In a significant case, the Madras High Court has held that deduction under section 80p(2)(d) of the Income Tax Act, 1961 is allowable on interest earned from investment in Cooperative Bank. The Court set aside the reassessment notice issued under the act.
Thorapadi Urban Co-op Credit Society Limited and Virupachipuram Urban Co-op Credit Society Limited, the petitioners challenged the impugned notices issued under Section 148 A(b) for reopening the assessment made under section 148 of the Income Tax Act, 1961 (‘the Act’).
The central issue that arises in the present case is whether the petitioners are entitled to deduction under Section 80P(2)(d) of the Act. The petitioners submitted that they have made investments with the Cooperative Bank from which, they received interest and therefore they are entitled to claim a deduction under section 80P(2)(d). However, the respondent in the impugned notices has stated that the petitioners / Society are not entitled to deduction holding that the deduction available in the above provision is only for the income and interest received from the Co-operative Society and not from the Co-operative Bank.
Per contra, Dr.B.Ramaswamy, Senior Central Government Standing Counsel, vehemently opposed and stated that the petitioner received the income from the Co-operative Bank and as per the provisions of the Income Tax Act any income received from the Co-operative Bank is not eligible for deduction under Section 80P(2)(d) of the Act.
Further, he contended that the Reserve Bank of India also granted permission to carry on the business of banking activities with the entity wherein a Co-operative Society invested and to receive the interest from the investment since the RBI had granted the Banking license to the Co-operative Banks. Thus, according to the respondent, the Co-operative Bank lost its status as an entity of a cooperative society as it would provide services not only for the members of a Co-operative society but to the general public as well.
The Court observed that if any Co-operative Society derived income by way of interest from investment made in any other Co-operative Society the whole such interest is eligible for deduction. The petitioner produced a document to show that the Co-operative Bank, where they have made investments was registered under the Tamil Nadu Co-operative Societies Act, 1983 on 20.5.2003. In this regard, he also produced a copy of the Certificate of Incorporation of the said Co-operative Bank.
The respondent referred to the judgment of the Supreme Court rendered in Totgars Cooperative Sale Society Ltd., v. Income-tax Officer, Karnataka”, wherein the court held that the interest income received by a Co-operative Bank from its members by way of providing credit facilities to its members is eligible for deduction under Section 80P(2)(a)(i) of the act.
The Division Bench of the Court in “Commissioner of Income Tax Salem v. The Salem Agricultural Producers Co-operative Marketing Society Ltd” held that the respondent therein, which is a Co-operative society, is entitled to avail the benefit under 80P(2)(d) of the Act.
Since the impugned orders were passed without considering all these aspects, a single bench of Justice Krishnan Ramasamy set aside the reassessment notice while allowing the petition.
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