2025 (2) TMI 1212 - AT - Income Tax

Eligible for deduction u/s 80P(2)(d) or 80P(2)(a)(i) - interest income earned out of fixed deposits/investments with other co-operative societies - HELD THAT - As perused the order of 2024 (8) TMI 879 - ITAT PUNE on perusal of provisions of section 80P(2)(d) it is clear that the income derived by a cooperative society from its investment held with other cooperative societies shall be exempt from the total income of a cooperative society. Therefore what is relevant for claiming of deduction u/s 80P(2)(d) is that interest income should have been derived from the investment made by the assessee cooperative society with any other cooperative society. This issue was considered in Totagars Cooperative Sale Society 2017 (1) TMI 1100 - KARNATAKA HIGH COURT wherein after referring to the decision of Totgar s Co-operative Sale Society Ltd. 2010 (2) TMI 3 - SUPREME COURT held that the ratio of decision of the Hon ble Supreme Court is not to be applicable in respect of interest income on investment as same falls under the provisions of section 80P(2)(d) and not u/s 80P(2)(a)(i) of the Act. In the light of this discussion interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks qualifies for deduction under the provisions of section 80P(2)(d) - Appeal of the assessee is allowed.

Summary

ISSUES:

Whether interest income earned by a co-operative society from deposits/investments with co-operative banks is eligible for deduction under section 80P(2)(a)(i) or 80P(2)(d) of the Income Tax Act, 1961.Whether the interest income from such deposits is attributable to the business activities of providing credit facilities to members and thus qualifies for exemption under section 80P.

RULINGS / HOLDINGS:

The Court held that the interest income earned by the co-operative society from deposits with co-operative banks qualifies for deduction under section 80P(2)(d) of the Act, as such income is derived from investments made with other co-operative societies.The Court rejected the earlier view that deduction under section 80P is disallowed on interest earned from deposits with co-operative banks, distinguishing the Supreme Court decision in Totgars Co-operative Sale Society Ltd. Vs. ITO on the basis that it applies to section 80P(2)(a)(i) and not section 80P(2)(d).The Court set aside the order of the Commissioner of Income Tax (Appeals) and allowed the appeal, confirming that the deduction claimed under section 80P(2)(d) is valid for the interest income earned from co-operative banks.

RATIONALE:

The Court relied on the statutory provisions of section 80P(2)(d) of the Income Tax Act, which exempts income derived by a co-operative society from investments held with other co-operative societies.The Court followed the decision of the co-ordinate bench of the Tribunal and the Karnataka High Court in CIT vs. Totagars Cooperative Sale Society, which held that the Supreme Court decision in Totgars Co-operative Sale Society Ltd. Vs. ITO does not apply to interest income under section 80P(2)(d).The Court emphasized that the relevant criterion is that the income should be derived from investments made with other co-operative societies, which includes co-operative banks as a species of co-operative society.No contrary material was presented by the Revenue to rebut the applicability of section 80P(2)(d) to the interest income in question.