Appeal allowed for deduction under section 80P(2)(d) for interest income from Co-operative Banks

The Tribunal allowed the appeal, directing the AO to permit the deduction under section 80P(2)(d) for interest income from deposits with Co-operative Banks. The Tribunal held that the provisions of section 80P(4) did not apply to the case, emphasizing that the deduction was still available for interest income from Co-operative Banks as they were not classified as Co-operative Societies. The decision overturned the CIT(A)'s ruling and was issued on 27th September 2017.

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Issues Involved:
1. Disallowance of deduction under section 80P(2)(d) of the Income Tax Act.
2. Applicability of section 80P(4) to the interest income earned from deposits with Co-operative Banks.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80P(2)(d):
The primary issue raised by the assessee was the confirmation of the disallowance of the deduction under section 80P(2)(d) of the Income Tax Act. The assessee had claimed a deduction for interest income amounting to Rs. 21,40,550/- earned from deposits placed with Co-operative Banks. The Assessing Officer (AO) disallowed this deduction, arguing that the interest and dividend earned from Co-operative Banks, which are not co-operative societies, are not exempt under section 80P(2)(d). The AO's decision was based on the amendment brought by the Finance Act, 2006, which inserted sub-section (4) to section 80P, restricting the deduction for Co-operative Banks.

In the appellate proceedings, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that section 80P(2)(d) was workable within a smaller group excluding Co-operative Banks. The CIT(A) emphasized that the legislative intent was clear in excluding Co-operative Banks from the scope of section 80P, as evidenced by the Finance Minister's speech.

2. Applicability of Section 80P(4):
The assessee contended that the provisions of section 80P(4), inserted by the Finance Act, 2006, were not applicable to their case. They argued that the deduction under section 80P(2)(d) should still be available for interest income earned from deposits with Co-operative Banks. The assessee supported their argument with various judicial decisions, including rulings from the Hon'ble Supreme Court, Jurisdictional High Court, and Co-ordinate Benches of the Tribunal.

The Tribunal examined the provisions of sub-section (4) and concluded that it was not applicable to the present case. The Tribunal noted that sub-section (4) specifically withdrew the deduction for Co-operative Banks but not for Co-operative Societies. Therefore, the assessee was entitled to the deduction under section 80P(2)(d) for the interest income earned from deposits with other Co-operative Banks.

Supporting Judicial Decisions:
The Tribunal referred to several judicial decisions that supported the assessee's claim for deduction under section 80P(2)(d):

- M/s Bajaj Auto Ltd: The Tribunal held that the withdrawal of deduction by sub-section (4) did not change the status of a Co-operative Bank as a Co-operative Society. Therefore, interest received on deposits with Co-operative Banks was still eligible for deduction under section 80P(2)(d).

- M/s Janata Grahak Madhyavarti Sahakari Sangh Maryadit: The Tribunal reiterated that interest received on deposits with Co-operative Banks was covered under section 80P(2)(d) and allowed the deduction.

- Sindhudurg Zilla Madhyamik Adhyapak Sahakar Patpedhi Maryadit: The Tribunal followed the reasoning in previous cases and allowed the deduction for interest and dividend income received from Co-operative Banks.

- M/s Rahul Urban Co-operative Credit Society: The Tribunal upheld the decision that the assessee was entitled to the deduction under section 80P(2)(d) as the members of the Credit Cooperative Society did not constitute "public."

- Govt. Central Printing Press: The Tribunal agreed that the deduction under section 80P(2)(a)(i) was available to the assessee as they were not considered a Co-operative Bank.

- Quepem Urban Co-op. Credit Soc. Ltd: The Tribunal held that the assessee, being a Co-operative Society and not a Co-operative Bank, was entitled to the deduction under section 80P(2)(a)(i).

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the AO to allow the deduction under section 80P(2)(d) for the interest income earned from deposits with Co-operative Banks. The appeal of the assessee was allowed, and the order was pronounced in the open court on 27th September 2017.

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