Hind Co-Operative Housing Society Ltd Vs ITO (ITAT Panaji)
Material Facts
The appellant assessee, Hind Co-Operative Housing Society Ltd, is a co-operative housing society. For the assessment year (AY) 2017-18, the assessee e-filed its return of income (ITR) on 31/03/2019, declaring a total income of NIL after claiming a deduction of ₹33,88,761/- under Chapter VI-A, Section 80P of the Income-tax Act, 1961 (‘the Act’).
During the virtual hearing, the Authorised Representative (AR) submitted that out of the total receipt, an amount of ₹33,88,761/- represented interest earned from co-operative banks (specifically Belgaum District Credit Co-op. Bank/BDCC, Saraswat Co-op. Bank, Tukaram Co-op. Bank, and Cosmos Co-op. Bank), which are registered co-operative credit societies, and that no portion of the interest was earned from a nationalised bank.
Procedural History
Assessment Proceedings:** The ITR was subjected to scrutiny to verify the admissibility of the Chapter VI-A deduction. The assessment was completed under Section 143(3) of the Act, denying the entire deduction claimed under Chapter VI-A. The Assessing Officer held that the interest income was ineligible as it was attributable to interest from Belgaum District Credit Co-op. Bank and interest from a national bank.
First Appeal:** The assessee challenged the denial of deduction before the National Faceless Appeal Centre (NFAC), Delhi. The NFAC passed an order (DIN & Order No. ITBA/NFAC/S/250/2022-23/1048023500(1)) on 15/12/2022 under Section 250 of the Act, dismissing the appeal and confirming the findings of the lower tax authority.
Second Appeal:** The assessee instituted an appeal under Section 253(1) of the Act before the Income Tax Appellate Tribunal (ITAT), Panaji Bench.
Legal Issues
Whether interest income earned by a co-operative housing society from investments/deposits held with co-operative banks qualifies for 100% deduction under Section 80P(2)(d) of the Income-tax Act, 1961.
Statutory Provisions
Section 80P of Chapter VI-A of the Income-tax Act, 1961:** Deduction in respect of income of co-operative societies.
Section 80P(2)(d) of the Act:** Deduction in respect of income derived by a co-operative society from its investments held with any other co-operative society.
Section 143(3) of the Act:** Assessment order passed under scrutiny.
Section 250 of the Act:** Order passed by the Commissioner (Appeals) / NFAC.
Section 253(1) of the Act:** Appeal to the Appellate Tribunal.
Rule 18 & Rule 34 of the ITAT Rules, 1963.**
Parties’ Submissions
Assessee’s Submissions:
Both tax authorities below erred in law and facts by disallowing the deduction under Section 80P.
The issue was already adjudicated by the Tribunal in the assessee’s own case for AY 2016-17 (ITA No. 239/PAN/2019) and in *The Ugar Sugar Works & Dr Shirgaonkar Shaikshanki Trust Nokar Co-op. Credit Society Vs ITO* (MA No. 02/PAN/2021 r.w. ITA No. 84/PAN/2018).
The sum of ₹33,88,761/- represents interest earned entirely from co-operative banks (BDCC, Saraswat Co-op. Bank, Tukaram Co-op. Bank, and Cosmos Co-op. Bank), which are registered co-operative credit societies. No interest was earned from nationalised banks.
The assessee is entitled to a 100% deduction under Section 80P(2)(d) of the Act.
Departmental Representative’s (DR) Submissions:**
Strongly relied on the orders of the lower tax authorities, though could hardly controvert the factual position and judicial precedents relied upon by the appellant.
Tribunal Observations, Findings, and Reasoning
The solitary issue concerns the allowability of deduction under Section 80P(2)(d) of the Act.
Based on a strict interpretation of Section 80P(2)(d), income derived by a co-operative society from investments held with other co-operative societies is deductible from its total income. The chief determinant factor is that the interest income must be earned from a co-operative society registered under the law, irrespective of the nomenclature used for the payer society.
The reasoning of the lower authorities—that interest received from a co-operative bank is ineligible—has “no legs to stand” because a co-operative bank is principally a co-operative society holding a banking license to operate on a larger scale under RBI guidelines.
The Tribunal referred to:
CIT Vs Totagars Cooperative Sale Society* (392 ITR 74 – Hon’ble Karnataka High Court), holding that interest income on investment falls under Section 80P(2)(d) and not Section 80P(2)(a)(i), and the Apex Court’s decision in *Totgars Co-operative Sales Society Ltd.* does not apply to Section 80P(2)(d).
Sant Motiram Maharaj Sahakari Pat Sanstha Ltd. vs. ITO* (120 taxmann.com 10 – Co-ordinate Bench), which analyzed the application of *Totgar’s Cooperative Sale Society Ltd.* (322 ITR 283 (SC)) and preferred the view of the Hon’ble Karnataka High Court in *Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO* (230 Taxman 309) over the view in *Mantola Cooperative Thrift Credit Society Ltd. Vs. CIT* (110 DTR 89 (Delhi)).
Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT* (ITA No.713/PUN/2016) and *Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO* (ITA No.604/PN/2014).
The Tribunal observed that the interest earned by the appellant was from co-operative banks (BDCC, Saraswat Co-op. Bank, Tukaram Co-op. Bank, and Cosmos Co-op. Bank) registered as co-operative societies under their respective state laws. Thus, the entire interest qualifies for deduction under Section 80P(2)(d).
The views adopted by the lower tax authorities were not in conformity with the legal position and binding judicial precedents.
Directions & Final Decision
The ITAT set aside the impugned order of the NFAC and reversed the disallowance.
The appeal of the assessee was allowed.
Order pronounced in open court on Friday, 01st September 2023.
FULL TEXT OF THE ORDER OF ITAT PANAJI
Against the impugned DIN & Order No. ITBA/NFAC/S/250/2022- 23/1048023500(1) dt. 15/12/2022 passed u/s 250 of Income-tax Act, 1961 [‘the Act’ hereafter] by National Faceless Appeal Centre, Delhi [‘NFAC’ hereafter] the present appeal is instituted u/s 253(1) of the Act for assessment year 2017-18 [‘AY’ hereinafter].
2. Concisely stated facts born out of case records are;
2.1 The appellant assessee is a co-operative housing society has e-filed its return of income [‘ITR’ hereinafter] on 31/03/2019 declaring total income of NIL after claiming a deduction u/s 80P of chapter VI-A of the Act with sum of ₹33,88,761/-.
2.2 The ITR of the assessee society was subjected to scrutiny to verify the admissibility of deduction claimed u/c VI-A of the Act and the resultant assessment proceedings came to culmination u/s 143(3) of the Act by denying entire deduction claimed u/c VI-A for the bullet reason that, interest income earned by the appellant is ineligible for deduction as it was attributable (i) interest from Belgaum District Credit Co-op. Bank and (ii) interest from national bank.
2.3 The denial of deduction was in the first stance assailed before the Ld. NFAC, who came to dismiss the appeal of the assessee confirming the findings of his tax authority below.
2.4 Aggrieved assessee challenged the impugned order in the present appeal alleging that both the tax authorities erred in law and facts in disallowing the deduction u/s 80P in-spite the issue has been adjudicated by the Tribunal in assessee’s own case for AY 2016-17 in ITA No. 239/PAN/2019 and further in case of ‘The Ugar Sugar Works & Dr Shirgaonkar Shaikshanki Trust Nokar Co-op. Credit Society Vs ITO’ MA No. 02/PAN/2021 r.w. ITA No. 84/PAN/2018.
3. At the virtual hearing, Ld. AR reiterated appellant’s version of submission as were laid before tax authorities below and adverting to
page no 1/21 of paper book vehemently submitted that, out of the total receipt an amount of ₹33,88,761/- represents the interest earned from the co-operative banks which are registered co-operative credit societies and no portion of interest is earned from nationalised bank. In the facts and circumstances, the assessee is entitled to 100% deduction of u/s 80P(2)(d) of the Act. Per Contra, the Ld. DR could hardly controvert the factual position and judicial precedents relied upon by the appellant, however strongly relied on the order of tax authorities below.
4. Heard rival common contentions; and subject to provision of rule 18 of ITAT-Rules, 1963 perused material placed on record, case laws relied upon by both the rival parties and considered the facts in light of settled legal position which are forewarned to parties present.
5. The solitary issue in the present appeal hinges around allowability of deduction u/s 80P(2)(d) of the Act. On perusal of provisions of section 80P(2)(d), it is clear that income derived by a cooperative society from its investment held with other cooperative societies shall be deductible u/s 80P(2)(d) of the Act from the total income of a cooperative society. Therefore, by application of stricter interpretation, the chief determinant factor entitling a claim of deduction u/s 80P(2)(d) in the hand of assessee society is that, interest income should have been earned by it from any cooperative society registered under the provisions of law, irrespective of nomenclature with which such payer society is known for.
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 was 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 9-42019) 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 19-8-2015) 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 co-operative banks.”
(Emphasis supplied)
7. Maintaining same parity we adopt equi reasoning and hold that, the interest earned by the appellant society is from co-operative 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 result, the appeal of the assessee is
In terms of rule 34 of ITAT Rules, order pronounced in open court on this Friday 01st day of September, 2023.
