In a recent judgement, the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that interest income derived by a co-operative society from any other co-operative bank is allowable as a deduction under section 80P(2)(d) of the Income Tax Act, 1961.
Reserve Bank Staff and Officers Co-op Credit Society Ltd, the appellant assessee challenged the issue of allowability of deduction under Section 80P(2)(a) or 80P(2)(d) of the Income-tax Act, 1961 (the Act) of Interest income earned by the assessee from the cooperative banks.
The assessee filed its return of income on 27th September 2013, declaring total income at ₹ nil. After scrutiny, the Income was assessed at ₹5,98,430/-. The assessee has claimed deduction under Section 80P(2) of the Act on interest income amounting to ₹257,97,789/- and the same was allowed. The Assessing Officer was of the view that the assessee has earned income from co-operative banks and not from co-operative societies on which deduction under Section 80P(2)(d) of the Act is not available and therefore, notice under Section 148 of the Act was issued.
The assessee reiterated its return of income on 15th April 2019. During the hearing, the assessee was given a show cause notice stating that in the computation of total income, the assessee has claimed a deduction under Section 80P of the Act on interest income from co-operative banks amounting to ₹257,97,789/-, which is not allowable. The assessee objected to the reopening of the assessment as well as contested the same on merit.
The Assessing Officer rejected both and denied the deduction under Section 80P (2) (a) as well as (d) of the Act. Accordingly, the assessment order under Section 147 read with Section 143(3) of the Act, wherein the Assessing Officer held that the assessee is a primary co-operative bank and therefore, it is not eligible for deduction under Section 80P(2)(a)(i) of the Act given the specific provisions of Section 2(24)(viia) read with explanation under Section 80P(4) of the Act with effect from 1st April 2007. He also denied deduction under Section 80P (2) (d) of the Act.
It was contested that assessee is eligible for deduction under Section 80P(2)(d) of the Act. The CIT (A) held assessee is eligible for a claim of deduction under Section 80P (2) (d) of the Act and allowed the deduction. He further directed the Assessing Officer to assess the interest earned on the deposits held with scheduled bank/cooperative banks holding licenses issued by the Reserve Bank of India, Commercial Bank and Financial Institutions under the head income from other sources.
The assessee is aggrieved on the issue of reopening the assessment holding that the assessment was reopened due to a change of opinion and in the absence of any tangible material it also challenges the approval granted by the CIT in a mechanical manner and without application of mind.
The assessee is also aggrieved with CIT (A) holding that under Section 80P(2)(a) of the Act only the interest income received from the members would be eligible for deduction. The assessee is also aggrieved by the direction of the CIT (A) that interest income earned from co-operative banks without a banking license only would be eligible for such deduction.
A two-member bench comprising Shri Prashant Maharishi, AM and Shri Rahul Chaudhary, JM observed that any income by way of interest or dividend derived by the cooperative society from its investment with any other cooperative society is also allowable as deduction fully under Section 80P(2)(d) of the Act, the facts are clear that assessee is a co-operative society and co-operative banks are also cooperative societies.
The provisions of Section 80P (4) of the Act specifically deny deduction only to cooperative banks. The assessee is admittedly not a cooperative bank. The Assessing Officer instead of treating the assessee as a credit cooperative society considered the assessee as a primary cooperative bank without any basis.
The Tribunal further held that if the interest is earned from the cooperative banks holding licenses issued by RBI same should be chargeable to tax under the head income from other sources.
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