In a matter related to Income Tax deduction, the Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the deduction under Section 80P(2)(d) of the Income Tax Act, is allowable to the co-operative society on interest earned from co-operative banks.
The Janta Adarsh Co-operative Thrift & Credit Society Ltd, the appellant/assessee is a Co-operative Credit Society Ltd. and filed its return of income under the status of “AOP” for the year under consideration on 31.08.2018, declaring total income at Rs. NIL. The Centralized Processing Centre ( CPC ) processed the income return.
The assessee has earned interest and dividend income by making deposits with the Delhi State Co-operative Bank Ltd. which is registered under Co-operative Societies Act. As per Section 80P of the Income Tax Act, 1961 all co-operative societies other than those coming under the control of RBI are eligible for a deduction.
A co-operative society conducting banking activities is not a co-operative bank licensed by the Reserve Bank of India. It can, therefore, claim Income Tax deductions under Section 80P.
Income Tax Demand notices were issued to the assessee. In response to the notices, the assessee submitted its reply alongwith details as called for. The Income Tax Assessing Officer (AO) noticed that the amount is interest income derived from deposits in banks/Co-operative banks.
The Assessing Authority was of the view that deduction is not allowable as the income is not from the business activities of the assessee. The assessee had deposited its surplus fund with banks and earned interest income on which in the opinion of the Assessing Authority, from other sources.
The Assessing Authority made an addition and assessed the income of the assessee at INR 7,60,197 after making disallowance of deduction claimed under section 80P(2)(a)(i). The assessee preferred appeal before CIT(A) who sustained the addition and dismissed the appeal of the assessee.
The assessee contended that the interest on term deposits was received by the assessee from Delhi State Co-operative Bank Ltd, Janpath Branch and interest from Saving Bank was also received from Delhi State Co-operative Bank Ltd, Janpath Branch. The assessee is eligible for deduction under Section 80P of the Income Tax Act in respect of the interest on fixed deposits, interest in Saving Bank Account and dividend income, received from Delhi State Co-operative Bank Ltd.
On the other hand, the department contended that section 80P(2)(d) of the Income Tax Act would not be applicable in view of the provision of section 80P(4) of the income tax law. Section 80P(4) specifically prohibits application of section 80P(4) qua the Co-operative Banks.
The two member bench of Kul Bharat ( Judicial Member ) has held that Co-operative Bank is primarily a Co-operative Society. Therefore, for section 80P(2)(d) of the Income Tax Act, the assessee would be entitled for deduction under section 80P(2)(d) of the Income Tax legislation. While allowing the appeal, the tribunal held that the assessee would be eligible for income tax deduction under Section 80P(2)(d)
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