2018 (8) TMI 2033 - AT - Income Tax

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 ... Deduction under section 80P(2)(d) - co-operative society - co-operative bank - scope of subsection 80P(4) - interest income from investments - statutory definition of co-operative societyDeduction under section 80P(2)(d) - interest income from investments - co-operative bank - statutory definition of co-operative society - scope of subsection 80P(4) - Entitlement of a co-operative housing society to deduction under section 80P(2)(d) in respect of interest income earned on investments placed with co-operative banks. - HELD THAT: - The Tribunal considered the text of section 80P(2)(d), which grants deduction where a co-operative society derives interest from investments with any other co-operative society, and the statutory definition of 'co-operative society'. Although subsection (4) of section 80P (inserted with effect from 01.04.2007) limits the applicability of section 80P to co-operative banks themselves, the Tribunal held that that insertion does not alter the entitlement of a co-operative society to claim deduction under section 80P(2)(d) for interest received from investments made with a co-operative bank. The Tribunal followed its earlier decision in Kaliandas Udyog Bhavan Premises Co-op Society Ltd. v. ITO, which construed the provisions and relevant authorities and concluded that so long as the recipient of the interest is a co-operative society and the payer is a co-operative society (including a co-operative bank registered under the co-operative societies law), the interest income falls within section 80P(2)(d). Reliance was placed on the statutory definition of 'co-operative society' and on precedents favouring the assessee; the view that section 80P(4) wholly excludes such interest from deduction was rejected as not affecting the statutory scope of clause (2)(d). Applying that reasoning to the facts, the Tribunal deleted the disallowance of the interest income claimed as deduction under section 80P(2)(d).The disallowance was deleted and the claim for deduction under section 80P(2)(d) in respect of interest from co-operative banks was allowed.Final Conclusion: Following the Tribunal's earlier decision in Kaliandas Udyog Bhavan Premises Co-op Society Ltd., the appeal was allowed and the disallowance of interest income under section 80P(2)(d) was deleted, permitting the co-operative housing society to claim the deduction. 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.