Goa Bagayatdar Sahakari Vikri Saunstha Maryadit Vs ITO (ITAT Panaji)
The Income Tax Appellate Tribunal (ITAT) decided a batch of three appeals filed by the assessee under Section 253(1) of the Income-tax Act, 1961, challenging separate orders dated 13.11.2024 passed by the National Faceless Appeal Centre under Section 250, arising from assessments completed under Section 143(3) for Assessment Years 2017-18, 2018-19 and 2020-21. Since the issue involved in all three appeals was common, the Tribunal disposed of them by a common order, with the findings in the lead case applying mutatis mutandis to the remaining appeals.
The assessee, a co-operative society, had filed its return declaring total income of ₹42,57,690 after claiming deduction of ₹1,32,98,695 under Section 80P(2). The return was initially processed under Section 143(1) without variation. Subsequently, scrutiny assessment resulted in denial of deductions claimed under Sections 80P(2)(a)(i), 80P(2)(a)(iii)/(iv), 80P(2)(c)(i) and Section 80P(2)(d) in respect of ₹63,12,666 earned as interest on term deposits with Goa State Co-operative Bank Limited (GSCBL). On appeal, the National Faceless Appeal Centre allowed all deductions except the deduction claimed under Section 80P(2)(d). The assessee therefore challenged only the denial of deduction under Section 80P(2)(d).
The Tribunal identified the issue as whether interest income earned on term deposits with the Goa State Co-operative Bank qualifies for deduction under Section 80P(2)(d). It noted that there was no dispute that the assessee was a co-operative society or that the income in question was interest earned on deposits with GSCBL. The Revenue denied the deduction on the grounds that GSCBL was a bank and not a co-operative society within the meaning of Section 2(19), that the investment of surplus funds violated the principle of mutuality, and that the interest was not eligible for deduction in view of PCIT Vs Totgar’s Co-operative Sale Society Ltd. [2017, 292 ITR 74 (Kar)].
The Tribunal referred extensively to its earlier decision in ACGL BBD Employees Co-op. Credit Society, Ltd. Vs ITO, Goa, which had held that interest earned by a co-operative society on investments with GSCBL qualifies for deduction under Section 80P(2)(d). It observed that deduction under Section 80P(2)(d) is available where both the recipient and the payer are co-operative societies registered under the relevant co-operative laws. The Tribunal recorded that the assessee was a registered co-operative society and that GSCBL was also registered under the Goa State Co-operative Societies Act, thereby satisfying the statutory conditions. It further held that Section 80P(4) applies only where the claimant itself is a co-operative bank and did not disentitle the assessee from claiming deduction under Section 80P(2)(d).
The Tribunal also referred to its earlier decision in Hind Co-Op. Housing Society Ltd. Vs ITO, where deduction under Section 80P(2)(d) had been allowed on interest received from co-operative banks. Finding that the Revenue had not produced any material warranting departure from the earlier judicial precedents, the Tribunal adopted the same reasoning. It held that the interest earned on investments with Goa State Co-operative Bank satisfied the conditions prescribed under Section 80P(2)(d) and therefore qualified for deduction.
Accordingly, the Tribunal set aside the impugned order, reversed the disallowance of deduction under Section 80P(2)(d), allowed the solitary ground raised by the assessee, and allowed all three appeals.
Cases Discussed
- ACGL BBD Employees Co-op. Credit Society, Ltd. Vs ITO, Goa, ITA No. 212/PAN/2024 dt. 12/02/2025
- Alaknanda Sahakari Gruharachana Sanstha Maryadit Vs ITO, 2024, TaxPub(DT) 4845 (Pune-Trib)
- PCIT Vs Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. (SC), 2023, 454 ITR 117
- Kerala State Co-Operative Agricultural and Rural Development Bank Ltd. (KSCARDB) Vs ITO (SC), 2023 INSC 830
- Hind Co-Op. Housing Society Ltd. Vs ITO, ITA No. 038/PAN/2023
- PCIT Vs Totgar’s Co-operative Sale Society Ltd., 2017, 292 ITR 74 (Kar)
- Sant Motiram Maharaj Sahakari Pat Sanstha Ltd. vs. ITO, 120 taxmann.com 10
- Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT, ITA No.713/PUN/2016, dated 9-4-2019
- Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO, ITA No.604/PN/2014, dated 19-8-2015
- Tumkur Merchants Souharda Credit Co-op. Ltd. Vs ITO, 55 taxmann.com 447
- Mantola Cooperative Thrift Credit Society Ltd. Vs CIT, 50 taxmann.com 278
- Totgars Cooperative Sales Society Ltd., 322 ITR 283 (SC)
FULL TEXT OF THE ORDER OF ITAT PANAJI
This bunch of three appeals is filed by the assessee u/s 253(1) of the Income-tax Act, 1961 [‘the Act’] challenges the separate orders (all dt. 13/11/2024) passed by the National Faceless Appeal Centre, Delhi [‘Ld. NFAC’] u/s 250 of which in turn arises out of respective orders of assessment passed u/s 143(3) of the Act by the Faceless e-Asstt Centre Delhi [‘Ld. AO’] for the assessment years 2017-18, 2018-19 & 2020-21 [‘AY’] respectively.
2. Since the interwoven issue counselled in these group of appeals of the assessee is common & identical in nature, on rival party’s request and for the sake of brevity, these appeals are heard together for being disposed of by a common & consolidated order. Thus the adjudication laid in succeeding paragraphs of this order in lead case ITA No 022/PAN/2025 shall mutatis mutandis apply to remaining appeals and be read & treated accordingly.
3. The long and short of issue under contest is that; the assessee is a Co-Operative Society and filed its return [‘ITR’ hereafter] declaring total income of ₹42,57,690/- on 28/10/2017 after claiming ₹1,32,98,695/- as deduction u/s 80P(2) u/c VI-A of the Act. The said return in first place was processed & accepted without variation u/s 143(1) of the Act. Subsequently the case of the assessee selected for scrutiny wherein following deductions claimed in the return were denied and the consequential assessment u/s 143(1) of the Act was framed determining income at ₹1,75,56,383/-viz; (1) 80P(2)(a)(i) interest from members (2) 80P(2)(a)(iii/iv) income from marketing of agri-produce (3) basic deduction u/s 80P(2)(c)(i) and (4) ₹63,12,666/- interest income earned on term deposits held with Goa State Co-operative Bank Limited[‘GSCBL’ hereafter] u/s 80P(2)(d). Aggrieved assessee taken the matter up in appeal, wherein the Ld. NFAC partly allowed the appeal of the assessee by allowing all the deduction except deduction claimed u/s 80P(2)(d) of the Act.
4. Still aggrieved the assessee is in appeal before us for a sole & substantive ground for full 80P(2)(d) deduction in relation to interest earned by it on investment held with GSCBL. We have heard rival party’s submission and subject to rule 18 of ITAT-Rules, 1963 perused the material placed on records and considered the facts in the light of settled position of law, which were forewarned to the parties present for their rebuttal. Thus the present adjudication deals with an issue and answers the question as to; ‘whether earning of interest income on investment in the form of term deposit made/held with State co-operative Bank’ qualifies for deduction u/s 80P(2)(d) of the Act?.
5. From the facts solidified by the rival party’s submission we note that, there is no dispute that the assessee is a cooperative society and is entitled to claim deduction u/s 80P(2)(a)(i)/(d) of the Act. Further there is much less dispute over the nature of income received/earned by the assessee in the form of interest on deposits & balances held with GSCBL Bank. The Revenue in the present case first on hand denied 80P(2)(d) deduction to the appellant assessee for a reason that, GSCBL is a bank and not a co-operative society within the meaning of section 2(19) of the Act, hence interest income was earned from such bank do not qualify for deduction u/s 80P(2)(d) of the Act. The Revenue further bettered its denial on the foundation that, surplus funds left with the assessee is taken out of mutuality for investment with bank hence contravene the privity of mutuality, therefore the interest earned on such investment do not qualify for deduction u/80P(2)(d). It the claim of the Revenue that, the character of such interest in view ‘PCIT Vs Totgar’s Co-operative Sale Society Ltd.’ [2017, 292 ITR 74 (Kar)] falls out for deduction u/s 80P(2)(d) of the Act.
6. At the outset we note that, a similar issue of deduction of 80P(2)(d) deduction in relation to interest/dividend received by the co-operative society from GSCBL came for consideration before the Ld. Co-ordinate bench in ‘ACGL BBD Employees Co-op. Credit Society, Ltd. Vs ITO, Goa’ [ITA No. 212/PAN/2024 dt. 12/02/2025] whereby interest earned by co-operative society on its investment with GSCBL was held as deductible u/s 80P(2)(d) of the Act. The relevant adjudication laid in para 6 to 15 from the order is reproduced herein as;
6. First of all, we are mindful to state that, the allowability of deduction u/s 80P(2)(d) of the Act against the interest on deposits & dividend from shares held by one co-operative society with another co-operative society is no-more res-integra. Secondly the provisions of s/s (4) of section 80P of the Act applies to claimant assessee which is co-operative bank as defined in Part V of the Banking Regulation Act, 1949 [‘BRA’ hereafter].
7. Now coming to allowability of deduction u/s 80P(2)(d) of the Act is concerned, a bare perusal said provision of the Act clearly hint sites that an interest & dividend income derived by one co-operative society from its investment (irrespective of nature) held with other co-operative society is eligible for deduction u/s 80P(2)(d) of the Act. The constructive analysis of provision reveals that, an assessee’s entitlement for deduction u/s 80P(2)(d) of the Act prima-facie is subject to satisfaction of twofold pivotal conditions viz; (1) a recipient assessee vis-à-vis claimant of deduction must be a co-operative society within the meaning of section 2(19) of the Act AND (2) a payer of income must also be a co-operative society as defined u/s 2(19) of the Act. The conjoint reading of section 80P(2)(d) and section 2(19) of the Act necessitates that, a recipient and a payer of interest/dividend both must be co-operative society registered either under Central Co-operative Societies Act, 1912 or under any other law for the time being in force in any state. This stipulation fastened is compiled the moment both recipient & payer of interest/dividend are registered either under; (a) Co-operative Society Act, 1912 or (b) State Co-operative Societies Act in force. Thus, where a recipient cum claimant assessee as well as a payer of interest/dividend income both are registered societies then in our considered view noting can preclude an assessee from claiming such interest/dividend as deductible u/s 80P(2)(d) of the Act. This continues to hold the field irrespective of class within which such recipient assessee society or a payer society is registered. What is indispensable for clause (d) of s/s (2) of section 80P of the Act is the statutory/legal establishment of recipient & payer and not the class within which they fall or registered.
8. Conversely, where an assessee is a co-operative society & is not a co-operative bank within the meaning of explanation (a) to section 80P(4) of the Act and a payer of interest/dividend is also a co-operative society then in our considered view irrespective of status of a payer falling within the meaning assigned to it in Part V of BRA as to co-operative bank or not, a recipient assessee society’s right to deduction u/s 80P(2)(d) of the Act cannot infringed by application of s/s (4) thereof. Going a step further it is also mindful to note here that, the language of s/s (4) of section 80P of the Act unambiguously capable of suggesting that it only comes into play when a claimant assessee falls within the meaning of ‘Co-operative bank’ as assigned under Part V of BRA (supra) and not otherwise.
9. In the present case, the appellant admittedly is a cooperative society registered under the State Co-operative society Act, thus at the outset absolutely fulfils the first condition so as to entitle for deduction u/s 80P(2)(d) of the Act. Now in vouching the fulfilment of second condition, we note that, the GSCBL is also a society registered u/s 5 of Goa State Co-operative Societies Act, vide registration No BNK-(a)-1/Goa dt. 07/11/1963. In terms of section 10 (supra) the GSCBL is granted registration under ‘class-3 as co-operative bank with sub class as central Bank’. These findings de-facto sufficient to establish that, the payer of interest i.e. the GSCBL is also a registered co-operative society, thus slakes the second condition fastened on the assessee for claim of deduction u/s 80P(2)(d) of the Act. On the other hand, the appellant co-operative society is neither a co-operative bank within the meaning assigned in Part V of BRA nor holding any banking license. The payer of interest income to the assessee society i.e. GSCBL although is a co-operative bank in common parlance but not a co-operative bank strictly within the meaning assigned in Part V of BRA. Therefore, the denial of deduction by implication of s/s (4) of section 80P is untenable. In view of these clinching factual matrix, in our considered view there remains much less merits in application of s/s (4) of section 80P of the Act and in denying the 80P(2)(d) deduction to the appellant assessee.
10. A similar view can also be traced in the adjudication of Ld. Co-ordinate bench in ‘Alaknanda Sahakari Gruharachana Sanstha Maryadit Vs ITO’ [2024, TaxPub(DT) 4845 (Pune-Trib)] wherein the claim for deduction u/s 80P(2)(d) of the Act was denied to the assessee by implication of s/s (4) of section 80P of the Act against interest received by the assessee on its investment from Pune District Central Co-operative Bank.
11. In our considered view, once the claimant assessee falls outside the ambit of explanation (a) to section 80P(4) of the Act then denial of 80P(2) deduction would be contra-legem. This find fortified in case of ‘PCIT Vs Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd.’ [2023, 454 ITR 117 (SC)], where the assessee was a cooperative credit society engaged in the business of providing credit facilities to its members. The assessee claimed deduction u/s 80P(2) of the Act, but the Assessing Officer disallowed the deduction holding that the assessee is a cooperative bank and hence not eligible to claim deduction as per Section 80P(4) of the Act. The first and second appellate authority and the Hon’ble Jurisdictional High Court held in favour of assessee holding that assessee is a co-operative society and not a cooperative bank, hence eligible for deduction u/s 80P(2) of the Act.
12. On the contrary there is much less material placed on record by the Revenue in establishing that the payer GSCBL is a ‘co-operative bank’ within the meaning of explanation (a) to section 80P(4) of the Act, therefore in view of the decision of Hon’ble Apex Court in ‘Kerala State Co-Operative Agricultural and Rural Development Bank Ltd. (KSCARDB)’ Vs TAO’ [2023 INSC 830 (SC)], the denial of 80P(2)(d) deduction to the assessee and the impugned action of the respondent Revenue has no legal sanctity.
13. Before departure, we further find that the Hon’ble Supreme Court in case of Mavilayi Service Co-operative Bank Ltd. (supra) while analysing the provision of Section 80P(4) of the Act has categorically held that Section 80P(4) is a proviso to the main provision contained in Section 80P(1) and 80P(2) and excluded only cooperative banks which are cooperative society and also possesses a licence from RBI to do banking business. Their Hon’ble Lordships have further held that, the limited object of section 80P(4) is to exclude Co-operative Banks that function at par with other commercial banks, therefore Section 80P(4) is relevant only where the claimant assessee is a cooperative bank and which claims a deduction u/s 80P(2) of the Act which is not the facts of the present case. The decision of the Hon’ble Karnataka High Court ‘PCIT Vs Totagars Co-operative Sale Society’ (supra) is distinguishable and in any case, the later decision of Hon’ble Supreme Court in case of ‘Mavilayi Service Co-operative Bank Ltd’. (Supra) wherein the correct legal preposition has been laid down by the Hon’ble Supreme Court has to be followed.
14. In view of the aforestated discussion and respectfully following judicial precedents (supra) we hold that section 80P(4) of the Act does not jeopardise the claim of deduction to the assessee co-operative society u/s 80P(2)(d) in respect of interest/dividend income from investments/share held with other co-operative society (payer) irrespective of its (payer) classification and status as to whether it attracted disqualification u/s 80P(4) of the Act or not.
15. In consequence we hold that, the views adopted by the tax authorities below in the present case, in our considered opinion are not in conformity with aforestated legal position and binding judicial precedents (supra), hence vacated. Resultantly, we set-aside the impugned order and reverse the denial of 80P(2)(d) deduction in entirety. The grounds accordingly stands adjudicated.
7. Further this issue of 80P(2)(d) deduction in relation to interest/dividend received by a co-operative society from District Credit Co-Op. Bank also came for consideration in ‘Hind Co-Op. Housing Society Ltd. Vs ITO’ [ITA No. 038/PAN/2023] whereby appeal was allowed with following observation;
6. In the present case, the reasoning given by the lower tax authorities in denying the claim for deduction u/s 80P(2)(d) of the Act is that interest was received from cooperative bank, however this reasoning has no legs to stand as a cooperative bank is principally a cooperative society and holds a banking license to operate on a larger scale under the guidelines of RBI. This issue came to consider by Hon’ble Karnataka High Court in ‘CIT Vs Totagars Cooperative Sale Society’, finds reported in 392 ITR 74 wherein their lordships referring to the decision of Hon’ble Apex Court in the case of Totgars Co-operative Sales Society Ltd. (supra) held that the ratio of decision of the Hon’ble Supreme Court in the aforesaid case (supra) not to be applied in respect of interest income on investment as same falls u/s 80P(2)(d) and not u/s 80P(2)(a)(i) of the Act. We further note that, the co-ordinate bench in ‘Sant Motiram Maharaj Sahakari Pat Sanstha Ltd. vs. ITO’, reported in 120 taxmann.com 10, after making reference to the decisions of the Hon’ble Supreme Court in the case of Totgars Cooperative Sales Society Ltd. (supra) and having noticed the divergent views of the Hon’ble Karnataka High Court in the case of ‘Tumkur Merchants Souharda Credit Co-op. Ltd. Vs ITO’, 55 taxmann.com 447 and decision of Hon’ble Delhi High Court in ‘Mantola Cooperative Thrift Credit Society Ltd. Vs CIT’, reported at 50 taxmann.com 278, the decision rendered in ‘Mantola Cooperative Thrift Credit Society Ltd. (supra) had not been preferred to ratio laid in ‘Tumkur Merchants Souharda Credit Co-op. Ltd. (supra), the relevant observation of the co-ordinate bench are placed as under;
“9. The Pune Benches of the Tribunal in Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT (ITA No.713/PUN/2016, dated 9-4-2019) decided the question of availability of deduction u/s 80P on interest income by noticing that the Pune Bench in an earlier case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO (ITA No.604/PN/2014, dated 19-82015) has allowed similar deduction. In the said case, the Tribunal discussed the contrary views expressed by the Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 Taxman 309 (Kar.) allowing deduction u/s. 80P on interest income and that of the Hon’ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. Vs. CIT (2014) 110 DTR 89 (Delhi) not allowing deduction u/s.80P on interest income earned from banks. Both the Hon’ble High Courts took into consideration the ratio laid down in the case of Totgar’s Cooperative Sale Society Ltd. (2010) 322 ITR 283 (SC). There being no direct judgment from the Hon’ble jurisdictional High Court on the point, the Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit (supra) preferred to go with the view in favour of the assessee by the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). 10. Insofar as the reliance of the ld. DR on the case of Pr. CIT and Another Vs. Totagars Cooperative Sales Society (2017) 395 ITR 611 (Kar.) is concerned, we find that the issue in that case was the eligibility of deduction u/s.80P(2)(d) of the Act on interest earned by the assessee cooperative society on investments made in co-operative banks. In that case, the assessee was engaged in the activity of marketing agricultural produce by its members; accepting deposits from its members and providing credit facility to its members; running stores, rice mills, live stocks, van section, medical shops, lodging, plying and hiring of goods and carriage etc. It was in that background of the facts that the Hon’ble High Court held that the assessee could not claim deduction u/s.80P(2)(d) of the Act. When we consider the impact of this decision, it turns out that the same is not germane to case under consideration in view of the position that the claim of the instant assessee is directly about the eligibility of deduction u/s.80P(2)(a)(i) of the Act and not u/s.80P(2)(d). Moreover, so many decisions relied on by the ld. AR amply go to prove that the view taken by the AO, cannot by any standard, be construed as not a possible view. We, therefore, hold that the ld. Pr. CIT was not justified in exercising the revisional power anent to interest income of Rs.22,34,270/- earned on investments made with cooperative banks.” (Emphasis supplied)
7. Maintaining same parity, we adopt equi-reasoning and hold that, the interest earned by the appellant society is from cooperative banks namely BDCC, Saraswat Co-op. Bank, Tukaram Co-op. Bank and Cosmos Co-op. Bank, and as these being registered as co-operative society under respective state laws, the entire interest qualifies for deductions u/s 80P(2)(d) of the Act. Consequently, the views adopted by the tax authorities below are not in conformity with legal position and binding judicial precedents, hence deserves to be vacated. Resultantly, we set-aside the impugned order and reverse the disallowance.’
8. In the absence of anything contrary brought to our attention by the respondent Revenue or convincing us effectively with sufficient reasons for diverting from former judicial precedents, we see strong force in appellant’s argument to apply the former ratio to present case as a matter of consistency. In view thereof, adopting equi-reasoning, we set-aside the impugned order on this score and reverse the disallowance holding that, the interest on investment made with GSCBL Bank qualifies for deductions u/s 80P(2)(d) of the Act as it satisfies twofold conditions laid therein for the purpose of deduction. The solitary ground of appeal thus stands allowed.
9. These appeals in result stands ALLOWED.
In terms of rule 34 of ITAT Rules, 1963 the order pronounced in the open court on date mentioned herein before.
