2022 (5) TMI 367 - AT - Income Tax

Interest on Cooperative Bank Funds Deductible under Section 80P(2)(d)

Shri Mahila Co-op. Credit Society Ltd. Versus The ACIT, Circle-1, Bhavnagar

The ITAT allowed the appeal of the assessee, concluding that interest earned on surplus funds held with a cooperative bank is eligible for deduction under ... Deduction u/s 80P(2)(d) - whether the assessee is eligible to claim deduction on interest earned from Co-Operative Banks u/s 80P(2)(d)? - HELD THAT:- The Hon’ble Gujarat High Court in the case of State Bank of India Vs. CIT [2016 (7) TMI 516 - GUJARAT HIGH COURT] held that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d). In the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society [2017 (7) TMI 1049 - KARNATAKA HIGH COURT] the Karnataka High Court has held that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. Interest earned by the assessee on surplus held with cooperative bank would be eligible for deduction under Sec.80P(2)(d). Appeal of assessee allowed. : Issues:1. Eligibility of the assessee to claim deduction on interest earned from Co-Operative Banks u/s 80P(2)(d) of the Act.Analysis:The appeal was filed by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi regarding the assessment year 2017-18. The assessee had claimed deduction under section 80P of the Income Tax Act for the interest earned from fixed deposits kept with a Cooperative Bank. The learned AO disallowed the deduction based on a previous decision by ITAT Ahmedabad, stating that interest earned from deposits with Cooperative Banks is not eligible for deduction under section 80P(2)(d) of the Act. The AO charged the interest earned as income of the assessee under section 56 of the Act.In the appeal before the Ld. CIT(A), the appeal was dismissed based on various case laws and legal findings. The Ld. CIT(A) emphasized that the income earned from idle or surplus funds deposited with a bank does not change its character, irrespective of whether it is a scheduled bank or a cooperative bank. The Ld. CIT(A) concluded that such interest income is not operational income from providing credit facilities and is not eligible for deduction under section 80P.The Hon'ble Supreme Court's decision in the case of Citizen Cooperative Society v. ACIT was also referenced to support the view that the appellant did not fall under the definition of a cooperative bank and hence was not eligible for deduction under section 80P. The Ld. CIT(A) upheld the AO's decision that the interest income earned from the fixed deposit with the Cooperative Bank is income from other sources and not eligible for deduction under section 80P.However, in the appeal before the ITAT, it was argued by the DR that the issue was covered against the assessee. The ITAT analyzed the issue and referred to the decision of the Hon'ble Gujarat High Court in the case of State Bank of India Vs. CIT, where it was held that interest income earned by a cooperative society from investments held with a cooperative bank is eligible for deduction under section 80P(2)(d) of the Act. The ITAT also cited various other cases supporting the eligibility of such interest income for deduction under section 80P(2)(d).Based on the legal precedents and judgments, the ITAT allowed the appeal of the assessee, concluding that the interest earned on surplus funds held with a cooperative bank is eligible for deduction under section 80P(2)(d) of the Act.