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2025 (5) TMI 18 - AT - Income TaxDeduction u/s 80P - Interest and dividend earned by the assessee from the co-operative bank - HELD THAT - The same issue was dealt in the case of Jaimuni Sahkari Patpedhi Maryadit 2025 (3) TMI 1474 - ITAT MUMBAI as held disallowance of deduction u/ 80P(2)(d) is unjustified and the assessee is eligible for deduction u/s 80P(2)(d) of the Act related to interest and dividend earned from co-operative bank. Assessee appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal were: (a) Whether the interest income and dividend earned by a co-operative housing society from investments made with co-operative banks are eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961? (b) Whether co-operative banks qualify as co-operative societies under the definition provided in section 2(19) and section 80P(4) of the Act, thereby entitling the assessee to claim deduction under section 80P(2)(d)? (c) Whether the amendment introduced by Finance Act, 2006, specifically section 80P(4), excludes co-operative banks from the ambit of co-operative societies for claiming deduction under section 80P(2)(d)? (d) The applicability and interpretation of judicial precedents, including decisions of coordinate benches of ITAT and the Hon'ble Supreme Court, on the eligibility of deduction under section 80P(2)(d) for income earned from co-operative banks. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Eligibility of deduction under section 80P(2)(d) for interest and dividend income earned from co-operative banks Relevant legal framework and precedents: Section 80P(2)(d) provides deduction to co-operative societies on income by way of interest or dividend earned from investments made with other co-operative societies. Section 80P(4), inserted by the Finance Act, 2006, excludes co-operative banks from the definition of co-operative societies for the purposes of deduction under section 80P. The term "co-operative society" is defined in section 2(19) as a co-operative society registered under the Co-operative Societies Act, 1912 or any other law for registration of co-operative societies in any state. Several ITAT decisions have held that co-operative banks continue to be co-operative societies under the relevant State Co-operative Societies Acts, and hence interest income earned by a co-operative society from investments in co-operative banks qualifies for deduction under section 80P(2)(d). Key precedents include:
Hon'ble Supreme Court decisions, notably Kerala State Cooperative Agricultural and Rural Development Bank Ltd v. Assessing Officer (2023) and PCIT v. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Limited (2023), clarified that certain co-operative banks do not fall under the definition of banks under the Banking Regulation Act, 1949, and thus can be treated as co-operative societies for the purpose of section 80P. Court's interpretation and reasoning: The Tribunal analyzed the legislative intent behind section 80P(4) and the definition of co-operative society under section 2(19). It noted that although section 80P(4) excludes co-operative banks from certain benefits, co-operative banks continue to be registered under the State Co-operative Societies Act and thus qualify as co-operative societies. The Tribunal relied heavily on the consistent view of coordinate benches of the ITAT and the Hon'ble Supreme Court's recent pronouncements, which held that income earned by a co-operative society from investments in co-operative banks is eligible for deduction under section 80P(2)(d). The Tribunal rejected the Revenue's argument that co-operative banks are excluded under section 80P(4) and emphasized that the activities and registration of co-operative banks under the Co-operative Societies Act distinguish them from commercial banks regulated under the Banking Regulation Act. Key evidence and findings: The assessee, a co-operative housing society, earned interest and dividend income totaling Rs. 15,22,825/- from investments in co-operative banks. The Assessing Officer disallowed the deduction under section 80P(2)(d) on the ground that co-operative banks are excluded under section 80P(4). The CIT(A) upheld this disallowance. The Tribunal examined the nature of the income, the registration status of the co-operative banks, and the legislative provisions. It found that the co-operative banks are registered under the Maharashtra Co-operative Societies Act, 1960, and thus fall within the definition of co-operative societies under section 2(19). Application of law to facts: Applying the legal framework and precedents, the Tribunal concluded that the interest and dividend income earned by the assessee from co-operative banks is eligible for deduction under section 80P(2)(d). The disallowance made by the Assessing Officer and upheld by the CIT(A) was therefore unjustified. Treatment of competing arguments: The Revenue contended that co-operative banks are excluded from the definition of co-operative societies under section 80P(4), relying on the Supreme Court decision in Citizen Co-operative Society Ltd v. ACIT (2017) and the legislative intent to exclude banking activities. The Tribunal distinguished these precedents by noting that the Supreme Court's decision related to the nature of co-operative banks acting as banks under the Banking Regulation Act, whereas the co-operative banks in the present case are registered under the Co-operative Societies Act and do not function as banks under the BR Act. The Tribunal also distinguished judgments relied upon by the CIT(A), such as Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd, on the facts that the assessee's income was solely from co-operative banks, not from nationalized banks, and thus the deduction under section 80P(2)(d) should be allowed. Conclusions: The Tribunal held that the assessee is entitled to claim deduction under section 80P(2)(d) on the interest and dividend income earned from co-operative banks. The disallowance of Rs. 15,22,825/- was quashed. 3. SIGNIFICANT HOLDINGS The Tribunal preserved the following crucial legal reasoning verbatim: "Though the co-operative banks pursuant to the insertion of sub-section (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as 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 in force in any State for the registration of co-operative societies, therefore, 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." "Even otherwise, on merits also and taking into consideration the CBDT Circulars and even the definition of Bank under the Banking Regulation Act, the respondent/Assessee cannot be said to be Co-operative Bank/Bank and, therefore, Section 80(P)(4) shall not be applicable and that the respondent/Assessee shall be entitled to exemption/benefit under Section 80(P)(2) of the Income Tax Act." "In the instant case, although the appellant society is an apex cooperative society within the meaning of the State Act, 1984, it is not a co-operative bank within the meaning of Section 5(b) read with Section 56 of the BR Act, 1949. In the result, the appeals filed by the appellant are allowed and the order(s) of the Kerala High Court and other authorities to the contrary are set aside. Consequently, we hold that the appellant is entitled to the benefit of deduction under Section 80P of the Act." Core principles established:
Final determinations on each issue: The Tribunal allowed the appeal and held that the disallowance of Rs. 15,22,825/- on account of interest and dividend income earned from co-operative banks was unjustified. The assessee is entitled to claim deduction under section 80P(2)(d) of the Income-tax Act, 1961, for the assessment year 2017-18.
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