2025 (1) TMI 1585 - AT - Income Tax

Credit cooperative society wins deduction claims for interest income and commission under sections 80P(2)(a)(i) and 80P(2)(d)

The ITAT Pune ruled in favor of a credit cooperative society regarding deduction claims under sections 80P(2)(a)(i) and 80P(2)(d). The assessee earned ... Disallowance of claim of deduction u/s 80P(2)(a)(i)/80P(2)(d) - interest earned from PDCC Bank and income to the Nil income retuned by the assessee - HELD THAT:- The assessee is a credit Cooperative Society and has earned interest of Rs.8,84,993/- from investments in fixed deposits/NRD deposits with PDCC Bank and Rs.53,52,723/- (net of salary expenses) as commission income from MSEB on account of running cash counter for MSEB bill payments and has claimed deduction u/s 80P of the Act in respect of the said income(s) for the relevant AY. We observe that the impugned issue(s) are no more resintegra and have been decided in favour of the assessee by the various decisions of the Co-ordinate Benches of the Tribunal. The Revenue has not brought any material on record to enable us to take a different view. Claim of deduction on interest income from investments in the Co-operative Banks u/s 80P(2)(a)(i)/80P(2)(d) of the Act, the Co-ordinate Bench of Pune Tribunal in the case of Shri Vivekvardhini Nagari Sahakari patsanstha Ltd [2024 (8) TMI 360 - ITAT PUNE] as held the interest income earned on fixed deposits with cooperative bank/scheduled bank partakes character of the business income, which is eligible for deduction u/s 80P(2)(a)(i) of the Act. Therefore, we direct the Assessing Officer to allow the exemption u/s.80P(2)(a)(i) and section 80P(2)(d) of the Act. Appeal of the assessee is allowed. ISSUES: Whether interest income earned by a cooperative society from deposits with a cooperative bank is eligible for deduction under sections 80P(2)(a)(i) and/or 80P(2)(d) of the Income Tax Act, 1961.Whether commission income earned by a cooperative credit society from running a cash counter for electricity bill payments (MSEB) qualifies for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.Whether salary expenses attributable to commission receipts should be deducted before allowing deduction under section 80P.Interpretation and applicability of the amendment by Finance Act 2006 inserting subsection (4) in section 80P regarding cooperative banks and their eligibility for deduction under section 80P. RULINGS / HOLDINGS: The deduction claimed under section 80P(2)(a)(i) and 80P(2)(d) for interest income earned from investments in cooperative banks is allowable, as cooperative banks are 'cooperative societies' within the meaning of section 2(19) of the Act, and such interest income 'partakes character of the business income' and is eligible for deduction.Commission income earned by a cooperative credit society from running cash counters for electricity bill payments on behalf of MSEB is a banking activity and qualifies for deduction under section 80P(2)(a)(i); the society need not possess a Reserve Bank of India licence to claim such deduction.Salary expenses attributable to commission receipts are to be deducted before computing taxable income, and the net commission income is eligible for deduction under section 80P.The amendment by Finance Act 2006, inserting subsection (4) in section 80P, excludes cooperative banks (other than primary agricultural credit societies or primary cooperative agricultural and rural development banks) from claiming deduction under section 80P(2)(d) only in respect of their own income; however, interest income earned by a cooperative society from investments in cooperative banks remains eligible for deduction under section 80P(2)(d). RATIONALE: The court applied the statutory framework of section 80P of the Income Tax Act, 1961, which provides deduction to cooperative societies in respect of income derived from specified cooperative activities. Section 80P(2)(a)(i) covers income from banking business, while section 80P(2)(d) covers income by way of interest or dividends derived from investments with other cooperative societies.The interpretation of 'cooperative society' under section 2(19) includes cooperative banks registered under state cooperative societies laws, thus interest income from such banks qualifies under section 80P(2)(d).Judicial precedents from various High Courts and coordinate benches of the Tribunal were relied upon, including conflicting views resolved by preferring decisions favorable to the assessee in the absence of binding jurisdictional precedent.The court distinguished the Finance Act 2006 amendment as not affecting the eligibility of cooperative societies to claim deduction on interest income earned from investments in cooperative banks, though it restricts cooperative banks themselves from claiming certain deductions.Regarding commission income from electricity bill collection, the court relied on authoritative interpretations of the Banking Regulation Act, 1949, and Supreme Court decisions recognizing that activities such as collection of dues on behalf of customers constitute banking business under section 80P(2)(a)(i).The principle of mutuality was considered, with the court holding that commission income from a third party (MSEB) is attributable to banking activities and not excluded by lack of mutuality.The court also emphasized that the Assessing Officer's allowance of deductions represented a plausible view, and revisional powers under section 263 should not be exercised to dislodge such view without sufficient justification.In cases of conflicting High Court decisions, the court followed the principle established by the Bombay High Court that the view favorable to the assessee should be preferred.