Co-operative society entitled to section 80P(2)(d) deduction for interest income from deposits with co-operative banks

ITAT Mumbai held that a co-operative society is entitled to deduction under section 80P(2)(d) for interest income earned from deposits with co-operative banks. The ITO and CIT(A) had disallowed the deduction, arguing that co-operative banks do not fall under the purview of co-operative society as referred to in section 80P(2)(d). Following precedent from Shah and Nahar Industrial Premises case, ITAT allowed the deduction for interest income of Rs. 18,12,581/- earned from deposits with cooperative banks for multiple assessment years. Appeal allowed.

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Issues Involved:
1. Disallowance of deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
2. Classification of Co-operative Banks under Section 80P(2)(d).
3. Consideration of judicial precedents supporting the deduction under Section 80P(2)(d).

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80P(2)(d):
The primary issue in this appeal is the disallowance of the deduction claimed under Section 80P(2)(d) of the Income Tax Act, 1961. The assessee, a registered co-operative housing society, filed its return for A.Y. 2013-14 declaring a gross total income of Rs. 18,64,642/-. The assessee claimed a deduction of Rs. 18,12,581/- under Section 80P(2)(d) for interest earned from investments in co-operative banks. The Income Tax Officer disallowed this deduction, considering that co-operative banks do not fall under the purview of "co-operative societies" as referred to in Section 80P(2)(d). This disallowance was confirmed by the CIT(A).

2. Classification of Co-operative Banks under Section 80P(2)(d):
The core of the dispute is whether interest income earned from co-operative banks qualifies for deduction under Section 80P(2)(d). The assessee argued that co-operative banks should be considered co-operative societies, and thus, interest income from such banks should be deductible. The assessee relied on various ITAT and court judgments that allowed similar deductions. The Revenue, however, referred to the Gujarat High Court's decision in the case of Katlary Kariyana Merchant Sahkari, which held that interest income from deposits with co-operative banks does not qualify for deduction under Section 80P(2)(d).

3. Consideration of Judicial Precedents Supporting the Deduction:
The assessee cited several ITAT decisions where deductions under Section 80P(2)(d) were allowed for interest income from co-operative banks. These cases include:
- ITA No. 2547/MUM/2022, Regency Premises Co-op. Hsg. Society Ltd. Vs. DCIT/ACIT.
- ITA No. 1972/MUM/2022, Bhag Co-op. Hsg. Society Ltd. Vs. Asst. CIT.
- ITA No. 1950/MUM/2019, Om Sudarshan CHS Ltd. Vs. ITO.
- ITA No. 374/MUM/2018, Shree Mahadeshwar Sahakari Patpedhi Maryadit Vs. ITO.
- ITA No. 1343/MUM/2017, Sea Green Co-operative Housing Society Vs. ITO.
- ITA No. 3566/MUM/2014, Lands End Co-operative Housing Society Vs. ITO.
- ITA No. 3155/MUM/2019, Solitaire CHS Ltd. Vs. Pr. Commissioner of Income Tax.
- ITA No. 4058/MUM/2017, ITO Vs. The Presidency CHS Ltd.
- ITA No. 2787 & 2788/DEL/2018, The Veer Co-operative Group Housing Society Ltd. Vs. ITO.

The Tribunal noted that the co-ordinate benches consistently held that income derived by way of interest from co-operative banks is eligible for deduction under Section 80P(2)(d). The Tribunal cited the recent decision in ITA No. 542/Mum/2024, Shah and Nahar Industrial Premises A2 Co-op. Soc. Ltd. Vs. National e-Assessment Centre, where it was held that interest income from co-operative banks qualifies for deduction under Section 80P(2)(d).

Conclusion:
The Tribunal concluded that the assessee is entitled to the deduction under Section 80P(2)(d) for interest income earned from deposits with co-operative banks. The Tribunal directed the AO to allow the deduction claimed by the assessee for the F.Y. 2012-13. The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 30.07.2024.

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