2024 (9) TMI 1886 - AT - Income Tax

Deduction for interest income allowed where recipient is a registered co operative society and payer is not an RBI licensed bank.

Deduction under Section 80P(2)(d) is available for 'any income by way of interest' received by a registered co operative society where the payer co ... Deduction under Section 80P(2)(d) for interest from cooperative bank - Scope of Section 80P(4) proviso excluding cooperative banks holding RBI licence - 'Any income by way of interest' covers interest irrespective of the head of income Deduction under Section 80P(2)(d) for interest from cooperative bank - 'Any income by way of interest' covers interest irrespective of the head of income - Whether a co-operative society is entitled to claim deduction under Section 80P(2)(d) in respect of interest income received from a co-operative bank. - HELD THAT: - The Tribunal applied the legal principles laid down by the Supreme Court in Mavilayi Services Co-operative Bank Ltd. and other decisions and the statutory definition of 'co-operative society' in section 2(19). It noted that section 80P(2)(d) refers to 'any income by way of interest' received from investments in other co-operative societies and therefore the expression does not depend on the head under which such interest is taxed. The Tribunal also relied on its earlier decisions holding that a co-operative bank continues to be a co-operative society for the purpose of section 80P. Applying these precedents and the plain language of section 80P(2)(d), the Tribunal held that interest received from a co-operative bank by the assessee is eligible for deduction under section 80P(2)(d). [Paras 7, 8] Deduction of the interest income received from co-operative bank under Section 80P(2)(d) is allowable to the assessee. Scope of Section 80P(4) proviso excluding cooperative banks holding RBI licence - Whether the proviso in Section 80P(4) operates to deny the deduction when the recipient co-operative society does not hold an RBI banking licence. - HELD THAT: - The Tribunal followed the Supreme Court's exposition that section 80P(4) is a proviso intended to exclude those co-operative banks which function as banks licensed by the RBI and accept public deposits for lending. The Tribunal observed that where a co-operative society does not hold an RBI banking licence and therefore is not carrying on business as a bank to the public, section 80P(4) does not apply to deny the benefit of section 80P(2). Consequently, the Assessing Officer's reliance on section 80P(4) to disallow the deduction was held misplaced in the present facts. [Paras 7, 8] Section 80P(4) is not attracted where the co-operative society does not possess an RBI banking licence; disallowance under that proviso cannot be sustained. Final Conclusion: The Tribunal allowed the appeal, holding that the assessee (a co-operative society) is entitled to deduction under section 80P(2)(d) for interest received from co-operative banks and that section 80P(4) does not apply where the society does not hold an RBI banking licence. Issues: Whether a co-operative society is entitled to claim deduction under Section 80P(2)(d) of the Income-tax Act, 1961 in respect of interest income received from a co-operative bank.Analysis: Section 80P(2)(d) allows deduction for 'any income by way of interest' received by a co-operative society. A 'co-operative society' is defined by registration under section 2(19) of the Income-tax Act, 1961. Section 80P(4) operates as a proviso excluding co-operative banks that function as banks licensed by the Reserve Bank of India and that accept deposits from the public. The Supreme Court in Mavilayi Services Co-operative Bank Ltd. v. CIT interpreted section 80P and related authorities to hold that section 80P(4) does not apply to a co-operative society which does not hold an RBI banking licence to lend to the public. Tribunal decisions and authoritative clarifications confirm that co-operative banks that remain registered co-operative societies remain co-operative societies for the purpose of section 80P unless they fall within the specific exclusion in section 80P(4). Section 80P(2)(d) uses the expression 'any income by way of interest', which covers interest income regardless of whether that income is characterized as business income or income from other sources.Conclusion: Deduction under Section 80P(2)(d) of the Income-tax Act, 1961 is allowable in respect of interest income received from a co-operative bank where the recipient is a co-operative society registered as required and the payer co-operative bank does not attract the exclusion in Section 80P(4) (i.e., is not an RBI-licensed co-operative bank lending to the public). The disallowance of deduction of Rs. 47,62,521 is not sustainable and the appeal is allowed.Ratio Decidendi: Section 80P(4) excludes only those co-operative banks that are licensed by the Reserve Bank of India to carry on banking business with the public; a registered co-operative society receiving interest from a co-operative bank that does not fall within that exclusion is entitled to deduction under Section 80P(2)(d) of the Income-tax Act, 1961.