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2025 (5) TMI 355 - AT - Income TaxDeduction raised u/s 80P(2)(d) - interest income earned from investment with Cooperative Banks - HELD THAT - Tribunal in Pathare Prabhu Cooperative Housing Society Ltd. 2023 (7) TMI 1272 - ITAT MUMBAI considering the relevant provisions of the law and judgments concerning the issue ultimately allowed identical deduction claimed u/s 80P(2)(d). Decided in favour of assessee.
The core legal question considered in this appeal is whether the interest income earned by a Cooperative Housing Society from its deposits or investments in various Cooperative Banks is eligible for deduction under section 80P(2)(d) of the Income Tax Act, 1961 ("the Act"). Specifically, the issues revolve around:
Issue-wise Detailed Analysis: 1. Eligibility of Deduction under Section 80P(2)(d) for Interest Income from Cooperative Banks Relevant legal framework and precedents: Section 80P(1) allows deduction of income referred to in subsection (2) to cooperative societies. Section 80P(2)(d) specifically provides deduction for "any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society." The term "co-operative society" is defined under section 2(19) as a society registered under the Cooperative Societies Act or any other law for registration of cooperative societies in any state. In the present case, the assessee is a Cooperative Housing Society registered under the Maharashtra Cooperative Societies Act, 1960. The interest income in question was earned from deposits with various cooperative banks registered under the same Act. Judicial precedents considered include the Tribunal's decision in Pathare Prabhu Cooperative Housing Society Ltd. (2023), which allowed identical deduction claims under section 80P(2)(d) for interest income from cooperative banks. The Supreme Court's ruling in Mavilayi Service Cooperative Bank Ltd. (2021) was also pivotal, clarifying that section 80P(4) excludes only those cooperative banks which are licensed by the Reserve Bank of India (RBI) to conduct banking business akin to commercial banks, and that the proviso in section 80P(4) does not apply to cooperative societies other than such banks. Court's interpretation and reasoning: The Tribunal analyzed the language of section 80P(2)(d) and found that two cumulative conditions must be met: (i) the income must be interest or dividend, and (ii) it must be derived from investments in another cooperative society. Since all cooperative banks are cooperative societies but not all cooperative societies are banks, the interest income earned by the assessee from cooperative banks registered as cooperative societies qualifies for deduction. The Tribunal rejected the AO's and CIT(A)'s reliance on section 80P(4) to deny the deduction, explaining that section 80P(4) is a proviso to exclude cooperative banks functioning as commercial banks, which is not the case here. The assessee is a cooperative housing society, not a cooperative bank, and the banks in question are registered cooperative societies under state law. Key evidence and findings: The interest income amounting to Rs. 17,75,190/- was earned from deposits in four cooperative banks. The assessee's registration under the Maharashtra Cooperative Societies Act and the nature of the banks as cooperative societies were undisputed. Application of law to facts: Applying the statutory provisions and judicial precedents, the Tribunal found the assessee's claim squarely fits within the ambit of section 80P(2)(d). The interest income from cooperative banks, being cooperative societies, is deductible. Treatment of competing arguments: The AO and CIT(A) argued that section 80P(4) excludes cooperative banks from deduction, relying on a Karnataka High Court decision in Pr.CIT v. Totagars Co-operative Sales Society (2017) which denied deduction for interest from cooperative banks. However, the Tribunal noted that the same High Court had earlier taken an opposite view in a prior decision. Given this divergence, the Tribunal applied the Supreme Court's principle from CIT v. Vegetable Products Ltd. (1972) that when two reasonable interpretations exist, the one favorable to the assessee should prevail. Conclusions: The Tribunal concluded that the interest income earned by the assessee from cooperative banks is eligible for deduction under section 80P(2)(d) of the Act. The disallowance by the AO and CIT(A) was set aside. 2. Interpretation and Scope of Section 80P(4) Relevant legal framework and precedents: Section 80P(4) excludes cooperative banks that hold a license from the RBI to carry on banking business from claiming deduction under section 80P. The Supreme Court in Mavilayi Service Cooperative Bank Ltd. clarified that this exclusion applies only to cooperative banks functioning as commercial banks lending to the public. Court's interpretation and reasoning: The Tribunal held that section 80P(4) is a proviso to the main section 80P(1) and (2), and it excludes deduction only for cooperative banks that are licensed and operate like commercial banks. Since the assessee is not a cooperative bank, but a cooperative housing society, and the banks involved are cooperative societies registered under state law, section 80P(4) does not apply to deny deduction. Key evidence and findings: No evidence suggested that the cooperative banks in question were licensed by RBI or operated as commercial banks. Application of law to facts: The Tribunal applied the Supreme Court's reasoning and distinguished the present facts from those cooperative banks excluded under section 80P(4). Treatment of competing arguments: The AO and CIT(A) relied on section 80P(4) to deny deduction; the Tribunal rejected this reliance as misplaced. Conclusions: Section 80P(4) does not apply to the assessee's claim; hence, the deduction under section 80P(2)(d) stands. 3. Precedential Value and Conflicting Judicial Decisions Relevant legal framework and precedents: The Tribunal noted conflicting decisions by the Karnataka High Court on the same issue, with one decision denying deduction and another allowing it. The Tribunal referred to the Supreme Court's principle that where two reasonable constructions are possible, the one favorable to the assessee must be adopted. Court's interpretation and reasoning: The Tribunal emphasized the need to follow a consistent and favorable interpretation in the absence of binding jurisdictional High Court rulings against the assessee's claim. Key evidence and findings: The Tribunal relied on the coordinate bench decisions and the Supreme Court's guidance. Application of law to facts: The Tribunal applied the principle to resolve the conflict in favor of the assessee. Treatment of competing arguments: The Tribunal respectfully declined to follow the unfavorable High Court decision and instead followed the favorable precedent and principle. Conclusions: The assessee's claim for deduction was upheld. Significant Holdings: "Section 80P(2)(d) of the Income Tax Act provides that income by way of interest or dividends derived by a cooperative society from its investments with any other cooperative society shall be allowed as a deduction." "Section 80P(4) is a proviso to the main provision contained in section 80P(1) and (2) and excludes only cooperative banks which are cooperative societies licensed by the Reserve Bank of India to do banking business at par with commercial banks." "The limited object of section 80P(4) is to exclude cooperative banks that function at par with other commercial banks, i.e., which lend money to members of the public." "All cooperative banks are cooperative societies but vice versa is not true; therefore, interest income earned by a cooperative society from cooperative banks is eligible for deduction under section 80P(2)(d)." "Where two reasonable constructions of a taxing provision are possible, the construction which favors the assessee must be adopted." The final determination was that the assessee's interest income from cooperative banks is deductible under section 80P(2)(d), and the addition made by the Assessing Officer and affirmed by the Commissioner (Appeals) was set aside.
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