2024 (5) TMI 1606 - AT - Income Tax

Taxpayer allowed deduction under s.80P(2)(d) for cooperative bank deposit interest; s.234A interest deleted due to extended due date

Aurum Grande Cooperative Housing Society Ltd. Versus Income-tax Department, National Faceless Appeal, Centre, Delhi

Aurum Grande Cooperative Housing Society Ltd. Versus Income-tax Department, National Faceless Appeal, Centre, Delhi - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether interest income earned by a co-operative housing society from deposits/investments with co-operative banks is deductible under section 80P(2)(d) of the Income-tax Act, 1961. 2. Whether the proviso in section 80P(4) excludes interest earned from co-operative banks from the scope of section 80P(2)(d) when the assessee is a co-operative society but not a co-operative bank. 3. Whether divergent judicial decisions of the same High Court on the scope of section 80P(2)(d) permit adoption of the construction favourable to the assessee. 4. Whether interest under section 234A is chargeable where the due date for filing the return for the relevant assessment year was extended by Central Board of Direct Taxes (CBDT) notification and the return was filed within that extended period. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Deductibility under section 80P(2)(d) of interest earned from co-operative banks Legal framework: Section 80P(1) allows deduction of incomes specified in section 80P(2) to an assessee being a co-operative society; section 80P(2)(d) permits deduction of 'any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society.' Section 2(19) defines 'co-operative society'. Section 80P(4) was inserted to exclude certain co-operative banks from benefits of section 80P. Precedent treatment: Coordinate benches of the Tribunal have repeatedly held that a co-operative society is entitled to deduction under section 80P(2)(d) in respect of interest earned on deposits with co-operative banks. The same High Court has at different times taken conflicting views: in one decision holding interest from co-operative banks deductible under section 80P(2)(d), and in another decision holding it not deductible. The Supreme Court (in precedent cited by coordinate benches) has interpreted section 80P(4) as a limited exclusion applicable to co-operative banks that function as banks licensed by RBI. Interpretation and reasoning: The Tribunal focuses on the statutory language of section 80P(2)(d) which requires (i) income by way of interest or dividend earned by a co-operative society, and (ii) that such income arise from investments with 'any other co-operative society.' Co-operative banks remain co-operative societies under section 2(19) unless a specific exclusion applies. Section 80P(4) is a proviso intended to exclude claims by co-operative banks (especially those operating like commercial banks) from section 80P, not to strip other co-operative societies of the deduction when they invest in co-operative banks. The Tribunal notes consistent Tribunal precedent applying a purposive reading in favour of allowing the deduction where the assessee is a co-operative society (here, a co-operative housing society) and investments are made with co-operative banks registered under the co-operative societies statute or state law. The Tribunal also observes that statutory investment obligations (e.g., under state co-operative societies Acts) often require deposits with district/state co-operative banks, supporting the practical interplay between such societies and co-operative banks. Ratio vs. Obiter: The holding that interest earned by a co-operative housing society from deposits in co-operative banks is deductible under section 80P(2)(d) is ratio decidendi for the present fact pattern. Observations distinguishing the limited scope of section 80P(4) and reliance on coordinate-bench precedents and Supreme Court reasoning constitute central ratio. Discussion of divergent High Court decisions and selection of a construction favourable to the assessee is applied reasoning and forms part of the binding outcome for the Tribunal, not mere obiter. Conclusion: The Tribunal directs allowance of deduction under section 80P(2)(d) in respect of interest income from investments/deposits with co-operative banks for a co-operative housing society. The denial of the deduction by lower authorities is set aside. Issue 2 - Effect and scope of section 80P(4) exclusion Legal framework: Section 80P(4) excludes certain co-operative banks from the operation of section 80P, particularly where they function at par with commercial banks and possess an RBI licence; section 80P(4) operates as a proviso to sections 80P(1) and (2). Precedent treatment: The Supreme Court has interpreted section 80P(4) narrowly as a proviso excluding claims by co-operative banks that function like commercial banks. Coordinate benches have used that interpretation to hold that section 80P(4) does not prevent a co-operative society from claiming deduction for interest received from a co-operative bank. Interpretation and reasoning: The Tribunal accepts the limited object of section 80P(4) - exclusion of co-operative banks from claiming section 80P benefits - and rejects the proposition that section 80P(4) nullifies an independent co-operative society's claim for deduction where its investment is with a co-operative bank. The statutory definitions and the practical regulatory framework (state co-operative laws prescribing permissible modes of investment) support this interpretation. Ratio vs. Obiter: The interpretation that section 80P(4) does not deny deduction to a non-bank co-operative society investing in a co-operative bank is part of the operative ratio supporting allowance of the deduction. Conclusion: Section 80P(4) does not operate to deny deduction under section 80P(2)(d) to a co-operative housing society in respect of interest earned on investments with co-operative banks; the proviso is relevant only to claims by co-operative banks themselves. Issue 3 - Treatment of divergent High Court decisions and selection of construction favourable to the assessee Legal framework: Where judicial authorities have rendered divergent interpretations of a taxing provision, the principle that a construction favourable to the assessee should be adopted applies, as established by higher court authority. Precedent treatment: The Tribunal acknowledges two conflicting decisions of the same High Court on the issue. Coordinate-bench Tribunal authorities favour the assessee's position. The Tribunal invokes the rule that when two reasonable constructions of a taxing provision are possible, the construction favourable to the assessee must be adopted. Interpretation and reasoning: Given the divergence, the Tribunal adopts the construction that upholds the assessee's entitlement to deduction under section 80P(2)(d), consistent with coordinate-bench precedent and the principle favouring the assessee in case of ambiguous tax provisions. Ratio vs. Obiter: Application of the 'construction favourable to the assessee' doctrine to resolve conflicting High Court authorities constitutes part of the Tribunal's ratio in allowing the deduction. Conclusion: In presence of divergent judicial views, the Tribunal follows the construction favourable to the assessee and directs grant of the deduction under section 80P(2)(d). Issue 4 - Chargeability of interest under section 234A where return due date extended by CBDT notification Legal framework: Section 234A levies interest for delay in furnishing return of income beyond the due date; due dates may be extended by statutory or administrative notification. Precedent treatment: The Tribunal applies the CBDT notification extending the due date for filing the return for the relevant assessment year as determinative of the date beyond which section 234A interest becomes chargeable. Interpretation and reasoning: The return for the assessment year in question was filed within the extended due date specified by CBDT notification. Therefore, no delay occurred for purposes of section 234A and interest under section 234A is not chargeable. Ratio vs. Obiter: The deletion of section 234A interest on facts of filing within the extended statutory deadline is ratio decidendi for the relief granted on this ground. Conclusion: Interest charged under section 234A is deleted because the return was filed within the extended due date provided by CBDT; appeal granted on this ground. Cross-references The conclusions on deductibility under section 80P(2)(d) (Issue 1) are informed by the narrow construction of section 80P(4) (Issue 2) and by the application of the principle favouring the assessee where divergent High Court rulings exist (Issue 3). The deletion of section 234A interest (Issue 4) is independent and rests on compliance with the extended filing date provided by CBDT.