Interest Income from investment in Co-operative bank governed by Tamil Nadu Co-operative Societies Act eligible for  deduction u/s 80P(2)(d) of Income Tax [Read Order]  

The Income Tax Appellate Tribunal (ITAT), Chennai Bench held that interest income from investments in cooperative banks governed by the Tamil Nadu Co-operative Societies Act is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.

The assessee, Kangayam Primary Agricultural Co-operative Credit Society, is a primary agricultural credit society registered under the Tamil Nadu Co-operative Societies Act, 1983, carrying on the business of banking or providing credit facilities to its members. The assessee filed a return of income while claiming a deduction under Section 80P of the Income Tax Act. Subsequently, the assessee's case was selected for scrutiny.

Later, the Assessing Officer (AO) completed the assessment under Section 143(3) of the Income Tax Act, disallowing the claim of deduction under Section 80P of the Income Tax Act.

Aggrieved by the order, the assessee filed an appeal before the CIT(A), who allowed the claim of deduction under Section 80P(2) of the Income Tax Act on the business income earned by the assessee society. However, the CIT(A) upheld the action of the AO regarding the disallowance of the claim of deduction under Section 80P(2)(d) of the Income Tax Act on interest earned from the Erode District Central Co-operative Bank.

S. Sridhar, Counsel for the assessee, argued that Section 22(1)(b) of the Banking Regulation Act, as applicable to Cooperative Societies, states that no Co-operative Society shall carry on banking business in India unless it is a Co-operative Bank holding a license issued by the Reserve Bank of India. He further relied upon the decision of the Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd, arguing that no banking activity was conducted by the assessee, and it is not registered as a bank nor holds any license issued by the Reserve Bank of India. The primary objective of the assessee is to provide financial accommodation to its members for agricultural purposes or activities related to agriculture, and therefore Section 80P(4) of the Act is not applicable to the assessee.

P. Sajit Kumar, Counsel for Revenue, submitted that the Erode District Central Co-operative Bank is part of RBI-recognized banks in India, and it is clearly subject to the provisions of Section 80P(4) of the Income Tax Act.

The tribunal observed that the Erode District Central Co-operative Bank is also governed by the Tamil Nadu Co-operative Societies Act, and once it falls under the Co-operative Societies Act, the assessee is eligible to claim a deduction under Section 80P(2)(d) of the Income Tax Act.

After reviewing the facts and records, the two-member bench of Manjunatha.G (Accountant Member) and Mahavir Singh (Vice-President) held that interest income from investments in cooperative banks governed by the Tamil Nadu Co-operative Societies Act is eligible for a deduction under Section 80P(2)(d) of the Income Tax Act. Therefore, the bench allowed the appeal of the assessee.

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