2025 (2) TMI 652 - AT - Income Tax

Co-operative housing society wins appeal on section 80P deductions for bank interest income and standard deduction

ITAT Mumbai allowed the appeal of a co-operative housing society regarding deductions under section 80P. The tribunal held that interest income from ... Deduction u/s 80P (2)(d) and 80P(2)(d) - interest income earned on saving accounts and fixed deposits maintained with Cooperative Banks - HELD THAT:- We find that while deciding the issue pertaining to the claim of deduction under section 80P(2)(d) of the Act with respect to the interest income earned from investment with Co-operative Bank, the coordinate bench of the Tribunal in Pathare Prabhu Co–operative Housing SocietyI [2023 (7) TMI 1272 - ITAT MUMBAI] held that interest income is eligible for deduction under section 80P(2)(d) of the Act. Provisions of section 80P(2)(c) - The same provides for a standard deduction, inter-alia, of INR 50,000 in case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) of section 80P(2) of the Act. In the present case, there is no dispute regarding the fact that the assessee is a co-operative housing society. Such being the facts, it is ostensible that the assessee is engaged in activities which is other than those specified in clause (a) or clause (b) of section 80P(2) of the Act. Assessee rightly claimed the deduction of INR 50,000 under section 80P(2)(c) of the Act. AO is directed to grant a deduction under section 80P(2)(c) of the Act to the assessee. As a result, the impugned order is set aside and sole ground raised by the assessee is allowed. ISSUES PRESENTED and CONSIDERED1. Whether the assessee, a cooperative housing society, is entitled to a deduction under section 80P(2)(d) of the Income Tax Act, 1961, for interest income earned from savings accounts and fixed deposits maintained with Cooperative Banks.2. Whether the assessee is entitled to a standard deduction of INR 50,000 under section 80P(2)(c) of the Act, given its status as a cooperative housing society.ISSUE-WISE DETAILED ANALYSIS1. Deduction under Section 80P(2)(d) of the Act:Relevant legal framework and precedents: Section 80P(2)(d) of the Income Tax Act allows for a deduction of income by way of interest or dividends derived by a cooperative society from its investments with any other cooperative society. The Tribunal referred to the precedent set in Pathare Prabhu Co-operative Housing Society v/s ITO, which held that interest income from investments in Cooperative Banks is eligible for deduction under this section.Court's interpretation and reasoning: The Tribunal emphasized that the two conditions for deduction under section 80P(2)(d) were met: (i) the income was by way of interest, and (ii) the investments were with another cooperative society. The Tribunal distinguished between Cooperative Banks and other commercial banks, noting that Cooperative Banks are indeed cooperative societies.Key evidence and findings: The assessee, a registered cooperative housing society, had earned interest income from deposits with Cooperative Banks, which was initially disallowed by the lower authorities based on the interpretation that Cooperative Banks fall under section 80P(4).Application of law to facts: The Tribunal found that the lower authorities' reliance on section 80P(4) was misplaced, as this section excludes only Cooperative Banks that operate like commercial banks. Since the assessee was not a Cooperative Bank, section 80P(4) was deemed irrelevant.Treatment of competing arguments: The Tribunal considered the divergent views of the Karnataka High Court regarding the eligibility of deduction under section 80P(2)(d) and chose to follow the interpretation favoring the assessee, in line with the principle established by the Supreme Court in CIT v. Vegetable Products Ltd.Conclusions: The Tribunal directed the Assessing Officer to grant the deduction under section 80P(2)(d) for interest income earned from Cooperative Banks.2. Deduction under Section 80P(2)(c) of the Act:Relevant legal framework and precedents: Section 80P(2)(c) provides a standard deduction for cooperative societies engaged in activities other than those specified in section 80P(2)(a) or (b). The Tribunal referenced the case of Sind Co-op. Hsg. Society, which was not directly applicable to the present facts.Court's interpretation and reasoning: The Tribunal noted that the assessee, being a cooperative housing society, was engaged in activities not specified in section 80P(2)(a) or (b), thus qualifying for the standard deduction under section 80P(2)(c).Key evidence and findings: The Tribunal found no dispute regarding the assessee's status as a cooperative housing society, which engaged in activities other than those specified in section 80P(2)(a) or (b).Application of law to facts: Given the nature of the assessee's activities, the Tribunal concluded that the standard deduction under section 80P(2)(c) was applicable.Treatment of competing arguments: The Tribunal found that the lower authorities' reliance on the Sind Co-op. Hsg. Society case was misplaced, as it did not address the applicability of section 80P in the context presented.Conclusions: The Tribunal directed the Assessing Officer to grant the standard deduction of INR 50,000 under section 80P(2)(c).SIGNIFICANT HOLDINGSThe Tribunal held that the interest income earned by a cooperative housing society from deposits with Cooperative Banks is eligible for deduction under section 80P(2)(d). It emphasized that the provisions of section 80P(4) are relevant only for Cooperative Banks functioning as commercial banks, which was not the case here.The Tribunal also established that cooperative housing societies are entitled to a standard deduction under section 80P(2)(c) for activities not specified in section 80P(2)(a) or (b). The Tribunal's directive to grant the deductions under sections 80P(2)(d) and 80P(2)(c) effectively set aside the lower authorities' orders, allowing the appeal by the assessee.