Cooperative Banks Qualify for Tax Deduction Under Section 80P(2)(d) Despite Banking License Status

In this tax case before the Tribunal, the key issue was the allowability of deduction under section 80P(2)(d) for interest income from Cooperative Banks. The Tribunal held that Cooperative Banks, despite having banking licenses, remain Cooperative Societies eligible for tax deduction. Rejecting procedural objections, the Tribunal allowed the deduction, citing consistent precedents and emphasizing the legislative intent to support cooperative entities.

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1. ISSUES PRESENTED and CONSIDERED

The primary legal issue considered in this appeal pertains to the allowability of deduction under section 80P(2)(d) of the Income-tax Act, 1961, specifically regarding the interest income earned by the assessee from deposits/investments with Cooperative Banks. The core questions examined include:

• Whether the interest income earned from deposits/investments with Cooperative Banks qualifies for deduction under section 80P(2)(d) of the Act.
• Whether the assessee's failure to furnish requisite details before the lower authorities affects the entitlement to such deduction.
• Whether the matter requires remand to the Assessing Officer due to lack of details or can be decided on merit based on existing precedents.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Allowability of deduction under section 80P(2)(d) for interest income earned from Cooperative Banks

Relevant legal framework and precedents: Section 80P(2)(d) of the Income-tax Act provides deduction for income by way of interest or dividend derived by a Cooperative Society from its investment with any other Cooperative Society. The provision aims to exempt such income from taxation, recognizing the cooperative nature of these entities.

Several coordinate benches of the Tribunal have consistently held that interest income earned from deposits/investments with Cooperative Banks is eligible for deduction under section 80P(2)(d), reasoning that Cooperative Banks are fundamentally Cooperative Societies that have obtained banking licenses. This interpretation aligns with the legislative intent to support cooperative entities.

Key precedents cited include:

• The Tribunal's decision in the assessee's own case for Assessment Year 2020-21 (ITA No.2471/PUN/2024), wherein a similar claim was allowed.
• Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. vs. ITO (ITA No.1365/PUN/2023), which held that interest income from Cooperative Banks qualifies for deduction under section 80P(2)(d).
• The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society vs. ITO (ITA No.84/PAN/2018), reinforcing the principle that Cooperative Banks, despite their banking license, remain Cooperative Societies for the purposes of section 80P(2)(d).

Court's interpretation and reasoning: The Tribunal emphasized that the legal position is no longer res integra and that the issue has been settled through a catena of decisions. The Tribunal observed that the Assessing Officer had accepted the fact of interest income from Cooperative Banks, and the only point of contention was the allowability of deduction under section 80P(2)(d).

The Tribunal rejected the Department's submission for remand on the ground of non-furnishing of details by the assessee before the CIT(A), reasoning that the fundamental legal issue had been authoritatively decided in favour of the assessee in prior decisions. Thus, the absence of details did not justify denial of the deduction.

Key evidence and findings: The undisputed fact was that the assessee earned interest income amounting to Rs. 1,02,95,103/- from deposits/investments with Cooperative Banks. This fact was accepted by the Assessing Officer in the assessment order. The assessee, however, did not submit the requisite details before the CIT(A), which led to the initial denial of the deduction.

Application of law to facts: Applying the settled legal position, the Tribunal held that the interest income earned by the assessee from Cooperative Banks is eligible for deduction under section 80P(2)(d). The fact that Cooperative Banks have banking licenses does not alter their fundamental character as Cooperative Societies for the purposes of this provision.

Treatment of competing arguments: The Department argued for restoration of the matter to the Assessing Officer due to non-furnishing of details. The Tribunal, however, found this argument untenable given the binding precedents and the acceptance of the fact of interest income by the Assessing Officer. The Tribunal prioritized substantive justice over procedural lapses in this context.

Conclusions: The Tribunal set aside the finding of the CIT(A) denying the deduction and directed the Assessing Officer to allow the claim of deduction under section 80P(2)(d) for the interest income earned from Cooperative Banks.

3. SIGNIFICANT HOLDINGS

The Tribunal crystallized the principle that "the interest income earned out of the FDs/Investments kept with Cooperative Banks is allowable u/s.80P(2)(d) of the Act as Cooperative Banks are basically Cooperative Societies only but have turned into Bank on getting necessary banking license."

It was held that "Section 80P(2)(d) of the Act provides that the sum received in respect of any income by way of interest or dividend derived by Cooperative Society from its investment with any other Cooperative Society, the whole of such income is eligible for deduction u/s.80P of the Act."

The Tribunal explicitly stated: "Respectfully following the above referred decisions taking consistent view along with considering the facts of the case, where the assessee made investment with the Cooperative Banks we hold that the assessee is eligible for deduction u/s.80P(2)(d) of the Act for the interest income earned from Cooperative Banks."

Accordingly, the Tribunal allowed the grounds of appeal relating to the deduction claim and set aside the CIT(A)'s order on merits, thereby partly allowing the appeal.

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