2025 (5) TMI 1569 - AT - Income Tax

Deduction u/s 80P(2)(d) - interest income earned by the assessee from Co-operative Banks - HELD THAT - Though the co-operative bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act but however since a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act 1912 (2 of 1912) or under any other law for the time being enforced in any state for the registration of cooperative societies therefore the interest income derived by a cooperative society from its investments held with a co-operative bank would be entitled for claim of deduction under Sec.80P(2)(d) of the Act. We hold that assessee is entitled to claim of deduction u/s. 80P(2)(d) towards interest earned on deposits with cooperative banks. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the deduction claimed under section 80P(2)(d) of the Income-tax Act, 1961, in respect of interest income earned by a co-operative housing society from deposits with co-operative banks is admissible?

(b) Whether the appeal filed by the assessee before the Commissioner of Income Tax (Appeals) was barred by limitation and if so, whether the delay in filing the appeal should be condoned?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (b): Limitation and Condonation of Delay

Relevant legal framework and precedents: Section 249(3) of the Income-tax Act and Section 5 of the Limitation Act, 1963, provide that an appeal may be admitted after the expiry of the prescribed period if the appellant satisfies the authority that there was "sufficient cause" for the delay. Judicial pronouncements emphasize a liberal and justice-oriented approach in construing "sufficient cause."

The Tribunal relied on the Supreme Court decisions in Collector Land Acquisition v. Mst. Katiji (1987 AIR 1353) and N. Balakrishnan v. M. Krishnamurthy, which emphasize that:

Delay should be condoned liberally to avoid injustice.
The doctrine of "every day's delay must be explained" should be applied pragmatically.
There is no presumption that delay is deliberate or mala fide.
Rules of limitation are meant to prevent dilatory tactics, not to destroy rights.

Court's interpretation and reasoning: The Tribunal noted that the assessee had delayed filing the appeal before the CIT(A) by 206 days. The assessee explained that it was unaware of the demand due to non-receipt of proper notice and was awaiting the outcome of rectification applications under section 154. The CIT(A) had rejected the condonation application without considering these facts.

The Tribunal held that such explanation qualifies as "sufficient cause" and delay must be condoned to enable adjudication on merits, citing the principle that substantial justice prevails over technicalities.

Application of law to facts: The Tribunal condoned the delay, allowing the appeal to be heard on merits.

Treatment of competing arguments: The Revenue argued that the appeal was barred by limitation and should be dismissed. The Tribunal rejected this, emphasizing the liberal approach to condonation and the absence of mala fide or deliberate delay.

Conclusion: The delay in filing the appeal was condoned, and the appeal was admitted for substantive adjudication.

Issue (a): Eligibility of Deduction under Section 80P(2)(d)

Relevant legal framework and precedents: Section 80P(2)(d) of the Income-tax Act provides deduction to co-operative societies for income by way of interest or dividends received from investments in other co-operative societies. The issue was whether interest income earned by a co-operative housing society from deposits with a co-operative bank qualifies for deduction under this section.

The Tribunal extensively referred to the judgment of the Hon'ble High Court of Karnataka in Pr. Commissioner of Income Tax v. Totagars Cooperative Sale Society Limited (2017) 392 ITR 74, which held that a co-operative bank is a species of the genus "co-operative society." Therefore, interest income from a co-operative bank qualifies for deduction under section 80P(2)(d).

It was also noted that the Banking Regulations Act, 1949, defines a primary co-operative bank as a co-operative society, reinforcing this interpretation.

The Tribunal distinguished the Supreme Court decision in Totagars Cooperative Sale Society Ltd. v. ITO (2010) 322 ITR 283, which dealt with section 80P(2)(a)(i) and not section 80P(2)(d), and thus was not applicable to the present facts.

The Tribunal further relied on various coordinate bench decisions of the ITAT Mumbai and other High Courts, including the Hon'ble High Court of Gujarat in State Bank of India v. CIT, which supported the view that interest income earned by a co-operative society from co-operative banks is eligible for deduction under section 80P(2)(d).

CBDT Circular No. 14 dated 28.12.2006 was cited to clarify that the insertion of sub-section (4) in section 80P was intended to deny deduction to co-operative banks themselves under section 80P(4), but did not affect the entitlement of co-operative societies earning interest from co-operative banks under section 80P(2)(d).

Court's interpretation and reasoning: The Tribunal held that the term "co-operative society" is broad and includes co-operative banks as a species. Hence, income by way of interest earned by a co-operative society from deposits with co-operative banks is eligible for deduction under section 80P(2)(d).

The Tribunal rejected the Revenue's contention that the co-operative bank is not a co-operative society for this purpose and that the deduction should be denied.

Key evidence and findings: The assessee was a registered co-operative housing society with 57 members, earning interest income from Mumbai District Central Co-operative Bank. The Tribunal found no dispute that the bank was a co-operative bank registered under the relevant law.

Application of law to facts: Applying the legal principles and precedents, the Tribunal held that the assessee's claim for deduction under section 80P(2)(d) on interest income from the co-operative bank was valid and rightly claimed.

Treatment of competing arguments: The Revenue relied on the CIT(A)'s order and the Supreme Court decision in Totagars Cooperative Sale Society Ltd. (2010), which was held to be distinguishable and inapplicable as it related to a different sub-section. The Tribunal also rejected reliance on certain ITAT orders which pertained to co-operative banks claiming deduction under section 80P(2)(a)(i), not relevant to the present case.

Conclusions: The Tribunal allowed the appeal on merits, deleted the disallowance, and held that the assessee was entitled to the deduction under section 80P(2)(d) for interest income earned from co-operative banks.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following crucial legal determinations:

On limitation and condonation of delay:

"The words 'sufficient cause' under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice... There is no presumption that delay in approaching the court is always deliberate... If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor."

On the interpretation of section 80P(2)(d):

"The word 'co-operative society' are the words of a large extent, and denotes a genus, whereas the word 'co-operative bank' is a word of limited extent, which merely demarcates and identifies a particular species of the genus 'co-operative societies'. Co-operative society can be of different nature, and can be involved in different activities; the Co-operative Society Bank is merely a variety of the Co-operative Societies."

"The interest which the assessee had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the IT Act, the said amount of interest earned from a Co-operative Society Bank would be deductible from the gross income of the Co-operative Society in order to assess its total income."

"The decision of the Hon'ble Supreme Court in the case of The Totagar Cooperative Sales Society Limited v. ITO has no application to the facts of the present case as it dealt with a different sub-section."

"Though the co-operative bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, however, since a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 or under any other law, the interest income derived by a co-operative society from its investments held with a co-operative bank would be entitled for claim of deduction under Sec.80P(2)(d) of the Act."

"Considering the factual matrix in the present case which are akin to the judicial precedents dealt above, we hold that assessee is entitled to claim of deduction u/s. 80P(2)(d) towards interest earned on deposits with cooperative banks. Accordingly, the disallowance made is deleted and appeal of the assessee is allowed."

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