Kona Seema Co-operative Housing Society Ltd. Vs ITO (ITAT Mumbai)
The Mumbai Bench of the Income Tax Appellate Tribunal allowed the appeal of Kona Seema Co-operative Housing Society Ltd. for assessment year 2015–16, holding that interest of ₹5,74,097 earned on deposits with Saraswat Co-operative Bank Ltd. and Maharashtra State Co-operative Bank Ltd. qualified for deduction under Section 80P(2)(d) of the Income-tax Act, 1961. The deduction had been denied while processing the return under Section 143(1), and the CIT(A) had upheld that denial.
The Tribunal explained that Section 80P(2)(d) requires interest or dividend income to arise from investments made by a co-operative society with another co-operative society. It found no statutory restriction merely because the recipient of the deposits was a multi-state co-operative bank. It also observed that Section 80P(4) concerns a co-operative bank claiming a deduction for itself, rather than a housing society receiving interest. The Bench relied on the Supreme Court decision in Mavilayi Service Co-operative Bank Ltd. v. CIT.
Accordingly, the Tribunal allowed grounds 4 and 5 relating to the deduction. The ground concerning interest under Sections 234A, 234B and 234C was treated as consequential, while the challenge concerning the scope of adjustment under Section 143(1) was left open. The assessee’s appeal was allowed.
FULL TEXT OF THE ITAT JUDGMENT/ORDER
The present appeal has been filed by the assessee challenging the impugned order dated 13/04/2023, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, for the assessment year 2015–16.
2. In its appeal, the assessee has raised the following grounds:–
“1. On facts, in circumstances of the case and in law, learned CIT-A ought to have deleted interest u/s 234A, 234B, 234C of Rs.Total 58,739/-.
2. The appellant craves leave to add, alter, modify or delete any of the above Grounds of Appeal.
3. On facts, in circumstances of the case and in law, learned CIT-A ought to have held that adjustment made to total income by Centralised Processing Centre, Bangalore was outside the scope of provisions of section 143(1) of the Income Tax Act, 1961.
4. On facts, in circumstances of the case and in law, learned CIT-A ought to have allowed the claim of deduction u/s 80(P)(2)(d) of the appellant society in respect of interest income from co-operative banks amounting to Rs.574097/-. 5. On facts, in circumstances of the case and in law, learned CIT-A erred in determining MSC Bank Ltd and Saraswat Co-operative Bank Ltd are not cooperative banks.
3. The brief facts of the case as emanating from the record are: The assessee is a Co-operative Housing Society. For the assessment year 201516, the assessee filed its return of income on 12/07/2016, declaring a total income of Rs.NIL. During the year, the assessee earned interest income of Rs. 5,74,097, from the investments made in various Co-operative Banks and claimed the same as a deduction under section 80P(2)(d) of the Act. The return filed by the assessee was processed vide intimation dated 17/10/2016 issued under section 143(1) of the Act denying the deduction claimed under section 80P(2)(d) of the Act and assessing the total income of the assessee at Rs 5,74,100.
4. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us.
5. We have considered the submissions of both sides and perused the material available on record. The dispute raised by the assessee is against the denial of deduction claimed under section 80P(2)(d) of the Act in respect of interest income received from the Co-operative Banks.The assessee is a Cooperative Housing Society and during the assessment year 2015-16 earned interest income of Rs. 5,74,097 from the investments made in Saraswat Cooperative Bank Ltd and Maharashtra State Co-operative Bank Ltd.
6. Before proceeding further, it is relevant to note the provisions of section 80P of the Act under which the assessee has claimed the deduction in the present case. As per the provisions of section 80P(1) of the Act, the income referred to in sub-section (2) to section 80P shall be allowed as a deduction to an assessee being a Co-operative Society. Further, section 80P(2)(d) of the Act, reads as under:
“80P. Deduction in respect of income of co-operative societies.
(1) …..
. (2) The sums referred to in sub-section (1) shall be the following, namely:–
(a) …..
(b) ….
(c) …..
(d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society, the whole of such income;”
7. Thus, for the purpose of provisions of section 80P(2)(d) of the Act, two conditions are required to be cumulatively satisfied- (i) income by way of interest or dividend is earned by the Co-operative Society from the investments, and (ii) such investments should be with any other Co-operative Society. Further, the term ‘co-operative society’ is defined under section 2(19) of the Act as under:
“(19) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ;”
8. In the present case, there is no dispute that the assessee is a CoOperative Housing Society. Thus, if any income as referred to in sub-section (2) to section 80P of the Act is included in the gross total income of the assessee, the same shall be allowed as a deduction. It is pertinent to note that since the assessee is registered under the Maharashtra Co-operative Societies Act, 1960, it is required to invest or deposit its funds in one of the modes provided in section 70 of the aforesaid Act, which includes investment or deposit of funds in the District Central Co-operative Bank or the State Cooperative Bank. Accordingly, the assessee kept the deposits in Saraswat Cooperative Bank Ltd and Maharashtra State Co-operative Bank Ltd and earned interest, which was claimed as adeduction under section 80P(2)(d) of the Act. The deduction under section 80P(2)(d) of the Act was denied on the basis that the Saraswat Co-operative Bank Ltd and Maharashtra State Co-operative Bank Ltd are multi-state scheduled banks and therefore interest derived will not qualify for deduction under section 80P(2)(d) of the Act. However, from the perusal of section 80P(2)(d) of the Act, it is sufficiently evident that there is no restriction on claiming deduction under the said section in respect of interest income earned from the Co-operative society operating in multiple states. Further,section 80P(4) of the Act is of relevance only in a case where the taxpayer, who is a Co-operative Bank, claims a deduction under section 80P of the Act which is not the facts of the present case. We find that the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs CIT, Calicut, [2021] 431 ITR 1 (SC) while analysing the provisions of section 80P(4) of the Act held that section 80P(4) is a proviso to the main provision contained in section 80P(1) and (2) and excludes only Co-operative Banks, which are Co-operative Societies and also possesses a licence from RBI to do banking business. The Hon’ble Supreme Court further held that the limited object of section 80P(4) is to exclude Co-operative Banks that function at par with other commercial banks i.e. which lend money to members of the public. Therefore, we find no merits in the reasoning adopted by the learned CIT(A) in denying deduction under section 80P(2)(d) of the Act to the assessee. As a result, grounds no. 4 and 5 raised in assessee’s appeal are allowed.
9. Ground No. 1 is consequential in nature and therefore needs no separate adjudication.
10. In view of aforesaid findings, the issue arising in ground no. 3 is left open as per the submissions of the learned AR.
11. In the result, the appeal by the assessee is allowed.
Order pronounced in the open Court on 08/11/2023
