Co-operative Societies Eligible for Exemption u/s 80P(2)(d) of Income Tax Act on interest on investments in Co-operative Banks: ITAT [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT), held that Co-operative Societies are eligible for Exemption under Section 80P(2)(d) of the Income Tax Act, 1961 on the interest income received by it from investments made in Co-operative Banks.

The decision came out when the University of Agricultural Employees House Building Co-operative Society filed a petition challenging disallowance of deduction under Section 80P(2)(d) of the Income Tax Act. Assessee argued that it should be entitled to the deduction as it fulfills the necessary criteria for its applicability.

The assessee is an Employees Housing Co-operative Society that provides credit facilities to its members. The assessee had filed Nil return claiming exemption under section 80P(2)(d) of the Income Tax Act.

The Assessing Officer (AO) denied the exemption relying on the decision of the Supreme Court in the case of Totgar's Co-operative Sale Society Ltd. vs. ITO. The AO held that the assessee is not entitled to the claimed deduction.

The assessee filed an appeal before the CIT(A) wherein AO's decision was upheld rejecting assessee's contentions.

Aggrieved by the order of the CIT(A), assessee filed appeal before the ITAT against the disallowance.

The assessee, represented by P R Suresh, CA submitted that very similar issues have been considered by ITAT in previous cases like M/s. The Jayanagar Co-operative Society Ltd. v. ITO and M/s. Kakkabe VSSN Bank Ltd. v. Pr.CIT and requested to restore the matter to AO for reconsideration.

The assessee argued that a Co-operative Banks should be considered as a Co-operative Society for the purpose of Section 80P(2)(d) of the Income Tax Act, 1961, and therefore, shall be entitled to the deduction.

The revenue represented by Ganesh R. Ghale relied on the decisions of the Supreme Court in the case of Citizens Co-operative Society Ltd. v. ACIT and subsequent decision of Karnataka High Court in PCIT v. Totgars Co-operative Sale Society Ltd.

The revenue contended that assessee had violated the principles of mutuality by dealing with nominal members and, therefore, is not eligible for the deduction.

The bench noted that the denial of deduction under section 80P(2)(d) of the Income Tax Act, 1961 was based on the nature of the income and whether it was assessable as business income.

The bench clarified that interest earned by assessee under Income from Other Sources be given the benefit available to the assessee under Section 57 of the Income Tax Act, 1961.

The two-member bench of Chandra Poojari (Accountant Member) and Beena Pillai (Judicial Member) observed that Section 80P(2)(d) of the Income Tax Act, 1961 allows deduction in respect of any income by way of interest or dividends derived by the Co-operative society from its investments with any other cooperative society.

The bench also noted that there was no stipulation or prerequisite in the provision regarding the nature of the funds. The bench referred to decisions of the Supreme Court and the High Court and held that the deduction under Section 80P(2)(d) of the Income Tax Act, 1961 applies to all cooperative societies, regardless of their main business activity.

The bench allowed the appeal, setting aside the order of CIT(A) and restored the issue to AO for de novo consideration.

To Read the full text of the Order CLICK HERE

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