ITAT Pune Sets Aside Denial of Section 80P(2)(d) Deduction on Interest Income

Alaknanda Sahakari Gruharachana Sanstha Maryadit Vs ITO (ITAT Pune)

The assessee, a co-operative housing society registered under the Maharashtra State Co-operative Societies Act, appealed against the order of the Addl./Jt. Commissioner of Income Tax (Appeals), Delhi, arising from an intimation under Section 143(1) of the Income-tax Act for AY 2021-22. The assessee had earned interest income of ₹1,47,640 from fixed/term deposits and ₹3,979 from savings account balances maintained with Pune District Central Co-operative Bank (PDCC) and claimed deduction of ₹1,51,620 under Section 80P(2)(d). The return declaring nil income was processed under Section 143(1), and the deduction was denied on the ground that the interest was received from a co-operative bank, making the claim ineligible under Section 80P(4). The first appellate authority upheld the denial.

The Tribunal observed that there was no dispute regarding the assessee’s status as a co-operative society or the nature of the interest income. It held that Section 80P(2)(d) requires only that both the recipient claiming the deduction and the payer of the interest or dividend be co-operative societies registered under the applicable co-operative societies law. It found that PDCC was registered under the Maharashtra State Co-operative Societies Act and therefore satisfied the statutory requirement.

The Tribunal further held that Section 80P(4) applies only where the claimant itself is a co-operative bank within the meaning of Part V of the Banking Regulation Act, 1949. Since the assessee was a housing co-operative society and neither a co-operative bank nor a credit co-operative society, Section 80P(4) did not affect its claim. It also observed that the Revenue had not established that PDCC was a co-operative bank within the meaning of Explanation (a) to Section 80P(4). Following the judicial precedents cited in the order, the Tribunal held that Section 80P(4) does not jeopardise the claim of deduction under Section 80P(2)(d) on interest or dividend received from another co-operative society irrespective of the payer’s classification. The orders of the lower authorities were vacated, the denial of deduction was reversed, and the assessee’s appeal was allowed.

Cases Discussed

• PCIT Vs Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. (SC), [2023, 454 ITR 117 (SC)]
• Kerala State Co-Operative Agricultural and Rural Development Bank Ltd. (KSCARDB) Vs. TAO (SC), [2023INSC830 (SC)]
• Mavilayi Service Co-operative Bank Ltd. Vs CIT (SC), [2021, 431 ITR 1 (SC)]
• PCIT Vs Totagars Co-operative Sale Society (Karnataka High Court), [2017, 83 com 140 (Kar)]

FULL TEXT OF THE ORDER OF ITAT PUNE

By this appeal the assessee impugns DIN & Order No. ITBA/APL/S/250/ 2024-25/1064436317(1) dt. 29/04/2024 passed u/s 250 of Income-tax Act, 1961 [‘the Act’ hereafter] by the Addl./Jt. Commissioner of Income Tax Appeals-4 Delhi [‘Ld. NFAC/CIT(A)’ hereafter] which in turn arising out of order of intimation dt. 19/10/2022 passed u/s 143(1) of the Act for assessment year 2021-22 [‘AY’ hereinafter].

2. The long and short of the case is that; the assessee is a co-operative housing society registered under the provisions of Maharashtra State Co-op. Societies Act. For the year under consideration the assessee was in receipt of (a) interest income of ₹1,47,640/- derived by or accrued to it from investment held with co-operative banks/institutions in the form of Fixed/Term Deposit Receipt [‘TDR’ hereafter] and (b) interest income of ₹3,979/- derived by or accrued to it on the balance of saving account maintained with such co-operative banks/institutions.

3. The assessee filed its return of income [‘ITR’ hereafter] declaring total income of ₹NIL after claiming ₹1,51,620/- as deduction u/s 80P(2)(d) of the Act. The said return was processed summarily u/s 143(1) of the Act by determining total income at ₹1,51,620/- as against the returned NIL income owning to denial of deduction claimed u/s 80P(2) of the Act.

4. Aggrieved assessee futilely contested the former denial and the determination of aforestated taxable income in an appeal before first appellate forum. Thus, hurt by the orders of tax authorities below, the assessee housing society is in appeal before us.

5. We have heard the rival parties; 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.

6. From the facts solidified by the rival parties we note that, there is no dispute that the assessee is a co-operative society and is entitled to claim deduction u/s 80P(2)(d) of the Act. Further there is also much less dispute over the nature of income received/earned by the assessee in the form of interest on deposits & balances held with ‘Pune District Central Co-Operative Bank’ [‘PDCC’ hereafter]. The Revenue in the present case denies the 80P(2) deduction to the assessee against such interest for a solitary reason that the PDCC is a co-operative bank therefore the claim of the assessee is hit by provisions of s/s (4) of section 80P of the Act. While denying said deduction the Revenue strongly places its reliance on ‘Mavilayi Service Co-operative Bank Ltd. Vs CIT’ [2021, 431 ITR 1 (SC)] and on ‘PCIT Vs Tota_gars Co-operative Sale Society’ [2017, 83 com 140 (Kar)]. In nutshell the sole & substantive dispute in the present case is not over eligibility of the assessee to claim deduction u/s 80P(2)(d) of the Act but over qualification of interest in view of s/s (4) of section 80P of the Act.

7. 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-inte_g 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]

8. Insofar as allowability of deduction u/s 80P(2)(d) is concerned, on perusal of section 80P(2)(d) 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 societies is eligible for deduction u/s 80P(2)(d) of the Act. An assessee’s entitlement for deduction u/s 80P(2)(d) of the Act prima-facie is subjected to satisfaction of two decisive conditions viz; (1) the 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) the payer of income must also be a co-operative society as defined u/s 2(19) of the Act. In terms of section 80P(2)(d) r.w.s. 2(19) of the Act, a recipient and a payer both must be registered either under central Co-operative Societies Act, 1912 or under any other law for the time being in force in any state for the registration of co-operative societies. It precisely means for the purpose of 80P(2)(d) of the Act, both recipient & payer of interest/dividend must be registered either under the provisions of; (a) Co-operative Society Act, 1912 or (b) Multi-state Co-operative Society Act, 2003 or (c) State Co-operative Societies Act in force. Where the recipient cum claimant assessee as well as the payer of the interest/dividend income both are societies registered under the State Co-operative societies Act 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. And this continues to hold the field irrespective of class within which such recipient cum claimant assessee as well as the payer society is registered. What is indispensable for the purpose of clause (d) of s/s (2) of section 80P of the Act is the statutory/legal establishment under the applicable co­operative society’s law and not the class within which they fall or registered.

9. Conversely, where an assessee is a co-operative society is not a co­operative 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 that, the language of s/s (4) of section 80P of the Act capable of suggesting unambiguously that it comes into play only when the claimant assessee falls within the meaning of ‘Co-operative bank’ as assigned under Part V of BRA (supra) and not otherwise.

10. In the present case admittedly, the claimant assessee is a co-operative society registered under the Maharashtra State Co-operative society, thus this positively fulfils the first condition so as to enable the assessee make a claim for deduction u/s 80P(2)(d) of the Act. Now turning to vouch fulfilment of second condition we note that, the PDCC in first place is a society registered u/s 5 of Maharashtra State Co-operative Societies Act, In terms of section 10 (supra) the PDCC is granted registration under ‘class-3 as co-operative bank with sub class as central Bank’. This at the outset de-facto sufficient to establishes that, the payer of interest income to the assessee i.e. the PDCC is also a co-operative society registered under the provisions of state co-operative societies Act, and for the purpose it undoubtedly slakes the second condition envisaged i/s 80P(2)(d) of the Act.

11. Admittedly, the appellant assessee is a housing co-operative society and is neither a credit co-operative society nor a co-operative bank and (b) the payer of interest income to the assessee i.e. PDCC is although is a co­operative bank in common parlance but not a co-operative bank strictly within the meaning assigned in Part V of BRA. In view therefore there is much less merits in application of s/s (4) of section 80P of the Act in denying the 80P(2)(d) deduction to the assessee.

12. We find that, once claimant assessee falls outside the ambit of explanation (a) to section 80P(4) of the Act then denial would be contra-legem finds fortified in case of ‘PCIT Vs Annasaheb Patil Mathadi Kam_gar 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)(a)(i) 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 the favour of the 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.

13. On the contrary there is much less material placed on record by the Revenue in establishing that the payer PDCC 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’ [2023INSC830 (SC)], the denial of 80P(2)(d) deduction to the assessee and the action of the respondent Revenue cannot be continued. In this regard, we further also 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 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. It is 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 who claims deduction u/s 80P(2) of the Act which is not the facts of the present case. The said decision of the Hon’ble Karnataka High Court ‘PCIT Vs Tota_gars Co­operative Sale Society’ (supra) is distinguishable and in any case, the later decision of Hon’ble Supreme Court in case of ‘Mavilayi Service Co­operative Bank Ltd’. (Supra) wherein the correct legal preposition has been laid down by the Hon’ble Supreme Court has to be followed.

14. Respectfully following judicial precedents (supra) we hold that section 80P(4) of the Act does not jeopardise the claim of deduction to housing co­operative society u/s 80P(2)(d) in respect of interest/dividend income from investments/share held with other co-operative society irrespective of its classification and status as to whether it attracted disqualification u/s 80P(4) of the Act or not. In consequence we hold that the views adopted by the tax authorities below in our considered opinion are not in conformity with legal position and binding judicial precedents, hence vacated. Resultantly, we reverse the denial of deduction. The grounds stands adjudicated accordingly.

15. In result, the appeal of the assessee stands ALLOWED.

In terms of rule 34 of ITAT Rules, order pronounced in open court on this Tuesday 10th day of September, 2024.