Co-operative Society Eligible for 80P(2)(d) Deduction on Interest from Co-operative Bank Investments: ITAT [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) held that a co-operative society is entitled to a deduction under Section 80P(2)(d) of the Income Tax Act in respect of interest earned from deposits with a co-operative bank.

The assessee, Thanhe Zilla Vidyasevak Sahakari Patpedhi Ltd, is a co-operative society registered under the Maharashtra Co-operative Societies Act, 1960. It filed its return declaring Nil income for A.Y. 2018-19. The case was selected for limited scrutiny. The AO observed that the assessee had earned interest income of Rs. 1,06,40,175/- on its deposits.

Out of this, Rs. 94,12,725/- was received from investment deposits in the Co-operativeBank. The AO, however, held that the interest on investments/deposits made with the co-operative bank is not eligible for deduction under Section 80P(2)(d) of the Act and accordingly added this amount to the income of the assessee. The assessment was finalised at an income of Rs. 94,12,725/-.

Aggrieved with the order of the AO, the assessee preferred an appeal before the CIT(A). The CIT(A) also agreed with the view taken by the AO and held that the interest received by the assessee on deposits with the Thane District Central Co-Operative Bank amounting to Rs. 94,12,725/- was not eligible for deduction under Section 80P(2)(d) of the Act. Aggrieved with the order of CIT(A), the assessee filed an appeal before the Tribunal.

The assessee submitted that the issue regarding deduction under Section 80P(2)(d) in respect of interest income on deposits with the co-operative banks has been held to be allowable deduction under Section 80P(2)(d) of the Act by various decisions of the co-ordinate benches. The assessee placed reliance on a few decisions of the co-ordinate benches like Amore Commercial Premises Co-op society Ltd Vs NFAC and B.S.N.L Employees Junior Co-operative Credit Society Ltd. Vs ITO,

The Tribunal observed that the coordinate bench in the case of Pathare Prabhu Co-operative Housing Society Vs. ITO (2023) has decided the issue after examining the same in detail and this order has been followed in some of the decisions relied upon the assessee as well. It was held as under:

“"5. We have heard both the parties and perused the material available on record. Admittedly, assessee had claimed deduction u/s.80P(2)(a)(i), which included interest and dividend income earned by it from investments made with cooperative banks. Ld. Assessing Officer disallowed deduction claimed towards interest and dividend income from these investments by holding that these are income from other sources and not business income of the assessee. Assessee has contended alternatively that these incomes are allowable u/s. 80P2(d), since there is no dispute of earning of this income from cooperative banks.

13 ….Thus, there are divergent views of the same Hon'ble High Court on the issue of eligibility of deduction under section 80P(2)(d) of the Act in respect of interest earned from Co-operative Bank. No decision of the Hon'ble jurisdictional High Court was brought to our notice on this aspect. We have to, with our highest respect to both the views of the Hon'ble High Court, adopt an objective criterion for deciding as to which decision of the Hon'ble High Court should be followed by us. We find guidance from the judgment of the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd. (1973) 88 ITR 192. In the aforesaid decision, the Hon'ble Supreme Court has laid down a principle that if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted".

14. Therefore, in view of the above, we uphold the plea of the assessee and direct the AO to grant the deduction under section 80P(2)(d) of the Act to the assessee in respect of interest income earned from investment with Cooperative Banks. Accordingly, we set aside the impugned order passed by the learned CIT(A) for the assessment year 2018-19. As a result, grounds raised by the assessee are allowed."

The two-member bench comprising Kavitha Rajagopal (Judicial Member) and Renu Jauhri (Accountant Member), allowing the assessee's appeal, held that the assessee is entitled to a deduction under Section 80P(2)(d) in respect of interest amounting to Rs. 94,12,725/- received on deposit with the Thane District Central Co-Operative Bank.

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