2021 (2) TMI 417 - AT - Income Tax

ITAT Upholds Deductions for Cooperative Credit Society under Income Tax Act

The ITAT upheld the CIT(A)'s decision, affirming that the assessee, a cooperative credit society, is entitled to deductions under sections 80P(2)(d) and ... Deduction under section 80P(2)(d) for interest/dividend from investments with another co-operative society - exclusion under section 80P(4) as against co-operative banks vis-a -vis co-operative societies - deduction under section 80P(2)(a)(i) for income from providing credit facilities to members by a co-operative credit society - construction favourable to the assessee where two reasonable constructions are possible - principle of consistency in adjudication of identical issuesDeduction under section 80P(2)(d) for interest/dividend from investments with another co-operative society - exclusion under section 80P(4) as against co-operative banks vis-a -vis co-operative societies - construction favourable to the assessee where two reasonable constructions are possible - principle of consistency in adjudication of identical issues - Claim of deduction under section 80P(2)(d) in respect of interest and dividend income earned on investments with a co-operative bank was allowable. - HELD THAT: - The Tribunal upheld the Commissioner (Appeals) in allowing deduction under section 80P(2)(d) for interest/dividend earned on deposits with the Mumbai District Central Co-operative Bank. The CIT(A) had followed earlier decisions of the Tribunal in the assessee's own case for A.Y.2013-14 and other Mumbai-Bench precedents which held that a co-operative bank, being registered as a co-operative society, falls within the expression 'co-operative society' for the purposes of section 80P(2)(d). Noting divergent High Court decisions, the CIT(A) applied the principle that where two reasonable constructions are possible a construction favourable to the assessee must be adopted; accordingly the exclusion in section 80P(4) (which excludes certain co-operative banks from section 80P) did not defeat the assessee's claim under section 80P(2)(d) where the income was derived from investments with a body registered as a co-operative society. The Tribunal found no distinction in facts and declined to interfere with the CIT(A)'s reliance on the earlier ITAT decision in the assessee's own case, allowing the deduction and directing recomputation. [Paras 5]Deduction under section 80P(2)(d) in respect of interest and dividend from investments with the co-operative bank allowed; CIT(A) sustained.Deduction under section 80P(2)(a)(i) for income from providing credit facilities to members by a co-operative credit society - exclusion under section 80P(4) as against co-operative banks vis-a -vis co-operative societies - principle of consistency in adjudication of identical issues - Assessee, an employees' co-operative credit society providing credit facilities only to its members, was eligible for deduction under section 80P(2)(a)(i) and was not to be treated as a co-operative bank attracting section 80P(4). - HELD THAT: - The Tribunal agreed with the CIT(A)'s conclusion that the assessee's primary object was to provide credit facilities to its members and not to carry on banking business in the broader sense (accepting public deposits, issuing cheques, holding an RBI banking licence). Relying on precedent decisions (including the assessee's own earlier ITAT order for A.Y.2013-14 and relevant High Court and CBDT clarifications), the CIT(A) held and the Tribunal affirmed that section 80P(4) applies to co-operative banks of the excluded category but does not extend to credit co-operative societies which do not discharge the functions of a co-operative bank; accordingly the income attributable to the activity of providing credit to members was deductible under section 80P(2)(a)(i). The Tribunal found the CIT(A)'s reliance on consistent prior decisions justified and declined to interfere. [Paras 6, 7, 8]Deduction under section 80P(2)(a)(i) allowed for income from providing credit facilities to members; assessee not treated as a co-operative bank for section 80P(4).Final Conclusion: Having found no distinguishing facts and following consistent Tribunal precedent, the Appellate Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s allowance of the section 80P deductions claimed by the assessee for A.Y.2014-15. Issues Involved:1. Deduction under section 80P(2)(d) of the Income Tax Act, 1961.2. Classification of the assessee as a co-operative bank under section 56(c)(ccv) of the Banking Regulation Act, 1949.3. Eligibility for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.4. Applicability of section 80P(4) of the Income Tax Act, 1961.5. Comparison with the judgment in Quepem Urban Co-operative Credit Society Ltd. vs. AOT.Issue-wise Detailed Analysis:Issue No. 1 to 3: Deduction under section 80P(2)(d) of the Income Tax Act, 1961The primary contention revolves around the disallowance of the claim under section 80P(2)(d). The assessee argued that the issue was covered by the decision of the ITAT in the assessee's own case (ITA No. 7634/M/2016). The CIT(A) found that the interest income from fixed deposits and dividend income from investments with other cooperative banks was rightly treated as income from other sources. Section 80P(2)(d) provides for full deduction of any income from interest or dividends derived by the cooperative society from its investments with any other cooperative society. The CIT(A) noted that the AO incorrectly disallowed the deduction on the ground that the interest income was received from a cooperative bank, which is a commercial bank. The CIT(A) emphasized that a cooperative bank is also a cooperative society registered under the Cooperative Societies Act, 1912, and thus eligible for deduction under section 80P(2)(d). The CIT(A) relied on various judicial precedents, including the ITAT Mumbai's decision in the assessee's own case for AY 2013-14, and concluded that the interest income earned from deposits with cooperative banks is eligible for deduction under section 80P(2)(d). The ITAT upheld the CIT(A)'s decision, affirming that the issue was correctly decided in favor of the assessee.Issue No. 4 to 7: Eligibility for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961The assessee, a cooperative credit society, claimed deduction under section 80P(2)(a)(i) for providing credit facilities to its members. The CIT(A) found that the assessee is not a cooperative bank as it does not hold a banking license from the RBI and its primary objective is not the business of banking but providing credit facilities to its members. The CIT(A) relied on several judicial decisions, including the Karnataka High Court's decision in Shri Vardhaman Urban Co-operative Credit Society Ltd. vs. CIT, which held that cooperative credit societies are eligible for deduction under section 80P(2)(a)(i) unless declared as a bank by the RBI. The CIT(A) also referred to the Bombay High Court's decision in Quepem Urban Co-operative Credit Society Ltd. vs. ACIT, which outlined the conditions under which a cooperative society can be considered a cooperative bank. The CIT(A) concluded that the assessee is eligible for deduction under section 80P(2)(a)(i) and directed the AO to allow the deduction. The ITAT upheld the CIT(A)'s decision, noting that the issue was covered by the ITAT's decision in the assessee's own case for AY 2013-14.Conclusion:The ITAT dismissed the revenue's appeal, upholding the CIT(A)'s findings that the assessee is entitled to deductions under sections 80P(2)(d) and 80P(2)(a)(i) of the Income Tax Act, 1961. The CIT(A) correctly applied judicial precedents and the provisions of the Income Tax Act, determining that the assessee, being a cooperative credit society and not a cooperative bank, is eligible for the claimed deductions. The ITAT affirmed that the CIT(A)'s decision was judicious and not liable to interference at the appellate stage.