Vishal Co-operative Housing Service Society Limited Vs ITO (ITAT Surat)
Summary: The Income Tax Appellate Tribunal, Surat Bench, in Vishal Cooperative Housing Service Society Limited Vs ITO, examined whether a co-operative housing society was entitled to a deduction under Section 80P(2)(d) of the Income-tax Act, 1961, on interest earned from fixed deposits maintained with Surat District Cooperative Bank. The assessee challenged the order dated 24 November 2023 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, for Assessment Year 2018-19. The dispute arose after the Central Processing Centre (CPC) disallowed the society’s deduction claim while processing its income-tax return. The assessee subsequently sought rectification under Section 154, but the CPC rejected its application by an order dated 4 January 2022.
The assessee was a co-operative society engaged in maintaining a group housing society. In its computation of income, it claimed a deduction of ₹1,21,000 on interest earned from fixed deposits and ₹15 on dividend income received from Surat District Cooperative Bank. The total disputed deduction was ₹1,21,015. Before the CIT(A), the assessee furnished a complete bifurcation of the interest income earned from the co-operative bank and relied on judicial decisions supporting the eligibility of interest received from co-operative banks for deduction under Section 80P(2)(d). These included Kona Seema Co-operative Society Vs ITO, decided by the Mumbai Tribunal, and Thorapadi Urban Co-operative Society, decided by the Madras High Court. However, the CIT(A) upheld the CPC adjustment, reasoning that interest income earned from deposits or investments of surplus funds retained its character irrespective of whether the deposits were maintained with a scheduled bank or a co-operative bank.
Before the Tribunal, the assessee contended that the issue was covered by earlier decisions of the Surat Bench in Madhi Sugar Staff Co-operative Credit Society Limited Vs DCIT and Bardoli Vibhag Gram Vikas Co-operative Credit Society Limited Vs PCIT. These decisions had followed the Gujarat High Court’s judgment in Surat Vankar Sahakari Sangh Limited Vs ACIT, reported in (2016) 72 taxmann.com 169. Although the assessee filed an adjournment application, the Tribunal proceeded to hear the matter after observing that the grounds of appeal appeared to be covered in the assessee’s favour by existing judicial precedents. The Departmental Representative supported the orders of the lower authorities and requested verification of the interest income earned from Surat District Cooperative Bank.
The Tribunal observed that the CIT(A) had not disputed the fact that the assessee earned interest from Surat District Cooperative Bank. The assessee had also provided a complete month-wise bifurcation of the interest income. Referring to the binding decision of the jurisdictional Gujarat High Court in Surat Vankar Sahakari Sangh Limited Vs ACIT and the consistent decisions of the Surat Bench, the Tribunal held that co-operative banks were primarily co-operative societies and that interest earned on deposits maintained with such banks qualified for deduction under Section 80P(2)(d). It also relied on Bardoli Vibhag Gram Vikas Co-operative Credit Society Limited Vs PCIT, reported in (2021) 127 taxmann.com 334, which had adopted the same interpretation.
Accordingly, the Tribunal directed the Assessing Officer to delete the entire disallowance and allowed the assessee’s appeal. The order establishes that, on the facts considered and in accordance with the jurisdictional precedents applied by the Surat Bench, interest earned by a co-operative housing society from deposits maintained with a co-operative bank is eligible for deduction under Section 80P(2)(d). The decision also demonstrates that an otherwise allowable deduction cannot be sustained as disallowed merely because the income arises from fixed deposits with a co-operative bank, particularly where the source and amount of interest income are not disputed.
Cases Discussed:
- Surat Vankar Sahakari Sangh Limited Vs ACIT (Gujarat High Court); (2016) 72 taxmann.com 169: The jurisdictional High Court decision followed by the Tribunal for allowing deduction under Section 80P(2)(d) on interest earned from deposits with co-operative banks.
- Bardoli Vibhag Gram Vikas Co-operative Credit Society Limited Vs PCIT (ITAT Surat); (2021) 127 taxmann.com 334: Relied upon as a consistent decision of the Surat Bench holding that interest earned from co-operative bank deposits qualifies for deduction under Section 80P(2)(d).
- Madhi Sugar Staff Co-operative Credit Society Limited Vs DCIT (ITAT Surat): Cited by the assessee as an earlier Tribunal decision supporting deduction under Section 80P(2)(d).
- Kona Seema Co-operative Society Vs ITO (ITAT Mumbai); ITA No. 2024/Mum/2023; 08/11/2023: Relied upon before the CIT(A) in support of the deduction claim concerning interest from co-operative banks.
- Thorapadi Urban Co-operative Society (Madras High Court): Cited by the assessee before the CIT(A) to support eligibility for deduction on interest earned from co-operative banks.
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.
