2025 (11) TMI 820 - HC - Income Tax

Appeal dismissed: cooperative society allowed 80P(2)(d) deduction for interest on funds parked with cooperative bank

HC refused to admit the appeal and dismissed it, upholding the ITAT view that a cooperative society may claim deduction under section 80P(2)(d) for ... Deduction u/s 80P(2)(d) - cooperative society parks its surplus funds with another cooperative society - ITAT has relied upon the decisions of its coordinate benches, which have held the cooperative banks or the credit societies in question were also cooperative societies, and therefore, the amounts parked by the Assessee cooperative society with such cooperative banks or cooperative societies could be claimed as deduction - HELD THAT:- Recently, the Gujarat High Court, in the case of Shree Madhi Vighag Khand Udyog Sahakari Mandli Ltd. [2025 (1) TMI 767 - GUJARAT HIGH COURT] has reiterated the same view holding that a deduction u/s 80P(2)(d) is available to cooperative societies of income earned as interest on the investment made with the cooperative bank, in turn, is a cooperative society. Appellant’s contention about there being no factual finding by the ITAT that a cooperative bank with which the Assessee had made investments was also a cooperative society cannot be accepted. There was no serious dispute raised on this aspect but the only contention was that the bank in question was undertaking commercial activities as a commercial bank and there was no question of claiming the deduction. However, the fact that the bank in question was itself a cooperative society was never seriously disputed. On the above ground we decline to admit this Appeal because in our opinion, it raises no substantial questions of law. Besides, we note that the disputed claim in this Appeal is only Rs. 5,72,311/-. Paragraph 13 of the Appeal memo refers to the exception in clause 10(e) of the CBDT circular No. 3 of 2018 as amended by circular dated 20 August 2019. Thus prima facie, we are not too sure whether the revenue would be entitled to the benefit of the exceptions. However, without going into this issue we dismiss this Appeal because we are satisfied that it involves no substantial questions of law. ISSUES PRESENTED AND CONSIDERED 1. Whether Section 80P(2)(d) permits deduction of interest earned by a cooperative society only where surplus funds are deposited with another cooperative society, and excludes interest earned on deposits with a cooperative bank which is not a cooperative society. 2. Whether the Tribunal erred in dismissing the revenue's appeal by not following or distinguishing the decision of a High Court that held clause (d) of Section 80P(2) would not apply to interest income earned by deposits of surplus funds in a cooperative bank. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Scope of Section 80P(2)(d): deduction for interest on deposits with cooperative banks/societies Legal framework: Section 80P(2)(d) permits deduction to cooperative societies in respect of income by way of interest on funds deposited with a cooperative society (as the provision was interpreted in issue context); Section 80P(4) (as inserted w.e.f. 01.04.2007) distinguishes a cooperative bank from a cooperative society. Precedent treatment: Coordinate benches of the Tribunal and certain High Courts have held that where a cooperative bank or credit society is itself a cooperative society (i.e., registered/constituted as a cooperative society), interest earned on deposits with such entity is eligible for deduction under Section 80P(2)(d). Conflicting High Court authority exists taking the opposite view that clause (d) does not extend to deposits with a cooperative bank. Interpretation and reasoning: The Court examined the factual record and noted that the Tribunal relied on precedent where the bank/credit society was treated as also being a cooperative society. The Court observed there was no serious dispute before the Tribunal that the bank with which the assessee had made investments was itself a cooperative society; the principal contention was the bank's commercial activities, not its corporate character. Given those findings and the line of judicial decisions treating cooperative banks that are cooperative societies as falling within clause (d), the Court found no substantial question of law on the point in the appeal. Ratio vs. Obiter: Ratio - where the depositing entity is itself a cooperative society, interest on deposits falls within Section 80P(2)(d) deduction; Obiter - observations on the commercial nature of banking activity and exceptions under administrative circulars were not adjudicated as ratio because the Court did not decide those issues on merits. Conclusions: The Tribunal's allowance of deduction under Section 80P(2)(d) stands where (i) the depositing bank/credit society is itself a cooperative society and (ii) that factual character was not seriously disputed. No substantial question of law arises from the Tribunal's decision on this factual-legal mix. Issue 2 - Application of conflicting High Court authority and admission of appeal Legal framework: Appellate review for admission requires identification of substantial questions of law. Conflicting judicial decisions may give rise to such questions where legal interpretation is unsettled. Precedent treatment: The Tribunal relied on coordinate benches and several High Court decisions adopting the view that Section 80P(2)(d) covers interest on deposits with a cooperative bank that is a cooperative society. Conversely, other High Court authority (referred by Revenue) has held clause (d) inapplicable to cooperative banks. A recent High Court decision reiterated the view favorable to deduction where the depositing bank is a cooperative society. Interpretation and reasoning: The Court considered the competing precedents but placed emphasis on the factual posture-absence of a serious dispute regarding the cooperative character of the bank-and the prevailing line of authority relied upon by the Tribunal. The Court also noted the modest monetary amount in dispute and that the appeal memo referenced exceptions under a CBDT circular, indicating potential administrative relief issues not raised for detailed adjudication. On that basis the Court concluded the appeal did not raise a substantial question of law warranting interference. Ratio vs. Obiter: Ratio - where appellate admission hinges on a substantial question of law, an appeal should be admitted only if the legal question is genuinely open and not merely a challenge to factual findings or to settled coordinate/High Court precedents; Obiter - remarks regarding the CBDT circular exception and the quantum of disputed amount were ancillary and not decided on merits. Conclusions: The Court declined to admit the appeal, concluding it raised no substantial question of law given the factual finding that the depositing bank was a cooperative society and the existing line of judicial decisions supporting the Tribunal. The appeal was dismissed without deciding the administrative circular exception or other collateral points.