2025 (2) TMI 1678 - AT - Income Tax

Deduction for interest from co-operative banks upheld under section 80P(2)(d); section 80P(4) did not bar the recipient society's claim.

Interest earned by a co-operative society from deposits placed with co-operative banks was held eligible for deduction under section 80P(2)(d), because ... Deduction on interest from investments with co-operative banks - Distinction from Totagars Co-operative Sale Society Ltd. - Revision proceedings on quashing of foundational order Section 80P(2)(d) deduction - Interest from co-operative banks - Co-operative bank as co-operative society - CIT(A) has allowed the claim of the assessee u/s 80P(2)(d) in respect of interest income earned from Co-operative Banks during the relevant AY ignoring the decision of Totagars Co-operative Sale Society Ltd. [2010 (2) TMI 3 - SUPREME COURT] - HELD THAT: - The Tribunal noted the categorical finding recorded by the first appellate authority that the interest had been earned from 12 co-operative banks and that all of them were registered co-operative banks/societies. Proceeding on that factual basis, it held that the controversy was already covered in favour of the assessee by judicial precedents, including the Tribunal's orders in the assessee's own case. It accepted that interest derived from deposits with co-operative banks, being co-operative societies, qualified for deduction under section 80P(2)(d), and found no infirmity in the direction to allow the claim. [Paras 7, 10] The Revenue's challenge to the allowance of deduction under section 80P(2)(d) for AYs 2016-17 and 2020-21 was rejected. Distinguishing precedent of Totagars Co-operative Sale Society Ltd. - HELD THAT: - The Tribunal held that the reliance placed by the Revenue on Totagars Co-operative Sale Society Ltd. was misplaced because that decision arose in the context of a society engaged in marketing agricultural produce of its members. In the present case, the Tribunal found that the interest income earned from deposits with co-operative banks formed an integral part of the assessee's business, and therefore the said decision did not govern the claim under section 80P(2)(d). [Paras 7] The objection founded on Totagars Co-operative Sale Society Ltd. was rejected as factually distinguishable. Academic appeal - Effect of quashing revision - Foundational order set at naught - The Revenue's appeal for AY 2017-18 was held to be without substance once the revision order under section 263, on the basis of which the fresh assessment had been made, had already been quashed. - HELD THAT: - The Tribunal recorded the parties' common position that, in the assessee's own case for AY 2017-18, the co-ordinate Bench had already quashed the revision order and held that the original assessment was neither erroneous nor prejudicial to the interests of the Revenue. Since the impugned fresh assessment and the consequential appellate order stemmed from that revision, the present appeal was treated as academic and as having no legs to stand. [Paras 13, 14, 15] The Revenue's appeal for AY 2017-18 was dismissed as academic in view of the earlier quashing of the revision order. Final Conclusion: The Tribunal upheld the allowability of deduction under section 80P(2)(d) on interest earned from deposits with co-operative banks for AYs 2016-17 and 2020-21, holding the Revenue's reliance on Totagars to be misplaced on facts. For AY 2017-18, the Revenue's appeal was dismissed as academic since the revision order that formed the basis of the fresh assessment had already been quashed. Issues: Whether interest income earned by a co-operative society from deposits made with co-operative banks is eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961, and whether the Revenue could deny the claim by relying on section 80P(4) and the decision in Totgars.Analysis: The Tribunal noted that the assessee had earned interest from deposits placed with co-operative banks and that the finding of the first appellate authority was that all the concerned banks were registered co-operative societies. It held that section 80P(2)(d) allows deduction of income by way of interest or dividends derived by a co-operative society from investments with any other co-operative society, and that the exclusion in section 80P(4) applies to the co-operative bank's own claim to deduction, not to the recipient society's claim under section 80P(2)(d). The Tribunal also found the Revenue's reliance on Totgars to be misplaced on the facts, and followed earlier co-ordinate bench decisions in the assessee's own case and other supportive authorities holding that interest from co-operative banks qualifies for deduction under the provision.Conclusion: The claim for deduction under section 80P(2)(d) was held allowable, and the Revenue's challenge to the relief granted by the CIT(A) failed.