2025 (3) TMI 1474 - AT - Income Tax

Disallowing the deduction claimed u/s 80 P(2) (a) (i) and 80(P) (2) (d) - Interest earned by a Co-operative Housing Society from other Co-operative society - HELD THAT - The revenue has restricted the claim of deduction U/s 80P(2)(d) in pursuance of section 80P(4) of the Act and the cooperative bank is not considered as cooperative society. Respectful reliance was placed on the order of Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Limited 2023 (5) TMI 372 - SC ORDER and Kerala State Co-Operative Agricultural and Rural Development Bank Ltd. KSCARDB 2023 (9) TMI 761 - SUPREME COURT where as categorically stated that cooperative bank is the cooperative society and not acted as Bank under Banking Regulation Act 1949. We note the orders of the coordinate benches of ITAT who have taken same view in favour of the assessee. So the interest earned from investment in cooperative bank is allowable deduction U/s 80P(2)(d) of the Act. The addition is quashed. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these appeals are:

• Whether the assessee, a credit co-operative society, is entitled to claim deduction under section 80P(2)(d) of the Income-tax Act, 1961 for interest income earned from investments made in other co-operative banks/societies.
• Whether the restriction imposed under section 80P(4) of the Act applies to disallow the deduction claimed under section 80P(2)(d) in respect of interest income from co-operative banks.
• Whether the assessee's claim of deduction under section 80P(2)(a)(i) and 80P(2)(d) was correctly disallowed or partly allowed by the Assessing Officer and the Commissioner of Income-tax (Appeals).
• Whether the assessee was denied proper opportunity of hearing through video conferencing as requested.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to deduction under section 80P(2)(d) for interest income from co-operative banks

Relevant legal framework and precedents:

Section 80P(2)(d) of the Income-tax Act provides deduction to a co-operative society in respect of income by way of interest on securities issued by, or deposits with, other co-operative societies. Section 80P(4) restricts such deduction in certain circumstances, particularly relating to co-operative banks.

Precedents considered include:

• Kerala State Cooperative Agricultural and Rural Development Bank Ltd v. Assessing Officer (Supreme Court) [2023] 458 ITR 384
• PCIT v. Ashwinkumar Arban Co-operative Society Ltd [2024] 168 taxmann.com 314 (Gujarat High Court)
• PCIT v. Shree Madhi Vighag Khand Udyog Sahakari Mandli Ltd [2025] 171 taxmann.com 22 (Gujarat High Court)
• Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Limited (Supreme Court, Civil Appeal No. 8719/2022 dated 20/04/2023)
• Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd v. ACIT [2022] 140 taxmann.com 602 (Gujarat High Court)

Court's interpretation and reasoning:

The Tribunal noted that the assessee is a credit co-operative society registered under the Maharashtra State Cooperative Act, 1960, which provides credit facilities only to its members and does not hold a banking license under the Banking Regulation Act, 1949. The interest income in question was earned from fixed deposits with other co-operative banks/societies.

The Tribunal distinguished the facts of this case from the Katlary Kariyana Merchant case relied upon by the Revenue, where the interest income was from both co-operative banks and nationalized banks, and the deduction was disallowed. In the instant case, the interest income was solely from co-operative banks.

The Tribunal relied heavily on the Supreme Court's decision in Kerala State Cooperative Agricultural and Rural Development Bank Ltd, which clarified that a co-operative bank is a co-operative society and not a bank under the Banking Regulation Act. Therefore, the restriction under section 80P(4) does not apply to such entities.

Further, the Tribunal relied on the Supreme Court's ruling in Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Limited, which held that the assessee, not being a co-operative bank under the Banking Regulation Act, is entitled to exemption under section 80P(2).

The Gujarat High Court decisions in PCIT v. Ashwinkumar Arban and PCIT v. Shree Madhi Vighag Khand Udyog Sahakari Mandli Ltd were cited to reinforce the view that interest income earned from investments in co-operative banks is eligible for deduction under section 80P(2)(d).

Key evidence and findings:

The interest income was detailed as accrued and received from various co-operative banks such as Bassein Catholic Co-operative Bank, Thane District Co-operative Bank, Vasai Janta Sahakari Bank Ltd, and Vasai Vikas Sahakari Bank. The assessee did not earn interest from non-members or nationalized banks, and did not provide loans to non-members.

Application of law to facts:

Since the interest income was exclusively from co-operative banks, which are themselves co-operative societies, the deduction under section 80P(2)(d) is applicable. The restriction under section 80P(4) does not apply as the assessee is not a co-operative bank regulated under the Banking Regulation Act.

Treatment of competing arguments:

The Revenue's argument was that section 80P(4) restricts the deduction of interest from co-operative banks under section 80P(2)(d). The Tribunal rejected this by relying on the Supreme Court's authoritative rulings and distinguishing the facts of the cited cases.

Conclusion:

The Tribunal concluded that the assessee is entitled to claim deduction under section 80P(2)(d) for interest income earned from investments in co-operative banks and quashed the addition made by the Assessing Officer.

Issue 2: Disallowance of deduction under section 80P(2)(a)(i) and 80P(2)(d) by the Assessing Officer and CIT(A)

Relevant legal framework and precedents:

Section 80P(2)(a)(i) provides deduction in respect of income from credit facilities given to members by a co-operative society. Section 80P(2)(d) provides deduction for income by way of interest on securities or deposits with other co-operative societies.

Court's interpretation and reasoning:

The CIT(A) observed that the assessee inadvertently claimed deduction under section 80P(2)(a)(i) which should have been claimed under section 80P(2)(d) for interest and dividend from co-operative banks. The CIT(A) allowed the deduction under section 80P(2)(a)(i) for income from credit facilities but disallowed the deduction under section 80P(2)(d) for interest income from co-operative banks based on the restriction under section 80P(4).

The Tribunal, however, held that the deduction under section 80P(2)(d) is allowable as explained above and allowed the claim in full, quashing the addition made.

Key evidence and findings:

The assessee's return showed nil income but claimed deductions under both sections. The AO made additions on a pro-rata basis. The CIT(A) partly allowed and partly disallowed the claims.

Application of law to facts:

The Tribunal applied the legal position that the interest income from co-operative banks qualifies for deduction under section 80P(2)(d) without restriction under section 80P(4), and hence the disallowance was incorrect.

Treatment of competing arguments:

The Tribunal rejected the CIT(A)'s application of section 80P(4) restriction to the interest income from co-operative banks, relying on Supreme Court and High Court rulings.

Conclusion:

The Tribunal allowed the deduction claimed under both sections 80P(2)(a)(i) and 80P(2)(d) fully in favour of the assessee.

Issue 3: Denial of proper opportunity of hearing through video conferencing

Relevant legal framework:

Principles of natural justice require that the assessee is given a fair opportunity to present their case, including through video conferencing if requested.

Court's interpretation and reasoning:

The Tribunal noted the ground raised but did not elaborate on this issue in the order, implying that this point was either not pressed or found to be without merit or adequately addressed.

Conclusion:

No adverse finding was recorded against the assessee on this ground.

3. SIGNIFICANT HOLDINGS

"Section 80P(2)(d) provides for deduction of interest received by a Co-operative Society from another Co-operative Society. A Co-operative Society being a Co-operative Society fits into the permissible provisions of the deductions."

"The Hon'ble Apex Court categorically stated that co-operative bank is the co-operative society and not acted as Bank under Banking Regulation Act, 1949."

"The interest earned from investment in co-operative bank is allowable deduction under section 80P(2)(d) of the Act."

"Section 80P(4) shall not be applicable as the respondent/Assessee cannot be said to be Co-operative Bank/Bank and, therefore, Section 80P(2) benefit is available."

"The appeals filed by the appellant are allowed and the order(s) of the Kerala High Court and other authorities to the contrary are set aside."

The Tribunal conclusively held that the assessee, being a credit co-operative society and not a co-operative bank under the Banking Regulation Act, is entitled to claim deduction under section 80P(2)(d) for interest income earned from investments in co-operative banks. The restriction under section 80P(4) does not apply. Consequently, the additions made by the Revenue were quashed and the appeals were allowed.