from deposits in cooperative banks qualifies for deductions under Section 80P(2)(d), as cooperative banks are also considered cooperative societies.
Key Evidence and Findings: The court noted that the assessee had previously been granted similar deductions in prior assessment years, and recent judgments supported the continuation of such deductions.
Application of Law to Facts: The court applied the legal framework to conclude that the interest income from cooperative banks is eligible for deductions, while income from nationalized banks is not.
Treatment of Competing Arguments: The Revenue argued against the deductions, citing the classification of interest income as "income from other sources." However, the court rejected this argument based on established precedents.
Conclusions: The court concluded that the assessee is entitled to deductions under Section 80P(2)(d) for interest income from cooperative banks.

Issue 2: Classification of Interest Income as "Income from Other Sources"

Relevant Legal Framework and Precedents: Section 56 of the Income Tax Act deals with income from other sources. The court referenced the Supreme Court's judgment in Totagars' Cooperative Sale Society Ltd. regarding the classification of income.
Court's Interpretation and Reasoning: The court determined that the interest income from cooperative banks should not be classified as "income from other sources" for the purpose of denying deductions under Section 80P.
Key Evidence and Findings: The court found that the nature of the income, being interest from cooperative banks, aligns with the activities of a cooperative society and thus qualifies for deductions.
Application of Law to Facts: The court applied the legal principles to affirm that the interest income should not be treated as "income from other sources" when considering deductions under Section 80P.
Treatment of Competing Arguments: The Revenue's argument for classifying the income as "income from other sources" was dismissed based on the cooperative nature of the income source.
Conclusions: The court concluded that the interest income from cooperative banks should not be classified as "income from other sources."

Issue 3: Applicability of Section 80P(4)

Relevant Legal Framework and Precedents: Section 80P(4) excludes certain cooperative banks from deductions under Section 80P. The court analyzed the applicability of this provision in light of recent judgments.
Court's Interpretation and Reasoning: The court held that Section 80P(4) does not apply to cooperative banks that are also cooperative societies, thereby allowing deductions under Section 80P(2)(d).
Key Evidence and Findings: The court referenced the legislative intent and judicial interpretations that distinguish cooperative banks from commercial banks for the purpose of Section 80P.
Application of Law to Facts: The court applied the legal framework to determine that cooperative banks are not excluded from the definition of cooperative societies under Section 80P(4).
Treatment of Competing Arguments: The Revenue's reliance on the exclusion under Section 80P(4) was countered by the court's interpretation of cooperative banks as cooperative societies.
Conclusions: The court concluded that Section 80P(4) does not preclude the assessee from claiming deductions under Section 80P(2)(d) for interest income from cooperative banks.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The deduction under section 80P(2)(d) of the Act is available to the cooperative societies on the income earned as interest on the investment made with the cooperative bank which in turn, is a cooperative society itself."
Core Principles Established: The judgment reinforces the principle that cooperative banks are considered cooperative societies for the purpose of Section 80P(2)(d) deductions. It also clarifies that Section 80P(4) does not exclude cooperative banks from the definition of cooperative societies.
Final Determinations on Each Issue: The court dismissed the Revenue's appeal, upholding the deductions claimed by the assessee under Section 80P(2)(d) for interest income from cooperative banks. The appeal was deemed devoid of merit, and the deductions were allowed to stand.

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