2024 (12) TMI 1647 - AT - Income Tax

Deduction under s.80P(2)(d) allowed for interest on fixed deposits with cooperative banks; revenue appeals dismissed

ITAT (Ahmedabad) held that deduction under s.80P(2)(d) is available for interest earned on fixed deposits placed with a co-operative bank, applying the ... Disallowance u/s 80P(2)(d) - interest received from GSC Bank Ltd. - Whether interest earned from investment made in any bank, not being co-operative society is not deductible u/s 80P(2)(d) - whether the assessee is eligible for deduction u/s 80P(2)(d) of the Act on the interest earned on Fixed Deposits made in a Co-operative Bank (GSCB) or not? - HELD THAT:- On this issue, we are guided by the judgment of Ashwinkumar Arban Co-Operative Society Ltd [2024 (11) TMI 971 - GUJARAT HIGH COURT] wherein it was held that the deduction under section 80P(2)(d) 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. Appeals of the Revenue are hereby dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a co-operative society is entitled to deduction under section 80P(2)(d) of the Income-tax Act for interest income earned on fixed deposits placed with a co-operative bank that is registered as a co-operative society. 2. Whether the exclusion of co-operative banks from certain provisions (as effected by amendments such as in section 194A(3)(v) and the operation of section 80P(4)) operates to disentitle an investing co-operative society from claiming deduction under section 80P(2)(d) in respect of interest received from such a co-operative bank. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Deductibility under section 80P(2)(d) of interest earned from a co-operative bank that is a co-operative society Legal framework: Section 80P(1)-(2) allows specified deductions in computing income of a co-operative society; section 80P(2)(d) expressly provides that income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society shall be deductible (the whole of such income). Precedent treatment: The Court relied on binding and persuasive authorities from the jurisdictional High Court and this Tribunal which have held that deduction under section 80P(2)(d) is available where the recipient (investing) co-operative society earns interest from a co-operative bank that is itself a co-operative society (decisions referred to include those affirming that co-operative banks registered under the State Co-operative Societies Act are co-operative societies for this purpose). Interpretation and reasoning: The Court examined the undisputed facts (assessee is a co-operative society; interest was earned on FDs placed with a bank registered as a co-operative society). It applied the plain wording of section 80P(2)(d), which requires that the interest be derived from investments with 'any other co-operative society.' Where the counterparty (co-operative bank) is registered under the State Co-operative Societies Act (and not treated as a bank under the Banking Regulation Act), it falls within the statutory description of a co-operative society; therefore the statutory condition for deduction is satisfied. Ratio vs. Obiter: Ratio - The deduction under section 80P(2)(d) applies to interest earned by a co-operative society on investments made with a co-operative bank that is legally a co-operative society; this follows from the statutory language and precedents. Obiter - Ancillary observations regarding the interplay with other provisions (see Issue 2) serve to distinguish alternative arguments but do not expand the primary rule beyond the facts. Conclusions: The Court concluded that the assessee is eligible for deduction under section 80P(2)(d) in respect of interest earned from the co-operative bank which is a co-operative society; the assessing officer's disallowance was incorrectly made and reversed consistent with earlier High Court and Tribunal decisions. Issue 2 - Effect of amendments/exclusions (section 194A(3)(v), section 80P(4) and related authorities) on the availability of section 80P(2)(d) Legal framework: Section 194A(3) (TDS provisions) and section 80P(4) (limiting application of section 80P where the co-operative bank is liable to tax) are separate statutory provisions dealing with TDS obligations and applicability of section 80P to entities liable to tax respectively. The question is whether amendments or exclusions in these provisions imply that co-operative banks are excluded from the definition of 'co-operative society' for the purposes of section 80P(2)(d). Precedent treatment: The Court canvassed and distinguished decisions relied upon by Revenue (including decisions that focused on amendments to section 194A or on the status of co-operative banks under banking law). The jurisdictional High Court and other authorities have held that (a) exclusion from TDS provisions under section 194A(3) does not equate to exclusion from the definition of co-operative societies for section 80P purposes, and (b) section 80P(4) operates to deny the benefit to a co-operative bank only where that bank is itself liable to tax under the Act (e.g., where treated as a bank under the Banking Regulation Act); where the co-operative bank is not a bank under the Banking Regulation Act and remains a co-operative society, section 80P(4) does not apply to disentitle the investing society. Interpretation and reasoning: The Court parsed the statutory text and legislative amendments. It concluded that: (i) amendments to section 194A(3)(v) concern TDS obligations and do not re-define or exclude co-operative banks from being co-operative societies for the purpose of entitlement to section 80P(2)(d); (ii) section 80P(4) is triggered only if the co-operative bank is liable to tax as a bank under the Act (e.g., pursuant to its character under the Banking Regulation Act); absent such characterisation, section 80P(4) does not operate to deny the investing society its deduction; and (iii) therefore, the isolated operation of amendments to other provisions cannot defeat the explicit grant of deduction under section 80P(2)(d) where the statutory condition (investment with another co-operative society) is satisfied. Ratio vs. Obiter: Ratio - Exclusion from TDS provisions or existence of a separate provision (section 80P(4)) does not automatically exclude a co-operative bank from being a co-operative society for the purposes of section 80P(2)(d); the applicability of section 80P(4) depends on the co-operative bank being liable to tax under the Act as a bank. Obiter - Commentary distinguishing Karnataka High Court and Supreme Court pronouncements where different factual and legislative contexts were considered. Conclusions: The Court held that neither the amendment to section 194A(3)(v) nor section 80P(4), absent a change in the factual/legal status of the co-operative bank as a taxable bank under the Banking Regulation Act, displaces the clear statutory entitlement under section 80P(2)(d). Consequently, the investing co-operative society's claim for deduction in respect of interest from the co-operative bank stands valid. Application of precedent and final determination Legal framework: Principles governing reliance on higher judicial decisions and consistency in tax interpretation. Precedent treatment: The Court followed the jurisdictional High Court's recent ruling addressing identical questions and consistent Tribunal decisions, treating contrary authorities as distinguishable on legislative-context and factual-status grounds. Interpretation and reasoning: Given identical facts and no change in law or material facts, the Court applied the binding/precedential outcomes to conclude that the assessing officer's disallowance was erroneous and prejudicial-to-revenue requisites for sustaining revision were not met. Ratio vs. Obiter: Ratio - Uniform application of section 80P(2)(d) where investments are made in a co-operative bank that is a co-operative society; confirmed that contrary decisions based on different statutory contexts do not control. Obiter - Observations on the limited scope of section 194A(3) and the proper import of section 80P(4). Conclusions: Following controlling authority, the Court dismissed the Revenue appeals and upheld the allowance of deduction under section 80P(2)(d) for interest earned from the co-operative bank that is registered as a co-operative society; the Tribunal's decision aligns with the jurisdictional High Court and earlier Tribunal precedents.