2023 (11) TMI 440 - AT - Income Tax

Tribunal Grants Co-op Housing Society Deduction on Interest Income, Overturns Previous Denial u/s 80P(2)(d.

Kona Seema Co–operative Housing Society Ltd. Versus Income Tax Officer Ward–27 (2) (1), Mumbai

The tribunal allowed the appeal by the appellant, a Co-operative Housing Society, regarding the denial of deduction under section 80P(2)(d) of the Income ... Deduction u/s 80P(2)(d) - interest income received from the Co-operative Banks - HELD THAT:- From the perusal of section 80P(2)(d) of the Act, it is sufficiently evident that there is no restriction on claiming deduction under the said section in respect of interest income earned from the Co-operative society operating in multiple states. Section 80P(4) of the Act is of relevance only in a case where the taxpayer, who is a Co-operative Bank, claims a deduction under section 80P of the Act which is not the facts of the present case. We find that in Mavilayi Service Co-operative Bank Ltd [2021 (1) TMI 488 - SUPREME COURT] while analysing the provisions of section 80P(4) of the Act held that section 80P(4) is a proviso to the main provision contained in section 80P(1) and (2) and excludes only Co-operative Banks, which are Co-operative Societies and also possesses a licence from RBI to do banking business. Also held that the limited object of section 80P(4) is to exclude Co-operative Banks that function at par with other commercial banks i.e. which lend money to members of the public. Therefore, we find no merits in the reasoning adopted by CIT(A) in denying deduction u/s 80P(2)(d) to the assessee. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether interest income earned by a co-operative housing society from deposits with Saraswat Co-operative Bank Ltd and Maharashtra State Co-operative Bank Ltd qualifies for deduction under section 80P(2)(d) of the Income Tax Act, 1961. 2. Whether banks operating as multi-state scheduled/co-operative banks having RBI licence are excluded from the scope of 'co-operative society' for the purposes of section 80P by virtue of section 80P(4), thereby disallowing deduction under section 80P(2)(d). 3. Consequential issue: Whether interest under sections 234A, 234B and 234C should be deleted if the primary deduction under section 80P(2)(d) is allowed. 4. Whether adjustments made to total income by the Centralised Processing Centre, Bangalore fall outside the scope of section 143(1) (identified but left open by the assessee and the Tribunal). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Allowability of deduction under section 80P(2)(d) for interest from investments with the named banks Legal framework: Section 80P(1) permits deduction of income referred to in subsection (2) to an assessee being a co-operative society. Section 80P(2)(d) grants deduction in respect of 'any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income.' 'Co-operative society' is defined in section 2(19) as a society registered under the relevant State Co-operative Societies Act. Precedent treatment: The Tribunal relied on the interpretation in Mavilayi Service Co-operative Bank Ltd. v. CIT (as articulated by the Supreme Court) concerning the scope of section 80P(4) and its interplay with sections 80P(1) and (2). Interpretation and reasoning: The Court noted there is no express restriction in section 80P(2)(d) disallowing deduction for income from a co-operative society merely because it operates in multiple states. The assessee, a co-operative housing society registered under the Maharashtra Co-operative Societies Act, deposited funds in the named co-operative banks pursuant to statutory investment modes (section 70 of the Maharashtra Co-operative Societies Act). The deposits thus constituted investments 'with any other co-operative society.' The Tribunal rejected the view that multi-state operation or scheduled status alone removes the character of a co-operative society for the purposes of section 80P(2)(d). Ratio vs. Obiter: Ratio - A co-operative housing society's interest income from deposits with co-operative banks (even if those banks are multi-state or scheduled) qualifies for deduction under section 80P(2)(d) unless the bank falls within the specific exclusion contemplated by section 80P(4). Obiter - ancillary observations about the statutory duty to invest under state law and the modes listed in section 70 of the State Act. Conclusion: Deduction under section 80P(2)(d) is allowable in respect of interest income earned by the assessee from deposits placed with Saraswat Co-operative Bank Ltd and Maharashtra State Co-operative Bank Ltd; grounds challenging denial of the deduction are allowed. Issue 2 - Whether section 80P(4) excludes the named banks from being 'co-operative society' for purposes of section 80P Legal framework: Section 80P(4) is a proviso that excludes certain co-operative banks which carry on banking business akin to commercial banks (i.e., possessing an RBI licence and functioning at par with commercial banks) from the benefits of section 80P. Precedent treatment: The Court followed the Supreme Court's interpretation in Mavilayi Service Co-operative Bank Ltd., which held that section 80P(4) is a limited proviso to the main provisions in sections 80P(1) and (2) and excludes only those co-operative banks that are cooperative societies but also possess an RBI licence to do banking business to the extent they operate as banks lending to the public like commercial banks. Interpretation and reasoning: The Tribunal applied the Mavilayi ratio to distinguish co-operative character from commercial banking functions. The Court rejected the CIT(A)'s conclusion that the mere status of being a multi-state scheduled bank automatically removes the bank from the umbrella of 'co-operative society' under section 80P(2)(d). The limited object of section 80P(4) is to exclude co-operative banks that function at par with commercial banks; that exclusion is not triggered solely by multi-state or scheduled status absent facts indicating the bank functions as a commercial bank in the manner contemplated by section 80P(4). Ratio vs. Obiter: Ratio - Section 80P(4) applies narrowly to exclude only those co-operative banks which, while being co-operative societies, also possess RBI licences and function effectively as commercial banks lending to the public; mere multi-state or scheduled status does not automatically invoke exclusion. Obiter - Remarks criticizing the learned CIT(A)'s reasoning for blanket denial based on multi-state scheduled character. Conclusion: The facts did not establish that the named banks fell within the limited exclusion under section 80P(4); therefore, interest earned from them qualifies for deduction under section 80P(2)(d). Issue 3 - Consequential deletion of interest under sections 234A, 234B and 234C Legal framework: Interest under sections 234A, 234B and 234C is consequential on the tax liability determined; if primary assessment is altered to allow deduction reducing tax to nil, consequential interest may fall away. Interpretation and reasoning: The Tribunal treated ground no. 1 (deletion of interest under sections 234A/234B/234C) as consequential upon allowance of the deduction under section 80P(2)(d) and held that separate adjudication was not required given the primary relief granted. Ratio vs. Obiter: Ratio - Consequential relief on interest follows from the primary determination on tax liability; no independent adjudication necessary where primary disallowance is set aside. Obiter - None beyond the consequential nature of the claim. Conclusion: Ground no. 1 is consequential and requires no separate adjudication in view of allowance of deduction under section 80P(2)(d). Issue 4 - Validity/scope of adjustments made under section 143(1) by Centralised Processing Centre, Bangalore Legal framework: Section 143(1) intimations may include adjustments by CPC; scope and correctness can be contested before appellate fora. Interpretation and reasoning: The Tribunal noted that the issue raised in ground no. 3 (challenge to adjustment made by CPC under section 143(1)) was left open by the assessee and therefore remained undecided. Ratio vs. Obiter: Obiter - The Tribunal did not adjudicate this issue; it remains open for parties to pursue if desired. Ratio - Not applicable as the point was left open. Conclusion: The question regarding the scope/validity of CPC adjustments under section 143(1) is left open by the Tribunal as per the assessee's submissions. Overall Disposition The Court allowed the appeal on the ground that interest income earned by the co-operative housing society from the named co-operative banks qualifies for deduction under section 80P(2)(d), applying the limited exclusion principle of section 80P(4) as expounded by the Supreme Court; consequential claims for deletion of interest are treated as consequential, and the CPC/section 143(1) adjustment issue remains open.