In a significant decision, the Income Tax Appellate Tribunal (ITAT) Mumbai has ruled in favor of co-operative societies, allowing them to claim tax deductions under Section 80P(2)(d) of the Income Tax Act, 1961.
The ruling clarifies that co-operative banks, despite being distinct from primary agricultural credit societies (PACS), are eligible for such tax benefits, overturning previous assertions by tax authorities that co-operative banks should be excluded from the scope of these deductions.
Shivsahyadri Sahakari Pathpedhi, is a co-operative society registered under the Maharashtra Co-operative Societies Act. The Revenue had raised objections regarding the society’s claim for a deduction of Rs. 4.35 crore under Section 80P(2)(d), which pertains to income derived by a co-operative society from interest earned on deposits made with other co-operative societies. The tax authorities argued that the deduction should not apply to interest income from co-operative banks, deeming them to be distinct entities from “co-operative societies” as intended under the section.
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The Income Tax Officer (ITO) contended that the society failed to demonstrate that the interest earned was from a co-operative society, as the deposits were made with a co-operative bank. Moreover, the Revenue referred to amendments in the law, asserting that co-operative banks should not be treated the same as co-operative societies under Section 80P(2)(d), citing a Supreme Court ruling in Citizen Co-operative Society Ltd. vs. ACIT and other precedents.
However, the ITAT bench, comprising (Judicial Member) Amit Shukla and (Accountant Member) Girish Agrawal, dismissed the Revenue’s objections, holding that the case had already been settled by earlier rulings in favor of the co-operative society. The Tribunal noted that the issue had been conclusively addressed in prior cases, particularly with respect to the interpretation of “co-operative society” as defined under the Income Tax Act.
The Tribunal referred to the ruling in PCIT vs. Annasaheb Patil, wherein the Supreme Court confirmed that credit societies are entitled to deductions under Section 80P(2), and the exclusion of co-operative banks from Section 80P(4) did not affect the eligibility of co-operative societies to claim deductions on interest earned from co-operative banks.
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Further, the ITAT referenced the Thorapadi Urban Co-op. Credit Society Ltd. case, where the Madras High Court upheld that interest income derived from co-operative banks falls under the ambit of Section 80P(2)(d). The Tribunal observed that co-operative banks, although involved in banking activities, are registered under the Co-operative Societies Act and thus should be considered eligible for the deduction under the relevant provision.
This ruling by the ITAT Mumbai is a critical precedent for co-operative societies, particularly credit societies, in their ongoing efforts to secure tax benefits under Section 80P. The decision has far-reaching implications, ensuring that co-operative banks, as integral parts of the co-operative sector, can continue to offer tax deductions on income derived from inter-co-operative investments.
In conclusion, the ITAT Mumbai’s ruling solidifies the stance that co-operative societies and co-operative banks are both entitled to the benefits under Section 80P(2)(d), providing much-needed clarity and relief to the co-operative sector.
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