Co-operative Housing Society wins deduction under section 80P(2)(d) for interest earned on fixed deposits with Co-operative Banks

ITAT Mumbai allowed the appeal of a Co-operative Housing Society regarding deduction under section 80P(2)(d) for interest earned on fixed deposits and savings bank accounts with Co-operative Banks. The Tribunal held that the assessee, being a Co-operative Society that collects maintenance funds from members, is entitled to claim deduction on interest income from deposits maintained with Co-operative Banks. The decision was based on consistent precedent from the assessee's own case in previous assessment years and following the ruling in Salsette Catholic Co-operative Housing Ltd.

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The core legal question considered in this appeal is whether the assessee, a Co-operative Housing Society, is entitled to claim deduction under section 80P(2)(d) of the Income Tax Act, 1961 ("the Act") in respect of interest income earned on fixed deposits and savings bank accounts maintained with Co-operative Banks.

Another procedural issue addressed is the condonation of delay in filing the appeal beyond the prescribed limitation period.

Regarding the condonation of delay, the assessee filed the appeal 572 days late and sought condonation, submitting that it was pursuing a rectification application before the learned Commissioner of Income Tax (Appeals) ("CIT(A)") concerning the non-consideration of favorable orders from preceding assessment years. The Tribunal considered whether this constituted sufficient cause to excuse the delay.

On the substantive issue, the Tribunal examined the scope of section 80P(2)(d) of the Act, which provides deduction to co-operative societies in respect of income derived from investments in other co-operative societies. The question was whether interest income earned by the assessee from deposits with Co-operative Banks qualifies for this deduction, given the contention that Co-operative Banks are commercial banks and thus excluded from the definition of "co-operative society" under this provision.

The Tribunal also considered the relevance and applicability of prior orders passed in the assessee's own case for preceding assessment years, which had allowed similar deductions, and the impact of these precedents on the present appeal.

In addressing the delay condonation, the Tribunal referred to the assessee's submission that it filed detailed written submissions before the learned CIT(A) and had also filed prior orders in its favor on the identical issue. The non-consideration of these prior orders by the CIT(A) was argued to be a mistake apparent from the record, for which a rectification application was pending. The Tribunal held that pursuing this alternate remedy constituted sufficient cause preventing timely filing of the appeal. Accordingly, the delay was condoned and the appeal was admitted for adjudication on merits.

On the substantive issue, the Tribunal noted that the assessee is a Co-operative Housing Society that earns interest income from fixed deposits and savings bank accounts maintained with Co-operative Banks registered under the Maharashtra Co-operative Societies Act, 1960. The interest income totaled Rs. 2,76,03,114/- for the year under consideration.

The Assessing Officer (AO) had disallowed the deduction claimed under section 80P(2)(d), holding that the provision applies only to interest and dividend earned from investments in other co-operative societies and not from Co-operative Banks, which were characterized as commercial banks outside the scope of the section.

The learned CIT(A) upheld the AO's disallowance, dismissing the assessee's appeal.

In its analysis, the Tribunal extensively reviewed the material on record and relied on a series of coordinated bench decisions in the assessee's own case for preceding assessment years. These decisions consistently held that the assessee was entitled to claim deduction under section 80P(2)(d) for interest income earned from deposits with Co-operative Banks.

Specifically, the Tribunal referred to the order dated 13.05.2021 in ITAs for assessment years 2013-14 and 2014-15, where the Tribunal had distinguished the decision of the Hon'ble Karnataka High Court in Totagars Co-operative Society and held that the term "co-operative society" in section 80P(2)(d) includes Co-operative Banks. The Tribunal noted that the earlier decisions had rejected the Revenue's contention that Co-operative Banks are commercial banks outside the scope of the section.

Further, the Tribunal cited subsequent orders for assessment years 2016-17 and 2017-18, which reaffirmed the assessee's entitlement to the deduction under section 80P(2)(d) for interest income from Co-operative Banks.

The Tribunal observed that during the hearing, the learned Departmental Representative failed to produce any material to distinguish or deviate from these consistent precedents.

Applying the law to the facts, the Tribunal concluded that the assessee's interest income from fixed deposits and savings bank accounts with Co-operative Banks falls within the ambit of section 80P(2)(d) and is therefore eligible for deduction.

The Tribunal rejected the Revenue's argument that Co-operative Banks should be excluded from the definition of co-operative society for the purpose of section 80P(2)(d), emphasizing the binding nature of the coordinate bench decisions and the legislative intent to provide tax relief to co-operative societies on income derived from other co-operative entities, including Co-operative Banks.

Accordingly, the Tribunal allowed the sole ground raised by the assessee and set aside the impugned order of the learned CIT(A), directing that the deduction under section 80P(2)(d) be granted.

Significant holdings include the following verbatim excerpt from the coordinate bench decision relied upon:

"Therefore, we hold that the assessee is a Co-operative Society is entitled for claiming deduction under section 80P(2)(d) of the Act in respect of the interest income earned from either from Co-operative Bank or from Co-operative Society whatsoever that may be."

The Tribunal's final determinations are:

• The delay in filing the appeal is condoned on the ground of sufficient cause arising from the pendency of a rectification application before the learned CIT(A).
• The assessee is entitled to claim deduction under section 80P(2)(d) of the Act in respect of interest income earned on fixed deposits and savings bank accounts maintained with Co-operative Banks.
• The impugned order disallowing the deduction is set aside, and the appeal is allowed on merits.

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