Vishal Cooperative Housing Service Society Limited Vs ITO (ITAT Surat)
The Income Tax Appellate Tribunal, Surat Bench, considered an appeal by Vishal Cooperative Housing Service Society Limited against the order dated 24 November 2023 of the National Faceless Appeal Centre/Commissioner of Income Tax (Appeals) for Assessment Year 2018-19. The assessee is a co-operative housing service society engaged in maintaining a group housing society. In its computation of income, it claimed a deduction in respect of ₹1,21,000 of interest from fixed deposits and ₹15 of dividend income received from Surat District Cooperative Bank. The Central Processing Centre disallowed the claim while processing the return. The assessee sought rectification under Section 154 of the Income-tax Act, 1961, but CPC rejected its application on 4 January 2022. The resulting dispute concerned the eligibility of the interest earned from deposits with a co-operative bank for deduction under Section 80P(2)(d).
Before the first appellate authority, the assessee furnished a complete bifurcation of interest earned from deposits with Surat District Cooperative Bank and relied on judicial decisions supporting the position that co-operative banks retain their character as co-operative societies for purposes of the deduction. The assessee referred to Kona Seema Co-operative Society Vs ITO, decided by the Mumbai Tribunal, and Thorapadi Urban Co-operative Society before the Madras High Court. The CIT(A), however, upheld the CPC adjustment, reasoning that interest derived from deposits, investments or surplus funds did not change its character depending on whether the funds were placed with a scheduled bank or a co-operative bank. The assessee therefore approached the Surat Bench, specifically relying on earlier Tribunal decisions in Bardoli Vibhag Gram Vikas Co-operative Credit Society Ltd. Vs PCIT and Madhi Sugar Staff Co-operative Credit Society Ltd. Vs DCIT.
Although the assessee requested an adjournment, the Tribunal examined the grounds and observed that the issue appeared to be covered in the assessee’s favour by earlier decisions. It therefore heard the Departmental Representative and considered the orders of the lower authorities. The Revenue supported those orders and requested details of the interest earned from Surat District Cooperative Bank. The Tribunal noted that the CIT(A) had not disputed the fact that the interest arose from deposits with that co-operative bank. It also recorded that the assessee had supplied a complete month-wise bifurcation of the interest income. The Bench referred to the jurisdictional Gujarat High Court decision in Surat Vankar Sahakari Sangh Ltd. Vs ACIT, (2016) 72 taxmann.com 169, and its own consistent line of decisions, including Bardoli Vibhag Gram Vikas Co-op Credit Society Ltd. Vs PCIT, (2021) 127 taxmann.com 334.
Following those authorities, the Tribunal held that co-operative banks are primarily co-operative societies and that interest earned on deposits with such banks is eligible for deduction under Section 80P(2)(d) of the Income-tax Act. The finding was applied to the interest received by the assessee from Surat District Cooperative Bank, the source of which was not disputed by the first appellate authority. Taking a consistent view with the Gujarat High Court and the earlier Surat Bench rulings, the Tribunal directed the Assessing Officer to delete the entire disallowance. The assessee’s appeal was accordingly allowed by the order pronounced on 22 February 2024. The order turns on the source of the interest income, the documentation placed on record and the binding judicial interpretation of Section 80P(2)(d) followed by the Tribunal.
Cases Discussed
- Surat Vankar Sahakari Sangh Ltd. Vs ACIT — (2016) 72 taxmann.com 169 (Gujarat High Court) — jurisdictional precedent followed.
- Bardoli Vibhag Gram Vikas Co-op Credit Society Ltd. Vs PCIT — (2021) 127 taxmann.com 334 (ITAT Surat) — followed for co-operative bank interest.
- Kona Seema Co-operative Society Vs ITO — ITA No. 2024/Mum/2023, dated 8 November 2023 — cited before CIT(A).
FULL TEXT OF THE ORDER OF ITAT SURAT
1. This appeal by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) [in short, the ld. CIT(A)] dated 24/11/2023 for the Assessment Year (AY) 2018-19. The assessee has raised following grounds of appeal:
“1. On fact and circumstances of the case, the learned Commissioner of Income tax (Appeals) has erred in confirming addition made by the Assessing officer order passed U/s. 154 on 04.01.2022.
2. On fact and circumstance of the case, the learned Commissioner of Income tax (Appeals) has erred by not allowing deduction 80P(2)(d) of Rs. 1,21,015/- Which is otherwise eligible being the assessee is Co.Op.Housing Society.
3. On fact and circumstance of the case, the learned Commissioner of Income tax (Appeals) has erred in not considering decision Madhi Sugar Staff Co. Op. Credit Society Limited V/s. Dy. CIT by Surat Branch ITAT Tribunal which followed the decision of Bardoli Vihag Gam Vikas Co.Op. Credit Society Ltd. V/s. principal commissioner of Income tax -2, Surat by Surat Branch ITAT. The both of decision given by Surat ITAT by relying on the decision of honourable High Court of Gujarat in case of Surat Vankar Sahakari Sangh Limited V/s. Assistant Commissioner of Income Tax, Surat.
4. The appellant reserves right to add, alter, vary any or all grounds of appeals.”
2. Brief facts of the case are that the assessee is a cooperative society, engaged in maintenance of group housing society. The assessee in its computation of income claimed deduction of Rs. 1,21,000/- on account of interest income earned on fixed deposit and Rs. 15 as a dividend income with Surat District Cooperative Bank. The Central Processing Centre (CPC) while processing the return of income, disallowed such deduction. The assessee filed application under Section 154 of the Income Tax Act, 1961 (in short, the Act) for seeking rectification in the order of CPC. Application of assessee was rejected by CPC vide order dated 04/01/2022.
3. Aggrieved by the disallowance/adjustment on account of deduction under Section 80P(2)(d) of the Act of Rs. 1,21,000/-, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee has given complete bifurcation of interest earned on deposit with Surat District Cooperative Bank. The assessee also relied on certain case laws that the cooperative banks are primarily a cooperative society and the assessee is eligible for deduction of interest earned from such cooperative banks as has been held by Mumbai Tribunal in Kona Seema CO-operative society Vs ITO in ITA No. 2024/Mum/2023 dated 08.11.2023 and Madras High Court in Thorapadi Urban Co-operative Society.
4. The ld. CIT(A)/NFAC after considering the submissions of assessee upheld the order of adjustment made by CPC by holding that the income earned by way of interest from deposit or investment or surplus fund does not change its character irrespective of fact whether such income of interest is earned from scheduled bank or a cooperative bank. Further aggrieved, the assessee has filed present appeal before this Tribunal.
5. The assessee filed application for adjournment of hearing. However, on perusal of grounds of appeal, we find that the assessee in the grounds of appeal has specifically contended that the grounds of appeal is covered by the decision of this Tribunal in Bardoli Vibhag Gram Vikas Co. Op. Credit Society Ltd. Vs Pr.CIT as well as Madhi Sugar Staff Co. Op Credit Society Ltd. Vs DCIT. Finding the fact that the grounds of appeal raised by the assessee is apparently covered in favour of assessee, we have heard the submissions of the ld Sr DR for the revenue and perused the orders of lower authorities carefully.
6. The ld. Sr. DR for the revenue was asked to make his submission, then he supported the orders of lower authorities and would submit that the assessee may be directed to give details of interest income earned from Surat District Cooperative Bank. The notice of hearing of appeal was served upon the assessee and the assessee filed application for filing compilation/documents.
7. We have considered the submissions of ld. Sr. DR for the revenue and perused the orders of the lower authorities carefully. The dispute relates to deduction under Section 80P(2)(d) of the Act with regard to interest earned on fixed deposit with Surat District Cooperative Bank. We find that the ld. CIT(A) has not disputed about earning of such interest income from Surat District Cooperative Bank even otherwise the assessee has given complete month-wise bifurcation on interest earned from Surat District Cooperative Bank. We find that in a series of decisions, the combination of this Bench by following the decision of Hon’ble Jurisdictional High Court in Surat Vankar Sahakari Sangh Ltd. Vs ACIT (2016) 72 taxmann.com 169 (Guj) has held that the cooperative banks are primarily the cooperative society and the interest earned on deposit with cooperative banks are eligible for deduction under Section 80P(2)(d) of the Act. Similar view was taken in Bardoli Vibhag Gram Vikas Co-op Credit Society Ltd. Vs PCIT (2021) 127 taxmann.com 334 (Surat-Trib). Taking a consistent view, the Assessing Officer is directed to delete the entire disallowance.
8. In the result, this appeal of assessee is allowed.
Order announced in open court on 22nd February, 2024.
