2024 (7) TMI 1664 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest income derived from deposits kept with co-operative banks - HELD THAT - Issue deserves to be accepted in light of The Rena Sahakari Sakhar Karkhana Ltd 2022 (1) TMI 419 - ITAT PUNE allowed the assessee s claim for deduction under Sec. 80P(2)(d) on the interest income earned on its investments/deposits with co-operative banks therefore the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 of the Act for dislodging the same. Revenue s appeal is dismissed.

Summary

ISSUES:

Whether interest income earned by a co-operative society from fixed deposits with co-operative banks qualifies for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.Whether subsequent judicial decisions, including those of the Supreme Court and various High Courts, affect the eligibility of such interest income for deduction under section 80P(2)(a)(i).Whether interest income earned by a co-operative society from fixed deposits with co-operative banks is eligible for deduction under section 80P(2)(d) of the Income Tax Act, 1961.Whether the revisional powers under section 263 of the Income Tax Act were validly exercised to disallow the deduction claimed under section 80P(2)(d) on interest income from co-operative banks.

RULINGS / HOLDINGS:

On the issue of deduction under section 80P(2)(a)(i), the Court upheld the CIT(A)'s decision allowing deduction for interest income earned from fixed deposits with co-operative banks, rejecting the Revenue's reliance on the Supreme Court decision in Totgars Co-operative Sale Society and subsequent High Court decisions, as the issue is no longer res-integra following the Tribunal's decision in Rena Sahakari Sakhar Karkhana Ltd.The Court recognized that the interest income from fixed deposits with co-operative banks is assessable under the head "Income from Other Sources" but affirmed that such income qualifies for deduction under section 80P(2)(a)(i) as held by the CIT(A) and supported by recent Tribunal rulings.Regarding deduction under section 80P(2)(d), the Court held that interest income derived by a co-operative society from its investments with any other co-operative society, including co-operative banks registered under the Co-operative Societies Act, is eligible for deduction under section 80P(2)(d).The Court disagreed with the Pr. CIT's view that the insertion of subsection (4) to section 80P excludes co-operative banks from deduction eligibility, clarifying that co-operative banks remain co-operative societies for the purpose of section 80P(2)(d).The Court found that the Assessing Officer's allowance of deduction under section 80P(2)(d) was a plausible view and that the Pr. CIT erred in exercising revisional jurisdiction under section 263 to dislodge that view; hence, the order passed by the Assessing Officer was restored.

RATIONALE:

The Court applied the provisions of section 80P of the Income Tax Act, 1961, particularly subsections (2)(a)(i) and (2)(d), and the amendment by Finance Act 2006 introducing subsection (4) with effect from 01.04.2007.Section 80P(2)(d) allows deduction for income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society. The Court emphasized the statutory definition of "co-operative society" under section 2(19) to include co-operative banks registered under the Co-operative Societies Act or similar state laws.The Court relied on a body of judicial precedents, including decisions of the Hon'ble High Courts of Karnataka and Gujarat, which held that interest income earned by a co-operative society on investments with co-operative banks is eligible for deduction under section 80P(2)(d).In the presence of conflicting High Court decisions, the Court followed the principle laid down by the Hon'ble High Court of Bombay that a view favorable to the assessee should be preferred.The Court noted the CBDT Circular No. 14 dated 28.12.2006, clarifying that the purpose of subsection (4) was to exclude co-operative banks functioning at par with commercial banks from deduction under section 80P(4), but not to exclude interest income derived by co-operative societies from investments in co-operative banks under section 80P(2)(d).The Court held that the revisional powers under section 263 should not be exercised to dislodge a plausible view taken by the Assessing Officer after due verification and deliberation.