Case Law Details
GSSS Credit Co-operative Society Limited Vs ITO (ITAT Bangalore)
In a landmark decision, the Income Tax Appellate Tribunal (ITAT) Bangalore has ruled in favor of GSSS Credit Co-operative Society Limited, allowing interest income from co-operative banks to qualify for deduction under Section 80P(2)(d) of the Income Tax Act. This ruling addresses a contentious issue regarding the eligibility of interest income for tax deductions, impacting numerous co-operative societies across the country.
Background of the Case
GSSS Credit Co-operative Society Limited appealed against the order of the National Faceless Appeal Centre (NFAC), New Delhi, which denied the deduction under Section 80P(2)(d) for interest income earned from co-operative banks for the assessment years 2017-18, 2018-19, and 2020-21. The key issue was whether such interest income should be considered for deduction under Section 80P(2)(d).
Provisions of Section 80P(2)(d)
Section 80P(2)(d) of the Income Tax Act allows deductions in respect of any income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society. The primary contention revolves around the interpretation of the term “co-operative society” and whether co-operative banks fall under this definition.
Arguments and Tribunal’s Observations
The assessee argued that the interest income earned from investments made in co-operative banks should be eligible for deduction under Section 80P(2)(d). They referenced several precedents, including the ITAT’s decision in the case of Bee Co-op Credit Society Ltd. vs. ITO, which supported the view that co-operative banks are indeed considered co-operative societies for the purposes of Section 80P(2)(d).
Conversely, the Revenue’s stance was based on previous judgments that distinguished co-operative banks from other co-operative societies, arguing that interest income from such banks should not qualify for deduction under Section 80P(2)(d). They cited the Karnataka High Court’s ruling in the case of Totagars Co-operative Sale Society, which initially denied such deductions.
Tribunal’s Ruling
After reviewing the arguments and relevant case laws, the ITAT Bangalore concluded that co-operative banks should be treated as co-operative societies for the purpose of Section 80P(2)(d). The Tribunal highlighted the Supreme Court’s decision in the case of Kerala State Co-operative Agricultural and Rural Bank Ltd. vs. ACIT, which clarified that if a co-operative bank does not perform banking activities as defined under Section 5(b) of the Banking Regulation Act, it should be considered a co-operative society eligible for deductions under Section 80P(2)(d).
The Tribunal also noted that the corresponding interest cost incurred by the assessee against such interest income should be allowed as a deduction, ensuring that only the net interest income is taxed.
Impact on Co-operative Societies
This ruling is significant for co-operative societies across India, as it clarifies the conditions under which interest income from co-operative banks can be deducted under Section 80P(2)(d). This decision will likely lead to a reassessment of tax liabilities for many co-operative societies, potentially resulting in substantial tax savings.
Conclusion
The ITAT Bangalore’s decision to allow interest income from co-operative banks to be considered for deduction under Section 80P(2)(d) marks a crucial development in tax law. By establishing that co-operative banks can be treated as co-operative societies for this purpose, the ruling provides much-needed clarity and relief to numerous co-operative societies striving to optimize their tax obligations. This case underscores the importance of precise legal interpretation and its far-reaching implications for the co-operative sector in India.
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