Co-operative society gets section 80P(2)(d) deduction for interest from deposits with co-operative bank

ITAT Delhi held that a co-operative society was entitled to deduction under section 80P(2)(d) for interest and dividend income earned from deposits with Delhi State Co-operative Bank Ltd. The tribunal distinguished the SC decision in Totgar's Co-operative Sale Society Ltd., noting that case involved deposits with commercial banks, not co-operative societies. Following precedent from Mantola Cooperative Thrift Credit Society, the tribunal recognized co-operative banks as societies, making the deduction allowable. Decision favored the assessee.

---

---

Issues Involved:
1. Deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
2. Deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
3. Levy of interest under Sections 234B and 234C of the Income Tax Act, 1961.

Detailed Analysis:

1. Deduction under Section 80P(2)(a)(i):

The assessee, a Co-operative Credit Society, filed returns for the assessment years 2018-19 and 2020-21, claiming deductions under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed the deduction of INR 7,60,197/- for AY 2018-19 and INR 5,42,880/- for AY 2020-21, stating that the interest income from deposits in banks/Co-operative banks was not from business activities but from other sources. The CIT(A) upheld this view, relying on the Supreme Court's decision in Totgar's Co-operative Sale Society Ltd. vs ITO, which held that interest income earned from surplus funds deposited in banks is not eligible for deduction under Section 80P(2)(a)(i).

2. Deduction under Section 80P(2)(d):

The assessee alternatively claimed deductions under Section 80P(2)(d), arguing that the interest and dividend income derived from investments with the Delhi State Co-operative Bank Ltd. should be deductible. The CIT(A) rejected this claim, relying on the Supreme Court's decision in Totgar's Co-operative Sale Society Ltd. and the Karnataka High Court's decision in Pr. CIT, Hubballi vs. M/s. Totgar's Co-operative Sales Society. However, the Tribunal found that the Co-operative Bank is primarily a Co-operative Society, and thus, the interest earned from such a bank qualifies for deduction under Section 80P(2)(d). The Tribunal referenced several precedents, including the Mantola Cooperative Thrift & Credit Society Ltd. vs ITO and the Reserve Bank Staff & Officers Co-op Credit Society Ltd. vs ITO, supporting the assessee's claim.

3. Levy of Interest under Sections 234B and 234C:

The assessee contested the levy of interest under Sections 234B and 234C of the Income Tax Act, 1961. The Tribunal held that the levy of interest is consequential in nature and thus upheld the AO's decision.

Judgment:

The Tribunal allowed the appeals partly, holding that the assessee is eligible for the deduction under Section 80P(2)(d) of the Act for both assessment years, as the interest and dividend income from the Delhi State Co-operative Bank Ltd. qualifies for such deduction. The Tribunal concluded that the judgment in Totgar's Co-operative Sale Society Ltd. does not apply to this case since the funds were deposited with a Co-operative Society, not a commercial bank. The appeals were partly allowed, and the levy of interest under Sections 234B and 234C was upheld as consequential.

---