Interest income from co-op bank investments qualifies for deduction under sec 80P(2)(d) - Tribunal ruling

The Tribunal held that interest income earned by a co-operative housing society from investments in co-operative banks qualifies for deduction under section 80P(2)(d) of the Income Tax Act, 1961. The Tribunal emphasized that co-operative banks fall within the definition of a "co-operative society" under the Act, and the insertion of section 80P(4) does not affect the eligibility of co-operative societies to claim such deductions. The appeal was allowed, overturning the disallowance by the Assessing Officer and the decision of the Commissioner of Income Tax (Appeals).

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Issues Involved:
1. Disallowance of deduction under section 80P(2)(d) of the Income Tax Act, 1961 on interest earned from co-operative banks.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80P(2)(d):

Facts:
The assessee, a co-operative housing society, earned interest income of Rs. 73,23,824 from investments in Fixed Deposit Receipts (FDRs) with various co-operative banks. The assessee claimed a deduction for this interest income under section 80P(2)(d) of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed the claim, arguing that income from co-operative banks is not eligible for deduction under section 80P(2)(d) due to the insertion of section 80P(4) effective from 01.04.2007, which differentiates a co-operative bank from a co-operative society. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision.

Assessee's Argument:
The assessee contended that co-operative banks in which investments were made are indeed co-operative societies registered under the Maharashtra State Co-operative Societies Act, 1960. Therefore, the interest income should qualify for deduction under section 80P(2)(d). The assessee also argued that section 80P(4) applies only to co-operative banks and not to co-operative societies earning interest from investments in co-operative banks.

Tribunal's Analysis:
The Tribunal referred to its decision in the case of Kaliandas Udyog Bhavan Premises Co-op Society Ltd. vs. ITO, where it was held that the interest income earned from investments with co-operative banks qualifies for deduction under section 80P(2)(d). The Tribunal emphasized that section 80P(2)(d) allows deduction for interest income derived by a co-operative society from its investments with any other co-operative society. The term "co-operative society" includes co-operative banks, as they are registered under the Co-operative Societies Act.

The Tribunal noted that the insertion of section 80P(4) was intended to exclude co-operative banks from claiming deductions under section 80P, but it does not affect the eligibility of co-operative societies to claim deductions for interest income from investments in co-operative banks. The Tribunal cited several judicial precedents supporting this interpretation, including decisions from the Hon'ble High Courts of Karnataka and Gujarat.

Conclusion:
The Tribunal concluded that the interest income earned by the assessee from investments in co-operative banks is eligible for deduction under section 80P(2)(d). The Tribunal set aside the orders of the lower authorities and allowed the assessee's appeal, granting the deduction.

Final Order:
The appeal of the assessee was allowed, and the disallowance made by the AO and upheld by the CIT(A) was deleted.

Pronouncement:
The order was pronounced in the open court on 23-08-2018.

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