2025 (6) TMI 213 - AT - Income Tax

Deduction u/s.80P(2)(d) - interest income received from a Co-operative Bank - whether the co-operative bank was to be treated as co-operative societies for the purpose of allowing deduction u/s.80P(2)(d)? - HELD THAT - We find that this issue stands settled by the order of Ashwinkumar Arban Co-Operative Society Ltd 2024 (11) TMI 971 - GUJARAT HIGH COURT wherein it was held that the deduction of u/s 80P(2)(d) of the Act is available to the cooperative societies on the income earned as interest on the investment made with the cooperative bank which in turn is a cooperative society itself. Decided in favour of assessee.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the deduction claimed under section 80P(2)(f) of the Income-tax Act, 1961, instead of section 80P(2)(d), can be disallowed purely on a technical ground without examining the substantive facts of the case.

2. Whether interest income amounting to Rs. 2,10,583/- received from a Co-operative Bank is eligible for deduction under section 80P(2)(d) of the Income-tax Act.

3. Whether transfer fees amounting to Rs. 1,50,000/- received from members can be exempted on the ground of mutuality.

Issue-wise Detailed Analysis:

Issues 1 and 2: Deduction under Section 80P(2)(d) for Interest Income from Co-operative Bank

Relevant Legal Framework and Precedents: Section 80P(2)(d) of the Income-tax Act provides for deduction in respect of income earned by co-operative societies from interest on investments made with other co-operative societies. Section 80P(4) excludes cooperative banks from the benefit of section 80P if they are liable to pay tax under the Act. The controversy relates to whether a cooperative bank qualifies as a cooperative society for the purpose of section 80P(2)(d).

The Tribunal relied heavily on the decision of the Hon'ble jurisdictional High Court in a recent ruling which clarified that cooperative banks registered under the Gujarat State Cooperative Societies Act are indeed cooperative societies. This decision was supported by earlier rulings including Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. v. Asstt. Commissioner of Income Tax and State Bank of India v. Commissioner of Income Tax, which held that income earned by cooperative societies from interest on investments made with cooperative banks (which are themselves cooperative societies) is eligible for deduction under section 80P(2)(d).

The Revenue's reliance on Karnataka High Court and Supreme Court decisions was examined and distinguished. The Karnataka High Court's interpretation was based on amendments to section 194A(3)(v) relating to Tax Deducted at Source (TDS) and did not exclude cooperative banks from the definition of cooperative societies for section 80P purposes. The Tribunal noted that section 194A(3) exempts cooperative societies other than cooperative banks from TDS, implying cooperative banks remain cooperative societies for other provisions.

The applicability of section 80P(4), which excludes cooperative banks from deduction if they pay tax, was also analyzed. The Tribunal observed that this exclusion applies only if the cooperative bank is liable to pay tax under the Act. Since the cooperative bank in question was not liable to pay tax, section 80P(4) did not apply to disentitle the assessee from claiming deduction under section 80P(2)(d).

The Apex Court's ruling in Kerala State Co-operative Agricultural & Rural Development Bank Ltd. v. Assessing Officer was cited, which held that section 80P(4) does not apply to cooperative banks that are not banks under the Banking Regulation Act, 1949.

Court's Interpretation and Reasoning: The Tribunal concluded that the cooperative bank is a cooperative society registered under the Gujarat State Cooperative Societies Act. Therefore, the interest income earned by the assessee from the cooperative bank qualifies for deduction under section 80P(2)(d). The Tribunal emphasized that the revisional powers invoked under section 263 by the Principal Commissioner were not justified as the assessment was neither erroneous nor prejudicial to the revenue.

Key Findings and Application of Law to Facts: The Tribunal accepted the assessee's claim of deduction under section 80P(2)(d) despite the initial technical error of claiming it under section 80P(2)(f) in the return. The Tribunal prioritized substantive merit over procedural technicalities.

Treatment of Competing Arguments: The Tribunal carefully distinguished the Revenue's reliance on other High Court and Supreme Court decisions, clarifying that amendments related to TDS provisions do not affect the applicability of section 80P(2)(d) to cooperative banks. The Tribunal rejected the contention that cooperative banks are excluded from cooperative societies for the purpose of section 80P deductions.

Conclusion: Grounds 1 and 2 were allowed, holding that the deduction under section 80P(2)(d) is rightly claimable on interest income from the cooperative bank.

Issue 3: Exemption of Transfer Fees on Mutuality Grounds

Relevant Legal Framework: The principle of mutuality exempts income arising from transactions among members of a mutual association from taxation, provided the receipts are not in the nature of profit or gain but are for the common benefit of the members.

Court's Interpretation and Reasoning: The Tribunal held that the transfer fees received from members by the cooperative housing society were validly exempt on the ground of mutuality. This aligns with established principles that fees or receipts from members for common utility services or transfers within the society do not constitute taxable income.

Application of Law to Facts: The transfer fees amounting to Rs. 1,50,000/- were received from members and were claimed as exempt. The Tribunal upheld this claim, finding no reason to treat such receipts as taxable income.

Treatment of Competing Arguments: No contrary arguments were detailed in the order, indicating acceptance of the mutuality principle as applicable.

Conclusion: The exemption claim on mutuality grounds was allowed.

Significant Holdings:

"Section 80P(2)(d) is available to cooperative societies on income earned as interest on investment made with cooperative bank which in turn, is a cooperative society itself."

"The exclusion of applicability of section 80P to cooperative banks by section 80P(4) would not disentitle the respondent-assessee from claiming deduction under section 80P(2)(d) in absence of any amendment in said section."

"The provisions of section 80P(2)(d) would be applicable in the facts of the case and the Principal Commissioner was not justified in invoking revisional powers under section 263."

"The transfer fees received from members are exempt on the principles of mutuality."

The Tribunal emphasized substance over form, allowing the deduction despite the initial technical misclassification under the wrong sub-section. It reaffirmed the settled legal position that cooperative banks registered under the Cooperative Societies Act qualify as cooperative societies for section 80P(2)(d) deduction purposes, and that mutuality principles exempt transfer fees received from members.