2024 (10) TMI 1621 - AT - Income Tax

Court Affirms Cooperative Credit Societies' Deduction u/s 80P(2)(a)(i), Limits Interest Deduction to Cooperative Banks Only.

Nava Sandesh Sahakari Patsanstha Maryadit Versus Income Tax Of ficer, Ward 22 (2) (7), Mumbai

The court held that the assessee, a cooperative credit society, is entitled to a deduction under Section 80P(2)(a)(i) of the Income Tax Act for its ... Deduction u/s 80P(2)(d) - interest income earned - assessee is a cooperative credit society accepting deposits and lending money to the members of the society - HELD THAT:- Undisputed fact shows that assessee is earning business income from business of providing credit facilities to its members. Therefore, whole of the business income is deductible u/s 80P(2)(a)(i) of the Act . Further with respect to the interest income earned by the cooperative society from another cooperative banks which are necessarily cooperative societies in terms of the provisions of section 2(19) of the act. Therefore, interest earned by the assessee on its deposits with other cooperative banks, the assessee is eligible for deduction under section 80P(2)(d) of the Act. Assessee is also eligible for deduction to the extent of ₹ 50,000 in terms of provisions of section 80P(2)(C)(ii) of the act. Income from profits and gains from the specified activity, deduction is granted under section 80P(2)(a)(i) Deduction under section 80P(2)(d) only the deduction with respect to the interest received by the assessee from another cooperative bank which are cooperative society are granted. The learned CIT – A has directed the learned assessing officer to examine the above fact and decide the issue. On careful consideration we find that all income of the assessee other than interest received from non-cooperative societies i.e., schedule banks or other banks which are not cooperative banks, is eligible for deduction under section 80P(2)(a)(i) or (d) of the act. ISSUES PRESENTED AND CONSIDERED 1. Whether a cooperative credit society that accepts deposits and lends to its members is entitled to deduction under section 80P(2)(a)(i) of the Income Tax Act in respect of profits and gains of the business of providing credit facilities to members. 2. Whether interest earned by such cooperative society on deposits with other cooperative banks qualifies for deduction under section 80P(2)(d). 3. Whether interest earned from scheduled banks or other non-cooperative banks is eligible for deduction under section 80P(2)(d) or must be excluded and, if so, whether such income is taxable under the head 'Income from Other Sources'. 4. Applicability of the monetary limit under section 80P(2)(c)(ii) (deduction to the extent of Rs. 50,000) where relevant. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Entitlement to deduction under section 80P(2)(a)(i) for business income of a cooperative credit society Legal framework: Section 80P(2)(a)(i) permits deduction of the whole of the profits and gains of the business of providing credit facilities to members where the assessee is a cooperative society engaged in that specified activity. Precedent Treatment: The Court relied on the statutory language and the factual classification of the assessee as a cooperative credit society (i.e., a cooperative society engaged in acceptance of deposits and lending to members). No adverse precedent was applied to negate the statutory entitlement where the society is not a licensed bank. Interpretation and reasoning: The Tribunal found as an undisputed fact that the assessee is a cooperative credit society providing credit facilities to its members and does not hold a banking licence. Given this character and the express words of section 80P(2)(a)(i), the entire business income arising from that activity is deductible. The Tribunal distinguishes cooperative societies from cooperative banks for the purpose of s.80P(4) limitations; absence of a banking licence does not preclude deduction where the entity is a cooperative society carrying on the specified member-credit business. Ratio vs. Obiter: Ratio - where an entity is a cooperative credit society providing credit facilities to members, profits and gains of that specified business are deductible under s.80P(2)(a)(i). Conclusion: Deduction under section 80P(2)(a)(i) is allowable in full for profits and gains from the business of providing credit facilities to members of the cooperative credit society. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Deductibility under section 80P(2)(d) of interest earned from other cooperative banks Legal framework: Section 80P(2)(d) provides deduction for income earned by a cooperative society by way of interest or dividend from its investments with any other cooperative society. Precedent Treatment: The Tribunal applied the statutory definition of 'cooperative society' (section 2(19) referenced) to categorize payor institutions; no contrary authority was invoked to expand or restrict the subsection beyond its plain terms. Interpretation and reasoning: Interest received by the assessee on deposits with other cooperative banks was held to fall within the literal scope of s.80P(2)(d) because such recipient payors qualify as cooperative societies under the Act. The Tribunal held that interest from those cooperative banks must be granted as deduction in full under s.80P(2)(d). Ratio vs. Obiter: Ratio - interest income from deposits placed with other cooperative societies/cooperative banks is deductible under s.80P(2)(d). Conclusion: Interest earned on deposits with other cooperative banks (being cooperative societies under the Act) is deductible under section 80P(2)(d). ISSUE-WISE DETAILED ANALYSIS - Issue 3: Non-deductibility of interest from scheduled/non-cooperative banks and taxability as income from other sources Legal framework: Section 80P(2)(d) is confined to income from investments with 'any other cooperative society'; income from non-cooperative banks lies outside that text. General principles of income classification (business income v. income from other sources) apply where receipts do not arise from the specified cooperative-business activity. Precedent Treatment: The Tribunal followed the statutory limitation rather than expanding s.80P(2)(d) to cover scheduled banks; the learned CIT(A)'s direction (to exclude interest from scheduled banks from deduction and treat it as other income) was accepted and clarified by the Tribunal. Interpretation and reasoning: Interest received from scheduled banks or other entities not qualifying as cooperative societies is not within the language of s.80P(2)(d) and therefore cannot be deducted thereunder. Where such interest does not constitute profits and gains of the specified business (i.e., arises from investments or deposits with non-members/non-cooperative banks), it must be assessed under the head 'Income from Other Sources' and will not attract deduction under s.80P(2)(a)(i) (which is limited to business income from member-credit activity). Ratio vs. Obiter: Ratio - interest from scheduled banks or non-cooperative banks is not deductible under s.80P(2)(d) and, if not business income, is taxable as income from other sources; deductibility under s.80P(2)(a)(i) is limited to business income from member-credit activities and excludes such non-business receipts. Conclusion: Interest from scheduled/non-cooperative banks must be excluded from s.80P(2)(d) deduction and, if not part of the specified business, taxed under 'Income from Other Sources'; any amounts received from non-members should be examined and taxed accordingly, thereby losing s.80P(2)(a)(i) benefit to the extent they are not business income. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Applicability of section 80P(2)(c)(ii) monetary limit Legal framework: Section 80P(2)(c)(ii) provides for a specified monetary limit (referenced in the order as Rs. 50,000) for deduction in certain circumstances. Precedent Treatment: The Tribunal noted the statutory provision and applied it to the facts without invoking additional authority. Interpretation and reasoning: The Tribunal held that the assessee is eligible for deduction to the extent of Rs. 50,000 under section 80P(2)(c)(ii) where applicable. The determination of amounts falling within this monetary ceiling requires factual verification by the assessing authority consistent with earlier directions concerning source and character of receipts. Ratio vs. Obiter: Ratio - where s.80P(2)(c)(ii) applies, the assessee may claim deduction subject to the monetary limit specified therein; factual examination is necessary to quantify the allowable amount. Conclusion: Deduction under s.80P(2)(c)(ii) to the extent of Rs. 50,000 is available, subject to verification of facts by the assessing officer. CROSS-REFERENCES AND PRACTICAL DIRECTIONS 1. Income characterization: All receipts other than (a) profits and gains of the business of providing credit facilities to members and (b) interest/dividend from other cooperative societies, are not eligible for s.80P(2)(a)(i) or s.80P(2)(d) deductions and must be examined for taxation under other heads (e.g., Income from Other Sources). 2. Factual verification: The assessing officer is directed to verify whether interest income arises from cooperative societies (deductible under s.80P(2)(d)) or from scheduled/non-cooperative banks (not deductible) and whether any receipts are from non-members (affecting s.80P(2)(a)(i) entitlement). 3. Outcome: On the facts before the Tribunal, deductions under s.80P(2)(a)(i) and s.80P(2)(d) were allowed as indicated; appeals were allowed accordingly.