2025 (7) TMI 956 - AT - Income Tax

Cooperative society entitled to section 80P(2)(d) deduction on interest from cooperative banks

The ITAT Mumbai allowed the assessee's appeal regarding deduction under section 80P(2)(d) for interest received from cooperative banks including Saraswat ... Deduction u/s 80P(2)(d) - interest received from Saraswat Cooperative Bank, Cosmo Cooperative Bank and Mumbai District Central Cooperative Bank - Denial of claim holding that these are not cooperative societies - HELD THAT:- This issue is covered by the decisions of the coordinate benches of ITAT and also by the decision of Ashwin Kumar Urban Cooperative Society Ltd. [2024 (11) TMI 971 - GUJARAT HIGH COURT] wherein it has been held that the deduction u/s 80P(2)(d) of the Act is available to the cooperative society on the income earned as interest on the investment made with the cooperative banks, which in term are cooperative society itself. Thus, direct the AO to allow the deduction u/s 80P(2)(d) of the Act to the assessee on account of interest received from the banks mentioned above. Assessee appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this appeal are:(a) Whether the Assessing Officer and the CIT(A) erred in denying the deduction claimed under section 80P(2)(d) of the Income-tax Act, 1961, amounting to Rs. 13,67,260/- on interest income received from Saraswat Cooperative Bank Ltd, Cosmos Co-op Bank Ltd, and Mumbai District Central Cooperative Bank, by holding that these entities are not cooperative societies.(b) Whether the CIT(A) committed error in interpreting the legal provisions and applicable case law regarding the eligibility of interest income from cooperative banks for deduction under section 80P(2)(d).(c) Ancillary issues raised include allegations of assessment based on surmises and conjectures, non-grant of video conferencing facility in violation of procedural rules, and non-application of mind in disallowing the deduction, but the primary substantive issue adjudicated relates to the denial of deduction under section 80P(2)(d).2. ISSUE-WISE DETAILED ANALYSISIssue: Eligibility of Deduction under Section 80P(2)(d) on Interest Income from Cooperative BanksRelevant Legal Framework and Precedents:Section 80P(2)(d) of the Income-tax Act, 1961, grants deduction to cooperative societies on income earned from specified sources, including interest on investments made with cooperative banks. The legal question revolves around the interpretation of 'cooperative society' and whether the banks from which interest income was earned qualify as such under the statute.The Maharashtra State Cooperative Societies Act, 1960, particularly section 6(5), mandates that cooperative societies end their names with 'Limited' or 'Unlimited.' The Banking Regulation Act, 1949, governs cooperative banks but does not affect their status as cooperative societies for income tax purposes. The Companies Act, 2013, and its provisions, including section 8, are not applicable to cooperative societies.Several judicial precedents and ITAT decisions have addressed similar issues. Notably, the Hon'ble Gujarat High Court in PCIT v/s Ashwin Kumar Urban Cooperative Society Ltd. (2024) held that deduction under section 80P(2)(d) is available to cooperative societies on income earned as interest from cooperative banks, which themselves are cooperative societies.Coordinate benches of the ITAT Mumbai have consistently ruled in favor of allowing such deductions where the interest income is from cooperative banks, treating these banks as cooperative societies. Cases cited include New Ideal CHSL vs. ITO, Petit Towers CHSL vs. ITO, Jal Ratan Deep CHSL vs. ITO, Yudhishtir CHSL vs. JAO, Mittal Court Premises CHSL vs. ITO, Palm Court M Premises CHSL vs. PCIT, Jaimuni Sahkari Pathpedi Maryadit vs. AU, and Uppinangady Catholic Multipurpose CHSL vs. ITO.Court's Interpretation and Reasoning:The Tribunal examined the facts and legal submissions and found that the CIT(A) erred in denying the deduction by holding that the banks in question were not cooperative societies. The Tribunal emphasized that the CIT(A) failed to consider the statutory requirement under the Maharashtra State Cooperative Societies Act that cooperative societies must end their names with 'Limited' or 'Unlimited,' which the banks complied with.The Tribunal also noted that the CIT(A) incorrectly applied the Companies Act provisions and overlooked the Banking Regulation Act's non-impact on the cooperative status for tax purposes. The Tribunal further observed that the CIT(A) relied on a case (Uppinangady Catholic Multipurpose Co-operative Society Ltd. vs ITO) without providing a copy to the assessee and without considering the factual distinction that the cooperative society in that case was involved in providing credit facilities, unlike the present banks.Key Evidence and Findings:The assessee produced confirmation letters from the respective banks affirming their status as cooperative societies. The Tribunal found that these confirmations, coupled with statutory provisions and judicial precedents, supported the assessee's claim.Application of Law to Facts:Applying the legal principles and precedents, the Tribunal concluded that the interest income earned from the Saraswat Cooperative Bank Ltd, Cosmos Co-op Bank Ltd, and Mumbai District Central Cooperative Bank qualifies for deduction under section 80P(2)(d). The banks are cooperative societies within the meaning of the Income-tax Act and relevant state legislation.Treatment of Competing Arguments:The Tribunal addressed the CIT(A)'s argument questioning the cooperative status of the banks and reliance on the Companies Act and Banking Regulation Act. It rejected these contentions, clarifying that the Companies Act does not apply to cooperative societies and that any violation of the Banking Regulation Act by the banks does not affect the assessee's claim for deduction.The Tribunal also noted procedural lapses by the CIT(A) in not providing copies of relied-upon case law to the assessee and ignoring binding precedents from the jurisdictional High Court and coordinate benches of the ITAT.Conclusions:The Tribunal allowed the appeal on this issue, directing the Assessing Officer to grant the deduction under section 80P(2)(d) on the interest income from the specified cooperative banks.3. SIGNIFICANT HOLDINGSThe Tribunal held:'The deduction u/s 80P(2)(d) of the Act is available to the cooperative society on the income earned as interest on the investment made with the cooperative banks, which in term are cooperative society itself.'Core principles established include:- Cooperative banks, registered and operating under relevant cooperative society laws, qualify as cooperative societies for the purposes of section 80P(2)(d).- The naming conventions prescribed under the Maharashtra State Cooperative Societies Act are a determinative factor in recognizing cooperative societies.- The Companies Act and Banking Regulation Act do not negate the cooperative status of banks for income tax deduction claims.- Procedural fairness requires the provision of copies of case law relied upon and adherence to natural justice principles.Final determination:The appeal was allowed, and the Assessing Officer was directed to allow the deduction claimed under section 80P(2)(d) of Rs. 13,67,260/- on account of interest income from Saraswat Cooperative Bank Ltd, Cosmos Co-op Bank Ltd, and Mumbai District Central Cooperative Bank.