2022 (3) TMI 1633 - AT - Income Tax

Co-operative housing society entitled to Section 80P(2)(d) deduction for interest income from co-operative banks

Mystique Rose Cooperative Housing Society Ltd. Versus Income Tax Officer-22 (2) (3), Mumbai.

ITAT Mumbai held that a co-operative housing society was entitled to deduction under Section 80P(2)(d) for interest income from co-operative banks. The ... Deduction u/s 80P(2)(d) - interest income earned by the Appellant, a co-operative housing society, from co-operative banks - HELD THAT:- As decided in Totgars Cooperative Sale Society Ltd. [2010 (2) TMI 3 - SUPREME COURT] the benefit of Section 80P(2)(a)(i) would not be available in respect of interest income as the same is not in the nature of “profits and gains of business”. However, unlike Section 80P(2)(a) of the Act wherein expression “profits and gains of business” has been used, Section 80P(2)(d) of the Act uses the expression “any income by way of interest or dividend” for the purpose of granting benefit of deduction under Section 80P(2)(d) of the Act what is relevant is that the income should be by way of interest/dividend, and that the same should have been derived by a co-operative society from investment in another co-operative society. The fact that such interest income is in the nature of “profits and gains” or “income from other sources” is not relevant for the purpose of granting benefit of deduction under Section 80P(2)(d) of the Act. In conclusion, we hold that the judgment of Totgars Cooperative Sale Society Ltd. (supra), rendered in the context of Section 80P(2)(a) of the Act (wherein expression “profits and gains of business” has been used), is distinguishable on facts. The aforesaid judgment is not applicable to the facts of the present case as deduction has been claimed under Section 80P(2)(d) of the Act (wherein expression “any income” has been used). Impact of insertion of Section 80P(4) of the Act is that a co-operative bank would no more be entitled for claim of deduction under Sec. 80P of the Act, however, the interest income derived by a co-operative society from a co-operative bank would continue to be eligible for deduction u/s 80P(2)(d) of the Act irrespective of the fact that such interest income is in the nature of “profits and gains of business” or “income from other sources” as Section 80P(2)(d) uses the expression “any income” and not “profits & gains of business). Accordingly, the Appellant is entitled to claim deduction u/s 80P(2)(d) of the Act in respect of interest received from co-operative banks derived from a co-operative bank. However, benefit of Section 80P(2)(d) would not be available in respect of saving bank interest of INR 41,446/-. Accordingly, Ground No. 1 is partly allowed and addition made by the AO stand deleted. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the interest income earned by the Appellant, a co-operative housing society, from co-operative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.Whether the initiation of penalty proceedings under Section 271(1)(c) of the Act is justified.ISSUE-WISE DETAILED ANALYSIS1. Deduction under Section 80P(2)(d) for Interest Income from Co-operative BanksRelevant Legal Framework and Precedents: Section 80P(2)(d) of the Income Tax Act allows for a deduction of income by way of interest or dividend earned by a co-operative society from investments with another co-operative society. The judgment discusses the applicability of this provision in light of Section 80P(4), which restricts the deduction for co-operative banks.Court's Interpretation and Reasoning: The Tribunal noted that Section 80P(2)(d) permits deduction for 'any income' by way of interest or dividends derived from investments with a co-operative society, without regard to whether such income is categorized as 'profits and gains of business' or 'income from other sources.' The Tribunal distinguished the present case from the Supreme Court's decision in Totgars Cooperative Sale Society Ltd. vs. ITO, which dealt with Section 80P(2)(a) and involved 'profits and gains of business.' The Tribunal held that the interest income from co-operative banks qualifies for deduction under Section 80P(2)(d) because the banks are considered co-operative societies.Key Evidence and Findings: The Appellant's interest income from co-operative banks amounted to INR 3,38,768/-. The Tribunal found that this income was derived from investments with co-operative banks, which are registered as co-operative societies.Application of Law to Facts: The Tribunal applied the interpretation of Section 80P(2)(d) and concluded that the interest income from co-operative banks is eligible for deduction. The Tribunal relied on precedents from the Gujarat High Court and Karnataka High Court, which have held similar views.Treatment of Competing Arguments: The Department argued that the Supreme Court's decision in Totgars should apply, denying the deduction. However, the Tribunal found that Totgars was not applicable to Section 80P(2)(d) and focused on the specific language of 'any income' in that provision.Conclusions: The Tribunal concluded that the Appellant is entitled to a deduction under Section 80P(2)(d) for the interest income from co-operative banks, amounting to INR 3,38,768/-. However, the deduction does not apply to the saving bank interest of INR 41,446/-.2. Initiation of Penalty Proceedings under Section 271(1)(c)Relevant Legal Framework: Section 271(1)(c) of the Act pertains to penalty for concealment of income or furnishing inaccurate particulars of income.Conclusions: The Tribunal dismissed the ground related to penalty proceedings, noting that these proceedings are separate and distinct from the assessment proceedings. The Tribunal did not delve into the merits of the penalty initiation.SIGNIFICANT HOLDINGSThe Tribunal held that the interest income derived by a co-operative society from a co-operative bank is eligible for deduction under Section 80P(2)(d) of the Act. The Tribunal emphasized that the expression 'any income' in Section 80P(2)(d) is broad enough to cover interest income, irrespective of its classification as business income or income from other sources.The Tribunal clarified that the insertion of Section 80P(4) does not affect the eligibility of a co-operative society to claim a deduction under Section 80P(2)(d) for interest income from co-operative banks.The Tribunal's final determination was to allow the appeal in part, granting the deduction for interest income from co-operative banks while denying it for saving bank interest. The penalty proceedings issue was dismissed as separate from the assessment.