Cooperative society's interest income from cooperative bank deposits qualifies for Section 80P(2)(d) deduction allowance

ITAT Amritsar held that interest income received by a cooperative society from deposits with another cooperative bank qualifies for deduction under Section 80P(2)(d). The tribunal found that interest received from Punjab State Cooperative Agricultural Development Bank falls within the statutory provision's scope, allowing deduction for income derived from investments with other cooperative societies. The addition was deleted. However, the tribunal upheld disallowance of excess gratuity fund contribution of Rs. 36,981, confirming the CIT(A)'s decision that only 8.33% contribution as per rules was allowable, with excess amount added back to income.

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Issues Involved:
1. Deduction of interest income under Section 80P(2)(d) of the Income Tax Act, 1961.
2. Disallowance of payment to Gratuity Fund.

Issue-wise Detailed Analysis:

1. Deduction of Interest Income under Section 80P(2)(d):
The appellant challenged the CIT (Appeals) decision that confirmed the addition of interest income amounting to Rs. 13,90,954/- as taxable under Section 56, disregarding the eligibility for deduction under Section 80P(2)(d) of the Income Tax Act, 1961. The appellant argued that the interest income earned from Punjab State Cooperative Agricultural Development Bank Ltd (SADB) qualifies for deduction under Section 80P(2)(d), which allows deductions for any income by way of interest or dividends derived by a cooperative society from its investments with any other cooperative society.

The appellant cited several precedents, including the ITAT Pune Bench's decision in "Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. v. Income Tax Officer," which held that interest income earned by a cooperative society on deposits made out of surplus funds with cooperative banks qualifies for deduction under Section 80P(2)(d). The appellant also referenced the Supreme Court's ruling in "Pr. Commissioner of Income Tax 17, Mumbai Vs. M/S. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Limited," which affirmed that credit societies are entitled to exemption under Section 80(P)(2) of the Income Tax Act.

The Tribunal found that the interest received by the appellant from SADB falls within the ambit of Section 80P(2)(d), as it is income derived from investments with another cooperative society. The Tribunal noted that the statutory provision under Section 80P(2)(d) is explicit in allowing deductions for interest income derived from investments with other cooperative societies. Consequently, the Tribunal held that the CIT(A) erred in denying the deduction and annulled the impugned order, allowing the deduction of Rs. 13,90,954/- claimed by the appellant under Section 80P(2)(d).

2. Disallowance of Payment to Gratuity Fund:
The appellant objected to the confirmation of the addition of Rs. 36,981/- made by the AO on account of disallowance of payment to the Gratuity Fund. The appellant argued that the payment was made according to the terms, conditions, and directions of the Head Office. However, the CIT(A) observed that the Gratuity Fund allowable as per Rule is at 8.33%, and any excess contribution to the Gratuity Fund was disallowed.

The Tribunal upheld the CIT(A)'s decision, stating that the AO correctly disallowed the excess contribution to the Gratuity Fund amounting to Rs. 36,981/- and added it back to the total income of the appellant under the head "income from other sources." The Tribunal found no perversity in the CIT(A)'s order regarding the disallowance of the excess payment of gratuity and rejected this ground of appeal.

Conclusion:
The appeal was partly allowed. The Tribunal annulled the CIT(A)'s order denying the deduction under Section 80P(2)(d) for the interest income of Rs. 13,90,954/- and upheld the disallowance of Rs. 36,981/- on account of the excess payment to the Gratuity Fund.

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