Income Tax Act, 1961, Section 80P(2)(d)

Deduction under section 80P--Co-operative society--Interest income earned from co-operative bank--Allowability of

Conclusion: Interest income derived from deposits/investments made by co-operative societies in co-operative banks, which are members of co-operative societies are eligible for deduction under section 80P(2)(d).

AO disallowed assessee’s claim of deduction under section 80P in respect of interest income earned from a co-operative bank. Assessee submitted that it is settled decision position that fixed deposit with banks and interest earned thereon will come under the purview of section 80P(2)(d). On the other hand, Revenue submitted that co-operative banks are excluded from ambit of section 80P and thus, interest income derived from deposits/investments in co-operative banks are not eligible for deduction under section 80P(2)(d). Held: Assessee earned interest income from a registered co-operative bank, which was member of a co-operative society; and interest earned thereon comes under the purview of section 80P(2)(d) of the Act as held by High Court in the case of CIT II v. Sabarkantha District Cooperative Milk Producers Union Ltd. [Tax Appeal No. 473 of 2014, dt. 16-6-2014]. Further, deduction under section 80P will exclude only co-operative banks, which possess a licence from RBI to do banking business. Further, interest income derived from deposits/investments made by co-operative societies in co-operative banks, which are members of co-operative societies are eligible for deduction under section 80P(2)(d). Hence, assessee was entitled for deduction under section 80P(2)(d).

Decision: In assessee's favour

Relied: The Mavilayi Service Cooperative Bank Ltd. & Ors. v. CIT [(Civil Appeal Nos. 7343-7350 of 2019 dated 12.01.2021)] : 2021 TaxPub(DT) 0273 (SC), CIT II v. Sabarkantha District Cooperative Milk Producers Union Ltd. [Tax Appeal No. 473 of 2014, dt. 16-6-2014]

Distinguished: The Citizen Co-Operative Society Limited, Through Its Managing Director, Hyderabad v.  Assistant CIT (2017) 84 taxmann.com 114 (SC) : 2017 TaxPub(DT) 2053 (SC), The Pr. CIT, ITO v. The Totagars Co-Operative Sale Society (2017) 83 taxmann.com 140 (Karnataka) : 2017 TaxPub(DT) 1748 (Karn-HC) 

IN THE ITAT AHMEDABAD BENCH

SUCHITRA R. KAMBLE, J.M.

Jafari Momin Vikas Co-op. Credit Society Ltd. v. ITO

ITA No. 279/Ahd/2023

19 January, 2024

Assessee by: Hasmukh V. Doshi And Shri Mehal H. Doshi, ARs

Revenue by: Purushottam Kumar, Sr DR

ORDER

This appeal filed by the assessee is directed against the order of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as "CIT(A)" for short] dated 17-3-2023 passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short] for the assessment year (assessment year) 2018-19.

2. The solitary ground raised by the assessee in its appeal reads as under:-

“learned Commissioner (Appeals) has erred in confirming the order of assessing officer in not considering the claim of deduction under section 80P(2)(d) of Income Tax Act in respect of net interest income of Rs. 1,86,285 from Co. Op. banks.”

3. The assessee is a co-operative society and filed its return of income for assessment year 2018-19 declaring a total income of Rs. Nil. The assessee claimed deduction of Rs. 57,71,324 under section 80P of the Act. The assessee has earned interest income of Rs. 6,71,081 from nationalized/co-operative bank and claimed deduction under section 80P(2)(a)(i) of the Act. The case of the assessee was selected for complete scrutiny on the issues of disallowance under section 40A(9) [contribution to fund, etc.], Investment/Advances/Loans, Disallowance under section 40A(7) [Gratuity provision] and deduction from total income under Chapter VI-A. After taking cognizance of the reply of the assessee, the Assessing Officer made addition of Rs. 1,86,285 thereby disallowing the interest income earned from the co-operative bank and treated the same as income from other sources under section 56 of the Act.

4. Being aggrieved by the assessment order, the assessee filed appeal before the Commissioner (Appeals). The Commissioner (Appeals) partly allowed the appeal of the assessee.

5. The learned Authorised Representative submitted that, in the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Sabarkantha District Co-operative Milk Producers Union Ltd. in Tax Appeal No. 473 of 2014, it has categorically mentioned that the fixed deposit with banks and interest earned thereon will come under the purview of Section 80P(2)(d) of the Act. The learned Authorised Representative also relied upon the decision of the Tribunal in the case of the SACO Bank Staff Co-op. Credit Society Ltd. Vs. ITO (ITA No.441/Ahd/2023 order dated 03.11.2023).

6. The learned Departmental Representative submitted that the decision of Hon’ble Karnataka High Court which was decided in case of PCIT Vs. Totagars Co-operative Sale Society, (2017) 392 ITR 74 (Karnataka) : 2017 TaxPub(DT) 0677 (Karn-HC) will not be applicable in assessee’s case as the latest decision of Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT (Civil Appeal Nos. 7343-7350 of 2019 dated 12.01.2021) : 2021 TaxPub(DT) 0273 (SC), the co-operative banks are excluded from the ambit of Section 80P of the Act. Thus, the interest income derived from deposits/investments in co-operative banks are not eligible for deduction under section 80P(2)(d) of the Act. The learned Departmental Representative further submitted that the Hon’ble Supreme Court in the case of Citizen Co-operative Society Ltd. s. ACIT, (2017) 84 taxmann.com 114 (SC) : 2017 TaxPub(DT) 2053 (SC), has upheld this view as well, and another decision of Hon’ble Supreme Court in the case of Bangalore Club v. CIT, (2013) 29 taxmann.com 29 (SC) : 2013 TaxPub(DT) 0434 (SC), has also supported this decision. The learned Departmental Representative further submitted that the Constitution Bench of Hon’ble Supreme Court in Civil Appeal No.3327 of 2007 : 2018 TaxPub(EX) 737 (SC), in the case of Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co. & Others, delivered on 30-7-2018, has categorically held that the exemption statutes have to be interpreted strictly, and in case of ambiguity, it must be interpreted in favour of the Revenue.

7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the 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 by the Hon’ble Gujarat High Court in the case of Sabarkantha Dist. Co-op. Milk Producers Union Ltd. (supra). Therefore, the assessee is eligible for deduction under section 80P(2)(d) of the Act. As relates to the decisions of Hon’ble Apex Court in the cases of Citizen Co-operative Society Ltd. (supra), Bangalore Club (supra) and the decision of Hon’ble Karnataka High Court in the case of PCIT v. Totagars Co-operative Sale Society, (2017) 83 taxmann.com 140 (Karnataka) : 2017 TaxPub(DT) 1748 (Karn-HC), 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. (supra) which clearly held that the deduction under section 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 under section 80P(2)(d) of the Act.

8. In result, appeal of the assessee is allowed.

Order pronounced in the open Court on this 19-1-2024.