Deduction under s.80P(2)(d) allowed on interest from investments with district co-operative bank to co-op society

ITAT allowed the assessee-co-operative society's appeal, holding that interest income earned on investments placed with a district co-operative bank constitutes eligible income for deduction under s. 80P(2)(d) of the IT Act. Relying on binding HC precedent that a co-operative bank is itself a co-operative society for the purposes of s. 80P(2)(d), the Tribunal held that interest received from such a bank falls within the scope of "interest or dividends derived from investments with any other co-operative society." The disallowance made by the Revenue was therefore set aside.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Eligibility of deduction under section 80P(2)(d) of the Income-tax Act, 1961 on interest and dividend income earned from investments made with a co-operative bank, where such bank is itself a co-operative society.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deduction under section 80P(2)(d) on interest/dividend from co-operative bank

Legal framework (as discussed)

2.1 Section 80P(2)(d) provides deduction in respect of income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society.

2.2 The lower authorities relied on judicial precedents including Totagars' Co-operative Sale Society Ltd. and other decisions to deny deduction, holding that interest from co-operative banks is not eligible under section 80P(2)(d).

Interpretation and reasoning

2.3 The Tribunal recorded that the interest and dividend income in question (Rs. 1,84,177) was earned from Surat District Co-operative Bank Ltd., which is a co-operative society registered under the Gujarat Co-operative Societies Act, 1961; this fact was not in dispute.

2.4 The Tribunal considered the decisions of the jurisdictional High Court, particularly the ruling in Ashwinkumar Arban Co-operative Society Ltd., wherein it was held that deduction under section 80P(2)(d) is available to co-operative societies on income earned as interest on investments made with a co-operative bank, which in turn is a co-operative society.

2.5 The Tribunal noted that in Ashwinkumar Arban Co-operative Society Ltd., the jurisdictional High Court had examined and distinguished the Supreme Court decision in Totagars' Co-operative Sale Society Ltd., and held that section 80P(2)(d) applies where the investment is with a co-operative bank that is itself a co-operative society.

2.6 The Tribunal further referred to the subsequent jurisdictional High Court decision in Rajkot Lodhika Sahakari Kharid Vechan Sangh Ltd., which followed Ashwinkumar Arban Co-operative Society Ltd. and reiterated that a co-operative bank is a co-operative society and that interest earned therefrom qualifies for deduction under section 80P(2)(d).

2.7 In light of the binding nature of the jurisdictional High Court decisions, the Tribunal preferred these over contrary views taken in other decisions relied on by the lower authorities.

Conclusions

2.8 The Tribunal held that Surat District Co-operative Bank Ltd. being a co-operative society, the interest and dividend income earned by the assessee co-operative society from its investments with this bank falls within the scope of section 80P(2)(d).

2.9 The disallowance of deduction under section 80P(2)(d) by the Assessing Officer, as confirmed by the appellate authority, was set aside, and the assessee's claim for deduction on the sum of Rs. 1,84,177 was allowed.

2.10 The appeal was allowed, with the grounds of the assessee being accepted in full.

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