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2023 (5) TMI 1434 - AT - Income TaxDeduction u/s 80P(2)(a)(i) or 80P(2)(d) - interest income on deposits made out of the surplus funds in cooperative banks and scheduled banks - HELD THAT - This issue is no longer res integra as the issue was decided in the case of The Ugar Sugar Works Kamgar Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society 2021 (11) TMI 1117 - ITAT PANAJI in favour of the appellant society. Thus we are of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule bank qualifies for deduction both under the provisions of section 80P(2)(a)i) and section 80P(2)(d) of the Act therefore the reasoning given by the lower authorities on this issue cannot be accepted. Appeal filed by the assessee stands allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issue in this judgment is the allowability of exemption under section 80P(2)(d) of the Income Tax Act, 1961, concerning interest income earned by a cooperative society from deposits made in cooperative banks and scheduled banks. The Tribunal examined whether such interest income qualifies for deduction under the specified provisions of the Act. ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents: The primary legal framework involves section 80P(2)(d) of the Income Tax Act, 1961, which allows for the deduction of income derived by a cooperative society from investments made with other cooperative societies. The Tribunal also considered previous decisions, including those of the Hon'ble Karnataka High Court and the Hon'ble Supreme Court, particularly in the cases of Totgars Cooperative Sale Society and Tumkur Merchants Souharda Credit Co-op. Ltd. Court's interpretation and reasoning: The Tribunal's interpretation focused on the definition of a cooperative bank as a cooperative society under section 80P(2)(d). It emphasized that the interest income derived from investments made by a cooperative society with a cooperative bank qualifies for exemption under this section. The Tribunal noted that the lower authorities' reasoning for denying the exemption was flawed, as a cooperative bank meets the criteria of a cooperative society. Key evidence and findings: The Tribunal relied on the precedent set by the Co-ordinate Bench in the case of The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society vs. ITO, which supported the appellant's position. The Tribunal also referenced decisions from the Pune Bench and the divergent views of the Karnataka and Delhi High Courts, ultimately aligning with the interpretation favoring the assessee. Application of law to facts: The Tribunal applied section 80P(2)(d) to the facts, concluding that the interest income from deposits in cooperative banks should be exempt. It determined that the appellant's interest income qualifies for deduction under both section 80P(2)(a)(i) and section 80P(2)(d), countering the lower authorities' denial of the exemption. Treatment of competing arguments: The Tribunal addressed the competing arguments by analyzing the decisions of the Karnataka and Delhi High Courts. It preferred the interpretation that aligned with the Karnataka High Court, which supports the deduction of interest income under section 80P(2)(d). The Tribunal dismissed the opposing view, which did not recognize cooperative banks as cooperative societies for the purpose of this deduction. Conclusions: The Tribunal concluded that the interest income earned by the cooperative society from deposits in cooperative banks and scheduled banks qualifies for deduction under section 80P(2)(d). It directed the Assessing Officer to allow the deduction, thus resolving the issue in favor of the appellant. SIGNIFICANT HOLDINGS The Tribunal held that the interest income earned by a cooperative society from deposits in cooperative banks and scheduled banks qualifies for deduction under section 80P(2)(d) of the Income Tax Act, 1961. It emphasized that a cooperative bank is considered a cooperative society for the purposes of this section, thereby allowing the deduction. Preserve verbatim quotes of crucial legal reasoning: "We are of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule bank qualifies for deduction both under the provisions of section 80P(2)(a)i) and section 80P(2)(d) of the Act, therefore, the reasoning given by the lower authorities on this issue cannot be accepted." Core principles established: The Tribunal established the principle that cooperative banks qualify as cooperative societies under section 80P(2)(d), allowing cooperative societies to claim deductions on interest income from such banks. This interpretation aligns with the favorable view for the assessee, as supported by the Karnataka High Court. Final determinations on each issue: The Tribunal directed the Assessing Officer to allow the deduction under section 80P(2)(a)(i) and section 80P(2)(d) for the interest income earned from cooperative and scheduled banks. This determination effectively resolved the appellant's appeal, granting them the sought-after exemption.
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