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The core legal issue considered by the Tribunal in both appeals is whether the assessee, a cooperative housing society, is entitled to claim deduction under section 80P(2)(d) of the Income-tax Act in respect of interest income earned from deposits made with a cooperative bank. Specifically, the question arises whether a cooperative bank qualifies as a "cooperative society" within the meaning of section 80P(2)(d), thereby permitting the deduction of interest income earned from such banks. The appeals challenge the disallowance of this deduction by the Assessing Officer and the CIT(A), who held that the cooperative bank in question is not a cooperative society but a multistate scheduled cooperative bank licensed by the Reserve Bank of India, and hence the interest income does not qualify for deduction under the said section.
2. ISSUE-WISE DETAILED ANALYSIS
Issue: Eligibility of deduction under section 80P(2)(d) of the Income-tax Act for interest income earned by a cooperative society from deposits with a cooperative bank.
Relevant Legal Framework and Precedents: Section 80P(2)(d) provides deduction to cooperative societies in respect of income by way of interest or dividend received from investments made with other cooperative societies. The interpretation of the term "cooperative society" as encompassing cooperative banks is central to this issue.
The Tribunal extensively relied on the decision of the Hon'ble High Court of Karnataka in Pr. Commissioner of Income Tax v. Totagar Cooperative Sales Society Limited [2017] 392 ITR 74, which clarified that the term "cooperative society" is a genus, and "cooperative bank" is a species within this genus. The Court held that a cooperative bank is a variety of cooperative society and therefore falls within the ambit of the term "cooperative society" for the purpose of section 80P(2)(d). The Court further noted that under section 56(1)(ccv) of the Banking Regulation Act, 1949, a primary cooperative bank is defined as a cooperative society, reinforcing this inclusive interpretation.
The Tribunal also distinguished the Supreme Court decision in Totagar Cooperative Sales Society Ltd. v. ITO (2010) 322 ITR 283, which dealt with section 80P(2)(a)(i) and not section 80P(2)(d), and thus was held inapplicable to the present issue.
Further, the Tribunal referred to CBDT Circular No. 14 dated 28.12.2006, which clarified that the insertion of sub-section (4) in section 80P was intended to exclude cooperative banks functioning at par with other commercial banks from claiming deduction under section 80P(4), but did not affect the entitlement of cooperative societies to claim deduction under section 80P(2)(d) for interest income earned from cooperative banks.
Additional judicial precedents cited include decisions by the ITAT Mumbai in Ashok Tower "D" Co-op. Housing Society Ltd. v. ITO [2024] 161 taxmann.com 518, and others such as Land and Cooperative Housing Society Ltd. v. ITO (2017), C. Green Cooperative Housing and Society Ltd. v. ITO (2017), and Marvwanjee Cama Park Cooperative Housing Society Ltd. v. ITO (2017), all supporting the view that interest income earned from cooperative banks by cooperative societies is eligible for deduction under section 80P(2)(d).
Court's Interpretation and Reasoning: The Tribunal agreed with the reasoning of the High Court of Karnataka that the term "cooperative society" includes cooperative banks. It emphasized that the legislative intent and statutory definitions support this inclusive interpretation. The Tribunal rejected the view of the CIT(A) that cooperative banks are distinct from cooperative societies for the purpose of section 80P(2)(d), holding that the CIT(A) had erroneously relied on the Supreme Court decision concerning a different provision.
The Tribunal further reasoned that while sub-section (4) of section 80P excludes cooperative banks from claiming deduction under section 80P(4), it does not affect the entitlement of cooperative societies to claim deduction under section 80P(2)(d) for interest income earned from cooperative banks. Therefore, the interest income earned by the assessee from deposits with cooperative banks qualifies for deduction.
Key Evidence and Findings: The assessee is a cooperative housing society deriving income from house property and other sources, and had claimed deduction under section 80P(2)(d) for interest income earned from deposits with Shamrao Vithal Cooperative Bank. The Assessing Officer and CIT(A) disallowed the deduction on the ground that the bank was not a cooperative society. The Tribunal found that the bank is a registered cooperative society under relevant cooperative laws and holds an RBI license as a cooperative bank, thus falling within the definition of cooperative society for section 80P(2)(d).
Application of Law to Facts: Applying the legal principles and precedents, the Tribunal held that the assessee's interest income from deposits with the cooperative bank is eligible for deduction under section 80P(2)(d). The disallowance by the Assessing Officer and CIT(A) was therefore set aside.
Treatment of Competing Arguments: The Tribunal considered the Revenue's reliance on the CIT(A)'s order and the Supreme Court decision in Totagar Cooperative Sales Society Ltd. but distinguished these authorities on facts and legal provisions involved. It also addressed the Revenue's reliance on certain ITAT decisions which were held to be factually distinguishable and not applicable to the issue under section 80P(2)(d). The Tribunal further noted the principle that in case of conflicting High Court decisions outside the jurisdiction, the view favorable to the assessee is to be preferred, supporting the assessee's claim.
Conclusions: The Tribunal concluded that the assessee is entitled to claim deduction under section 80P(2)(d) of the Income-tax Act in respect of interest income earned from deposits with cooperative banks. The disallowance was therefore deleted, and both appeals were allowed.
3. SIGNIFICANT HOLDINGS
"The word 'cooperative society' are the words of a large extent and denotes a genus, whereas the word 'cooperative bank' is a word of limited extent, which merely demarcates and identifies a particular species of the genus 'cooperative societies'. Thus the Cooperative Bank which is a species of the genus would necessarily be covered by the word 'Cooperative Society'."
"The provisions of section 80P(2)(d) of the Act are very clear and assessee is entitled for deduction u/s. 80P(2)(d) of the Act in respect of interest or dividends received from investments made with any other cooperative societies."
"Though the co-operative bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but however, since a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being enforced in any state for the registration of cooperative societies, therefore, the interest income derived by a cooperative society from its investments held with a co-operative bank, would be entitled for claim of deduction under Sec. 80P(2)(d) of the Act."
"The decision of Hon'ble Supreme Court in the case of The Totagar Cooperative Sales Society Limited v. ITO has no application to the facts of the present case as it dealt with Section 80P(2)(a)(i) and not Section 80P(2)(d)."
"Where there is a conflict between the decisions of non-jurisdictional High Courts, then a view which is in favour of the assessee is to be preferred as against that taken against him."
Final determinations:
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