Borivali Jankalyan Sahakari Patpedhi Ltd. Vs ITO (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT) Mumbai has ruled in favor of Borivali Jankalyan Sahakari Patpedhi Ltd. for the Assessment Year 2015-16. The case involved the disallowance of a deduction claimed under Section 80P of the Income Tax Act, 1961. The Assessing Officer (AO) had denied the deduction for interest income earned from investments in co-operative banks, treating it as taxable under Section 56 as “Income from Other Sources.” The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this view, leading the assessee to file an appeal before ITAT.
The primary contention was whether interest income from co-operative banks qualifies for deduction under Section 80P(2)(d). The assessee argued that a portion of these investments was statutory and should not be treated as surplus funds. The AO, however, classified the co-operative society as a “co-operative bank” under the Banking Regulation Act, 1949, and relied on the Finance Act amendments that restricted Section 80P deductions for co-operative banks. CIT(A) supported this interpretation, citing the Supreme Court’s ruling in Totgars Co-operative Sale Society Ltd. vs. ITO (2010), which held that interest on surplus funds is not eligible for deduction under Section 80P(2)(a)(i).
ITAT Mumbai reviewed judicial precedents, including CIT v. Kalpadi Co-operative Township Ltd. (Madras High Court), which clarified that a co-operative credit society providing credit facilities to members is distinct from a co-operative bank. Additionally, Mavilayi Service Co-operative Bank Ltd. v. CIT (2021) by the Supreme Court emphasized that Section 80P should be interpreted liberally in favor of co-operative societies unless they function as commercial banks. The tribunal also considered PCIT v. Totagars Co-operative Sale Society (Karnataka High Court), which affirmed that co-operative banks qualify as co-operative societies under Section 80P(2)(d), allowing deductions on interest income from them.
Based on these rulings, ITAT set aside CIT(A)’s order, holding that the interest income from investments in co-operative banks remains eligible for deduction under Section 80P(2)(d). The tribunal emphasized that Section 80P(4) applies only to co-operative banks that function at par with commercial banks, which was not the case with the assessee. Consequently, the appeal was allowed in favor of Borivali Jankalyan Sahakari Patpedhi Ltd., restoring the deduction claim.
