Deduction denied for interest income from cooperative bank but allowed for other sources

The Tribunal dismissed the claim for deduction under Section 80P(2)(d) of the Income Tax Act, citing precedents that interest income from a cooperative bank is not deductible. However, the Tribunal allowed the deduction under Section 80P(2)(c) for the assessee, based on a broad interpretation of "profits and gains" to include various income sources. The appeals were partly allowed, with the order issued on 22nd March 2019.

---

---

Issues Involved:
1. Entitlement to deduction under Section 80P(2)(d) of the Income Tax Act.
2. Entitlement to deduction under Section 80P(2)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80P(2)(d):

The primary issue was whether the interest income of Rs. 63,16,231/- earned by the assessee from a cooperative bank is entitled to deduction under Section 80P(2)(d) of the Income Tax Act. The assessee, a Housing Cooperative Society, had filed a return of income declaring nil income after claiming this deduction. The AO disallowed the deduction, which was upheld by the CIT (A). The Tribunal referred to the decision of the jurisdictional High Court in Pr. CIT v. Totgars Co-op Sale Society [395 ITR 611], which held that the interest earned from a cooperative bank is not deductible under Section 80P(2)(d). The Tribunal noted that this issue had been conclusively decided against the assessee by the High Court and the Supreme Court in Totgar’s Cooperative Sale Society v. ITO [322 ITR 283]. Therefore, the ground raised by the assessee was dismissed.

2. Entitlement to Deduction under Section 80P(2)(c):

The second issue was whether the assessee was entitled to a deduction of Rs. 50,000/- under Section 80P(2)(c) of the Act. The CIT (A) had denied this deduction on the ground that the activities of the assessee were not covered under Sections 80P(2)(a) and (b). The assessee argued that the term "profits and gains" used in Section 80P(2)(c) should be interpreted broadly to include all heads of income, as supported by the Supreme Court's decision in CIT v. Virmani Industries P. Ltd [216 ITR 607]. The Tribunal agreed with the assessee, citing various judgments, including Film Nagar Co-operative Housing Society Ltd. [91 ITD 27], Maker Tower Co-op. Hsg. Society Ltd. [20 SOT 253], and Tamil Nadu Brick & Tile Mfrs. Industrial Service Co-operative Society Ltd. [129 TAXMAN 343], which supported the view that the term "profits and gains" encompasses a broader range of income. Consequently, the Tribunal held that the assessee was entitled to the deduction under Section 80P(2)(c)(ii) for Rs. 50,000/-.

Conclusion:

The Tribunal dismissed the ground related to the deduction under Section 80P(2)(d) but allowed the deduction under Section 80P(2)(c). The appeals were partly allowed, and the order was pronounced in the open court on 22nd March 2019.

---