2024 (11) TMI 1533 - AT - Income Tax

Deduction under s.80P(2)(d) allowed for cooperative society on interest from deposits with cooperative bank; s.263 revision unjustified

ITAT-Ahmedabad held that deduction under s.80P(2)(d) is available to a cooperative society on interest income from deposits with a cooperative bank that ... Revision u/s 263 - Disallowance of deduction u/s 80P(2)(d) - HELD THAT:- We are guided by the judgment of Ashwinkumar Arban Co-Operative Society Ltd [2024 (11) TMI 971 - GUJARAT HIGH COURT] as held that the deduction of u/s 80P(2)(d) of the Act is available to the cooperative societies on the income earned as interest on the investment made with the cooperative bank which in turn, is a cooperative society itself. Provisions of section 80P(2)(d) would be applicable in the facts of the case and the PCIT was not justified in invoking revisional powers u/s 263 of the Act which is rightly reversed by the Tribunal holding that the cooperative bank is a cooperative society registered under the Gujarat State Cooperative Societies Act and in view of the various decisions of the Court, the Tribunal after following the same has come to the conclusion that the assessment was not erroneous allowing deduction of section 80P(2)(d) of the Act which is in consonance with the various decisions of the Court as a twin condition invoking section 263 as to the assessment being erroneous and prejudicial to the interest of the revenue are not being fulfilled. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether a cooperative society is entitled to deduction under section 80P(2)(d) of the Income-tax Act for interest income earned on investments made with a cooperative bank that is itself a cooperative society. 2. Whether the exclusion in section 80P(4) (and related changes in other provisions such as section 194A(3)(v)) disentitles a cooperative society to claim deduction under section 80P(2)(d) in respect of interest earned from a cooperative bank that is a cooperative society. 3. Whether relevant judicial precedents (including decisions construing the Banking Regulation Act and earlier High Court and Supreme Court rulings) control the applicability of section 80P(2)(d) to such interest income and whether contrary decisions are distinguishable. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Availability of deduction under section 80P(2)(d) for interest earned from a cooperative bank that is a cooperative society Legal framework: Section 80P(2)(d) grants deduction to cooperative societies in respect of income by way of share of profits of a bank or interest on deposits/investments made with a co-operative bank, subject to the conditions of the provision and other applicable tax provisions. Precedent treatment: The Tribunal followed the jurisdictional High Court decision which, relying on earlier High Court and Supreme Court authorities, held that deduction under section 80P(2)(d) is available where the recipient society invests with a cooperative bank that is registered as a cooperative society under the State Cooperative Societies Act (citing Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. and State Bank of India v. CIT precedents as supportive). Interpretation and reasoning: The Court reasoned that where a cooperative bank is itself registered as a cooperative society under the State Cooperative Societies Act, the interest paid by such bank to another cooperative society falls squarely within the ambit of section 80P(2)(d). The Tribunal treated the matter as no longer res integra in light of controlling jurisdictional High Court authority which interpreted section 80P(2)(d) to include interest earned from cooperative banks that are cooperative societies. Ratio vs. Obiter: The holding that deduction under section 80P(2)(d) is available in these facts is treated as ratio by the Tribunal because it directly decides the substantive entitlement of the assessee and forms the basis for allowing the appeal. Conclusion: Deduction under section 80P(2)(d) is available to a cooperative society for interest earned from a cooperative bank which is itself a cooperative society; the assessment disallowance was not justified and is set aside. Issue 2 - Effect of section 80P(4) and amendments such as section 194A(3)(v) on availability of section 80P(2)(d) Legal framework: Section 80P(4) excludes applicability of section 80P to cooperative banks where the cooperative bank is liable to pay tax under the Act; section 194A(3)(v) deals with TDS exemptions and was amended by Finance Act, 2015. Precedent treatment: The Tribunal relied on the jurisdictional High Court which examined and rejected the contention that amendments to section 194A(3)(v) or the existence of section 80P(4) operate to exclude cooperative banks from the definition of cooperative societies for purposes of section 80P(2)(d). The High Court distinguished decisions from other jurisdictions that relied on a different statutory context (e.g., Totgars decisions). Interpretation and reasoning: The Tribunal accepted the High Court's analysis that (a) an amendment to section 194A(3) granting or restricting TDS applicability does not alter the definition or status of cooperative banks as cooperative societies for section 80P purposes; and (b) section 80P(4) applies only where the cooperative bank is liable to tax under the Act - it does not, by itself, deny the recipient cooperative society the right to claim deduction under section 80P(2)(d) for interest received from a cooperative bank that remains a cooperative society and is not taxed as a bank for Income-tax Act purposes. Ratio vs. Obiter: The Tribunal treated the conclusion that section 80P(4) and amendments to section 194A do not automatically disentitle the recipient society to deduction as part of its binding ratio, since that conclusion was determinative of the appeal. Conclusion: Section 80P(4) and the amendments relied upon do not, in the absence of an express amendment to section 80P(2)(d) or a tax liability on the cooperative bank under the Act, disentitle the assessee to claim deduction for interest from a cooperative bank that is itself a cooperative society. Issue 3 - Treatment of contrary authorities and interplay with Banking Regulation Act jurisprudence Legal framework: Interpretation requires identifying whether a cooperative bank qualifies as a 'bank' under the Banking Regulation Act and whether that classification affects applicability of section 80P. Precedent treatment: The Tribunal followed the reasoning of the jurisdictional High Court which relied on an Apex Court decision holding that section 80P(4) would not apply to a cooperative bank that is not a bank under the Banking Regulation Act. The High Court distinguished the Karnataka High Court and Supreme Court decisions relied upon by Revenue (Totgars line) on the basis that those authorities considered a different statutory context and amendments (notably in section 194A) which do not amount to excluding cooperative banks from the definition of cooperative societies for section 80P purposes. Interpretation and reasoning: The Tribunal accepted that where a cooperative bank is not a 'bank' under the Banking Regulation Act (and is registered/operating as a cooperative society under the State Act), the exclusion in section 80P(4) does not apply. The Tribunal also agreed with the High Court that amendments concerning TDS (section 194A) cannot be read as redefining 'cooperative society' for section 80P. Ratio vs. Obiter: The Tribunal's endorsement of the principle that Banking Regulation Act classification matters for section 80P(4) application is treated as ratio, as it materially affected the outcome; distinguishing of conflicting authorities is also part of the binding reasoning applied to the facts. Conclusion: Conflicting precedents are distinguishable on their facts and statutory context; where the cooperative bank is a cooperative society (and not a bank under the Banking Regulation Act), earlier decisions support the claim of deduction under section 80P(2)(d), and Revenue's reliance on contrary authorities is not tenable. Overall Disposition Following the jurisdictional High Court's authoritative interpretation, the Tribunal allowed the appeal, holding that the disallowance of the deduction under section 80P(2)(d) was not legally sustainable because (i) interest from a cooperative bank that is itself a cooperative society is eligible for deduction under section 80P(2)(d), and (ii) section 80P(4) and related amendments do not, in the circumstances, prevent the deduction. The Tribunal accordingly set aside the disallowance. (Ratio: entitlement to deduction; distinguishing of contrary decisions; application of Banking Regulation Act analysis.)