2025 (6) TMI 1210 - AT - Income Tax

Deduction u/s 80P(2)(d) - Denying the deduction of interest income from Central Co-operative Bank - assessee s case is that it has received interest from Central Co-operative Bank which is basically a Co-operative Society therefore the income by way of interest derived by it from its investment with Central Co-operative Bank/Society is exempt under subclause (d) of sub-section 2 of section 80P HELD THAT - We are of the view that interest earned by assessee from another Co-operative Society which in this case a Co-operative Society/Bank is eligible u/s. 80P(2)(d) of the Act unless the Ld.CIT(A)/AO could show that the Co-operative Bank ( from which assessee earned interest on its deposits ) is not basically a Co-operative Society. Therefore in the instant case we are of the view that the deduction claimed by the assessee can t be denied; and for such a proposition we rely on the decision of Mavilayi Service Co-operative Bank Ltd. Others. 2021 (1) TMI 488 - SUPREME COURT . We hold that unless the assessee earns interest income from a Co-operative Bank which is not basically a Co-operative Society the assessee can t be denied the deduction u/s. 80P of the Act which is a benevolent provision enacted by the Parliament to encourage and promote the co-operative sector in general and therefore must be read liberally and reasonably and if there is ambiguity in favour of the assessee. A deduction that is given without any reference to any restriction or limitation can t be restricted or limited by implication. Therefore the Ld.CIT(A) ought not to have denied the claim of assessee. Therefore we set-aside the impugned order of CIT(A) and direct the AO to allow the deduction claimed by the assessee u/s. 80P(2)(d) - Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

• Whether the interest income of Rs. 1,05,15,757/- earned by the assessee from the Central Co-operative Bank qualifies for deduction under section 80P(2)(d) of the Income Tax Act, 1961.
• Whether the Central Co-operative Bank, from which the interest income was derived, is a "co-operative society" within the meaning of section 80P of the Act, thereby entitling the assessee to claim deduction on such interest income.
• Whether the denial of deduction by the Assessing Officer (AO) and the Learned Commissioner of Income Tax (Appeals) (Ld.CIT(A)) was justified based on the assessee's failure to prove that the Central Co-operative Bank was primarily a co-operative society.
• Whether the delay in filing the appeal before the Tribunal, which was 95 days beyond the prescribed period, should be condoned.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of Delay in Filing Appeal

Relevant legal framework and precedents: The Tribunal has the discretion to condone delay in filing appeals where sufficient cause is shown, as per established procedural norms under the Income Tax Act and relevant case law.

Court's interpretation and reasoning: The Tribunal examined the affidavit filed by the assessee explaining the cause for delay. Finding the explanation satisfactory and constituting sufficient cause, the Tribunal exercised its discretion to condone the delay.

Application of law to facts: Since the delay was only 95 days and the cause was adequately explained, the Tribunal proceeded to hear the appeal on merits.

Conclusion: Delay in filing the appeal was condoned.

Issue 2: Eligibility of Interest Income from Central Co-operative Bank for Deduction under Section 80P(2)(d)

Relevant legal framework and precedents: Section 80P(1) and (2)(d) of the Income Tax Act provide that a co-operative society is entitled to deduction in respect of income by way of interest or dividends derived from its investments with any other co-operative society. Section 80P(4) excludes certain co-operative banks except primary agricultural credit societies or primary co-operative agricultural and rural development banks. The definitions of "co-operative bank" and "primary agricultural credit society" are as per Part V of the Banking Regulation Act, 1949.

The Supreme Court decision in Mavilayi Service Co-operative Bank Ltd. & Others v. CIT ([2021] 431 ITR 1 (SC)) was relied upon as authoritative precedent affirming that interest income earned from another co-operative society is eligible for deduction under section 80P(2)(d), unless the payer is not a co-operative society.

Court's interpretation and reasoning: The Tribunal noted that the AO and Ld.CIT(A) denied the deduction on the ground that the assessee failed to prove that the Central Co-operative Bank was primarily a co-operative society. The Tribunal emphasized that the burden lies on the AO/Ld.CIT(A) to establish that the bank is not a co-operative society.

The Tribunal observed that section 80P is a benevolent provision enacted to encourage and promote the co-operative sector and must be construed liberally and reasonably. Any ambiguity should be resolved in favour of the assessee.

The Tribunal held that unless it is demonstrated that the Central Co-operative Bank is not a co-operative society, the interest income earned therefrom cannot be denied deduction under section 80P(2)(d).

Key evidence and findings: The assessee claimed that the Central Co-operative Bank is a co-operative society. The AO and Ld.CIT(A) did not produce evidence disproving this assertion, but rather dismissed the claim due to lack of proof from the assessee.

Application of law to facts: Applying the legal provisions and the Supreme Court precedent, the Tribunal found that the interest income qualifies for deduction. The denial by the AO and Ld.CIT(A) was therefore erroneous.

Treatment of competing arguments: The AO and Ld.CIT(A) argued that the assessee failed to prove the co-operative nature of the bank, thus disallowing deduction. The Tribunal rejected this, holding that the onus was on the revenue authorities to disprove the co-operative status, especially given the beneficial nature of the provision.

Conclusion: The deduction under section 80P(2)(d) in respect of Rs. 1,05,15,757/- interest income from Central Co-operative Bank is allowable.

3. SIGNIFICANT HOLDINGS

"Unless the assessee earns interest income from a Co-operative Bank which is not basically a Co-operative Society, the assessee can't be denied the deduction u/s. 80P of the Act, which is a benevolent provision enacted by the Parliament to encourage and promote the co-operative sector in general and therefore, must be read liberally and reasonably and if there is ambiguity in favour of the assessee."

"A deduction that is given without any reference to any restriction, or limitation can't be restricted or limited by implication."

The Tribunal set aside the impugned order of the Ld.CIT(A) and directed the AO to allow the deduction claimed under section 80P(2)(d) of the Act in respect of the interest income of Rs. 1,05,15,757/-.

The Tribunal also held that the delay in filing the appeal was condoned on sufficient cause shown.