WHETHER THE CO-OPERATIVE SOCIETY IS ENTITLED FOR DEDUCTION FOR THE INTEREST RECEIVED FROM CO-OPERATIVE BANK?

[Mr. M. GOVINDARAJAN]

Co-operative society

The expression ‘Co-operative Society’ is defined under section 2(19) of the Income Tax Act, 1961 (‘Act’ for short) as a co-operative society registered under the Co-operative Societies Act, 1912, or under any other law for the time being in force in any State for the registration of co-operative societies.

Deduction

Section 80(2)(d) of the Act provides that where in the case of an assessee being a co-operative society  the gross total income includes any income in respect of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income shall be deducted in computing the income of the assessee.  From the reading of the said provision makes it clear that in the event if any Co-operative Society derived income by way of interest from investment made in any other Co-operative Society the whole such interest is eligible for deduction.    

It is clear from the above said provisions that in the event if any Co-operative Society derived income by way of interest from investment made in any other Co-operative Society the whole such interest is eligible for deduction.

Issue

The issue to be discussed in this article is as to whether the Co-operative Bank would fall within the purview of the term 'Co-operative Society' with reference to decided case law.

Case law

In THORAPADI URBAN CO-OP CREDIT SOCIETY LIMITED REP. BY ITS SECRETARY MR. R.M. DAMODARAN, VIRUPACHIPURAM URBAN CO-OP CREDIT SOCIETY LIMITED REP. BY ITS SECRETARY MR. K. THIRUNAVUKARASU VERSUS INCOME TAX OFFICER WARD 1, TAMIL NADU - 2023 (11) TMI 779 - MADRAS HIGH COURT , the writ petitions filed the present four writ petitions before the High Court, Madras.  The writ petitions were filed as per details below-

• WP No. 11172 of 2023 - notices issued under section 148(A)(b), 148(A)(d) and under section 148 for the assessment year 2016 - 17 - PAN No. AACAT7809B;
• WP No. 11174 of 2023 - notices issued under section 148(A)(b), 148(A)(d) and under section 148 for the assessment year 2017-18 - PAN No. AACAT7809B;
• WP No. 11177 of 2023 - notices issued under section 148(A)(b), 148 (A) (d) and under section 148 for the assessment year 2016 - 17 - PAN No. AABAC2040G;
• WP No. 11180 of 2023 - notices issued under section 148(A)(b), 148 (A) (d) and under section 148 for the assessment year 2017 - 18 - PAN No. AABAC2040G.

The writ petitioners prayed the High Court to quash the impugned notices as arbitrary, unjust and illegal and to consequently forbear the respondent or its superiors, subordinates, agents etc from in any manner reassessing the petitioner's income under Section 147 of the Act, 1961.

The High Court considered the main issue to be decided in these writ petitions is as to whether the petitioners are entitled to deduction under section 80P(2)(d) of the Act.  The writ petitioners submitted the following before the High Court-

• They have made investments with the Cooperative Bank from which, they received interest and therefore they are entitled to claim deduction under section 80P (2) (d).
• The respondent in the impugned notices has stated that the petitioners /Society are not entitled for deduction holding that the deduction available in the above provision is only for the income and interest received from the Co-operative Society and not from the Co-operative Bank.
• Any interest received from any Co-operative Society including the Co-operative Bank are entitled for the deduction under Section 80P(2)(d).
• Without taking into consideration of meaning of Co-operative Societies under the wrong impression that the interest received from the Co-operative Bank is not liable for deduction under Section 80P(2)(d), the respondent Department disallowed the deduction.

The Department submitted the following before the High Court-

• The petitioner received the income from the Co-operative Bank and as per the provisions of the Act any income received from the Co-operative Bank is not eligible for deduction under Section 80P(2)(d) of the Act.
• The Co-operative Bank lost the status as an entity of Co-operative Society as it would provide the services not only for the members of a Co-operative society but to other general public as well.

The High Court considered the arguments of both the sides.  The High Court analyzed the provisions of Section 80P(2)(d) of the Act.  The High Court observed that if any Co-operative Society derived income by way of interest from investment made in any other Co-operative Society the whole such interest is eligible for deduction.   The investment made by the petitioner is a Co-operative Bank registered under the Co-operative Societies Act.  The High Court analyzed the definition of ‘Co-operative Society’ under section 2(19) of the Act.  The High Court observed that a Co-operative Society referred therein is only a co-operative society as defined under the Act, be it a Co-operative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Co-operative bank.

The High Court also analyzed the judgment in M/S. THE TOTGARS´ COOPERATIVE SALE SOCIETY LIMITED VERSUS INCOME TAX OFFICER. KARNATAKA - 2010 (2) TMI 3 - SUPREME COURT, relied on by the Department. The High Court observed that the eligibility of deduction of interest has to be decided under Section 80P(2)(d) and not under Section 80P(2)(a)(i).

The High Court held that since the impugned orders are passed without considering all these aspects,  the same are liable to be set aside. Accordingly, the Writ Petitions were allowed by the High Court.