Cooperative society gets Section 80P(2)(d) deduction for interest income from cooperative bank investments

ITAT Amritsar allowed the appeal of a cooperative society regarding denial of deduction under Section 80P(2)(d) for interest income from investments with a cooperative bank. The tribunal held that cooperative societies are eligible for exemption on entire interest income received from investments with cooperative banks, distinguishing them from cooperative banks themselves. Following precedents from Bombay HC and ITAT Amritsar, the tribunal ruled that investments in fixed deposits with another cooperative society qualify for deduction under Section 80P(2)(d). The impugned order was set aside and addition deleted.

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Issues Involved:
1. Confirmation of addition of Rs. 54,00,164/- on account of disallowance of deduction claimed under Section 80P(2)(d) of the Income Tax Act, 1961.
2. Eligibility of a co-operative society for exemption on interest income received from investments with a co-operative bank.

Issue-Wise Detailed Analysis:

1. Confirmation of Addition of Rs. 54,00,164/-:
The assessee, a co-operative agricultural service society, challenged the confirmation of addition of Rs. 54,00,164/- made by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi. The AO had disallowed the deduction claimed under Section 80P(2)(d) of the Income Tax Act, 1961, by the assessee on the interest income received from deposits with Nawanshahr Central Co-operative Bank Ltd. The AO relied on the Supreme Court judgment in "Totgar's Co-operative Sale Society Ltd. Vs. Income Tax Officer" to make the addition.

2. Eligibility for Exemption under Section 80P(2)(d):
The assessee contended that being a co-operative society, it is eligible for exemption on its entire interest income received from investments with a co-operative bank under Section 80P(2)(d). The assessee's counsel argued that the CIT(A)/NFAC erred in confirming the disallowance without appreciating that the appellant is a co-operative society and not a co-operative bank. The counsel cited the ITAT Amritsar Bench judgment in "Khaira Majja Cooperative Agricultural Multipurpose Society Ltd. v. Asstt. CIT," which considered the Supreme Court judgment in "Totgar's Co-operative Sale Society Ltd."

The Tribunal observed that similar issues were addressed in previous cases, such as "Gandhinglaj Taluka Sahakari Patpedhi Ltd." and "Jaoli Taluka Sahakari Patpedhi Maryadit vs. ITO," where the interest income from deposits with banks was held to be eligible for deduction under Section 80P(2)(a)(i) as profits and gains of business. The Tribunal also noted the Karnataka High Court's decision in "Tumkur Merchants Souharda Credit Cooperative Ltd.," which upheld that interest income from deposits is attributable to the business of providing credit facilities and thus deductible under Section 80P.

The Tribunal further referenced the Supreme Court judgment in "Pr. CIT 17, Mumbai v. M/s Annasaheb Patil Mathadi Kamgar Sahakari," which clarified that primary agricultural credit societies cannot be termed as co-operative banks under the Banking Regulation Act and are entitled to exemption under Section 80P(2).

Conclusion:
The Tribunal concluded that the appellant-assessee, being a co-operative society and not a co-operative bank, is eligible for exemption on its entire interest income received from investments with a co-operative bank under Section 80P(2)(d). The Tribunal set aside the impugned order and deleted the addition of Rs. 54,00,164/-. The appeal of the assessee was allowed.

Order Pronounced:
The order was pronounced in the open court on 23.05.2023.

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