Interest Earned by Co-operative Society from Co-operative Bank Eligible for Deduction: ITAT [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT) ruled that interest earned by a co-operative society from a co-operative bank is eligible for deduction under section 80P(2)(d) of Income Tax Act,1961.

Shree Sarvodaya Sahakari Mandali Ltd., appellant-assessee,appealed against the order dated 10.05.2024 passed by Commissioner of Income Tax(Appeals)[CIT(A)]  for the Assessment Years 2016-17.The taxability of interest earned on savings account deposits with a co-operative bank and its deductibility under section 80P was addressed in several High Court rulings and Tribunal orders.

The main facts were that the assessee, a primary co-operative society, provided credit facilities to its members. It earned interest of Rs.XXX from Fixed Deposits (FD)s and savings accounts with co-operative banks like Baroda Co-operative Central Bank, Mehsana Urban Co-operative Bank, and Prime Co-operative Bank.

The issue was also considered in cases such as Indian Oil Employees Welfare Co-operative Society Ltd. (ITA No. 351/Mum/2023), Salestax Employees Co-operative Credit Society Ltd. (ITA No. 612/Ahd/2024), Charkop Lands End Co-operative Housing Society Ltd. (ITA No. 2843/Mum/2024), and The Rifle Factory Co-operative Society Ltd. (ITA No. 41/Kol/2023).

The two member bench comprising Dr.BRR Kumar(Vice President) and Siddhartha Nautiyal(Judicial Member) referred to the order in the case of Gujarat State Co-Op. Housing Finance Corporation Ltd. (ITA No. 923/Ahd/2023), dated 05.12.2024, involving a similar issue. In that case, the Assessing Officer(AO) had disallowed interest income earned by the assessee from FD investments in co-operative societies, including Gujarat State Co-op. Bank Ltd. (GSCB), as well as rental income from HUDCO and SHARK Systems, which the assessee had claimed under section 80P(2)(d).

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The CIT(A) had deleted the additions made by the AO, relying on decisions from the Karnataka and Gujarat High Courts. The Revenue then appealed to the Tribunal.

The appellate tribunal reviewed the provisions of section 80P(2)(d), which allows deductions on income derived from investments in other co-operative societies. It found that the assessee, being a co-operative society, earned interest from fixed deposits in another co-operative society, GSCB.

The legal issue was whether the interest earned by the assessee from GSCB was eligible for deduction under section 80P(2)(d). The ITAT followed the judgment in the case of PCIT Vs. Ashwinkumar Arban Co-Operative Society Ltd., which confirmed that interest earned by a co-operative society from a co-operative bank was eligible for deduction.

Read More:Cooperative Societies Eligible for Deduction on Interest Income from Cooperative Banks: ITAT Cites ‘Co-op Banks are basically Co-op Societies’

The bench also cited similar cases where deductions were allowed, including Ratneshwari Co. Op. Credit Society Limited and Shree Vivekanand Co-op. Credit Society Limited.

Following the previous precedents the tribunal allowed the appeal filed by the assessee.

To Read the full text of the Order CLICK HERE

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