Co-operative Societies Eligible for Deduction u/s 80P(2)(d) of IT Act on Interest & Dividend received from Co-operative Banks and Societies: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore bench has held that co-operative societies are eligible for deduction under section 80P(2)(d) of the Income Tax Act, 1961 on interest and dividend received from co-operative banks and societies.

The decision came in response to an appeal filed by the Totgars’ Co-operative Sale Society Ltd. against an order passed by the National Faceless Assessment Centre (NFAC), Delhi, for the assessment years 2015-16 to 2018-19.

The appellant, represented by Shri Prakash Hegde, contended that the interest and dividend earned from investments made in cooperative banks and societies should be eligible for deduction under Section 80P(2)(d) of the Income Tax Act.

The appellant’s case revolved around the interpretation of the term “Co-operative Society” and its application to the interest income earned by the appellant from such investments.

The key issue was whether the interest and dividend received by co-operative societies from investments made in other co-operative banks and societies could be considered as income eligible for deduction under the provisions of Section 80P(2)(d) of the Income Tax Act.

The appellant cited the judgment of Karnataka High Court in its own case (2017) 392 ITR 74 that supported their claim, where it was observed that “Co-operative Bank” is merely a variety of the genus “Co-operative Society” and, therefore, interest income derived from such investments should qualify for the deduction.

The appellant thus argued that such income should be eligible for the deduction as cooperative banks are a specific type of cooperative society.

On the other hand, the respondent Revenue, the Assistant Commissioner of Income Tax, Hubli represented by Ms. Neera Malhotra, Commissioner of Income Tax, relied on the decision of the Supreme Court in the appellant’s previous case, Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 188 Taxman 282 wherein it was held that interest income earned by a co-operative society on investments made from retained sale consideration was not eligible for deduction under section 80P(2)(a)(i) or 80P(2)(a)(iii) of the Income Tax Act.

The Revenue argued that the appellant’s case was similar and therefore the interest income should not be eligible for deduction.

The ITAT, after careful analysis of the arguments presented by both parties and considering the conflicting decisions from various high courts, ruled that the interest income earned by a co-operative society on investments made in co-operative banks should indeed be eligible for deduction under Section 80P(2)(d) of the Income Tax Act.

The bench noted that the interest income was attributable to the business of banking and as such qualified for the deduction.

The bench clarified that the interest income in question was not from retained sale consideration but from investments specifically aimed at earning interest.

Furthermore, the ITAT referred to subsequent judgments by the Hon’ble Karnataka High Court and the Hon’ble Gujarat High Court that supported the appellant’s interpretation of the law.

The bench also emphasised that the interest earned by the appellant from commercial banks should be considered under the head “income from other sources” and relief should be granted under section 57 of the Income Tax Act.

In result, the two-member bench comprising Shri Chandra Poojari (Accountant Member) and Smt. Beena Pillai (Judicial Member) partly allowed the appeals of the assessee for statistical purposes.

To Read the full text of the Order CLICK HERE

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