Interest Income from Investment in Cooperative Banks by Cooperative Societies Eligible for Deduction u/s 80P(2)(d): ITAT [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that the interest income received by cooperative societies from investment made in the cooperative banks are eligible for deduction under Section 80P(2)(d) of the Income Tax Act.

Assessee Premium Tower Cooperative Housing Society Ltd was a co-operative housing society that collected contributions from its members for payment of property taxes, water charges and other revenue expenses such as electricity, water, security etc.

It had made fixed deposits with various co-operative banks and had earned interest income on fixed deposits and recurring deposits held with many cooperative banks. Assessee had claimed deduction underSection 80P(2)(d) of the Income Tax Act in respect of bank interest and interest on FDs and RDs received from cooperative banks.

 The AO held that by insertion of SubSection (4) in section 80P, cooperative banks were commercial banks and did not fall under the purview of “cooperative society” referred to in Section 80 P(2)(d) of the Act.

The assessee has earned bank interest and interest on FDs & RDs from its investment made with cooperative banks and not with cooperative society. Accordingly, he denied the claim of deduction.

Subrata Sen appeared on behalf of the assessee and Mahita Nair appeared on behalf of the revenue.

The two-member Bench of B R BASKARAN, (ACCOUNTANT MEMBER) and AMIT SHUKLA, (JUDICIAL MEMBER)  referring to Quepem Urban Co-operative Credit Society Ltd. vs. ACIT  allowed the appeal filed by the assessee  and held that cooperative banks should to be treated as cooperative societies.

In so far as deduction of interest earned on investment made in cooperative bank, Clause (d) of section 80P(2) of the Income Tax Act provided that any income by way of interest on dividend derived from cooperative societies from its investment with any other cooperative societies, the whole of such income was deductible under Section 80P of the Income Tax Act.

Section 80P(2)(a) of the Income Tax Act provided that income from carrying out various activities which was in the nature of business,  Irrespective whether the interest income derived from activities as provided in Section 80P(2)(a) of the Income Tax Act which was otherwise the business income for which deduction was allowable.

The Bench further observed that, if there was any interest income which was earned on deposits or investment made with cooperative societies, the same would fall in the category activity or the business, but still would be eligible for deduction under the specific provision of Section 80P(2)(d) of the Income Tax Act.

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