2025 (12) TMI 692 - AT - Income Tax

Co-op society allowed s.80P(2)(d) deduction on interest from co-op central bank registered under Tamil Nadu Act

ITAT Chennai held that the assessee, a co-operative society, is entitled to deduction under s.80P(2)(d) in respect of interest income earned from deposits ... Deduction u/s.80P(2)(d) - interest income received by the assessee from Villupuram District Central Cooperative Bank - reason for denying the benefit of deduction was that VDCC is not a co-operative society and only the interest income received by a co-operative society from another co-operative society alone is entitled for deduction u/s.80P(2)(d) HELD THAT:- Assessee had placed on record a copy of a certificate issued by the Deputy Registrar of Co-operative Societies, which clearly depicts that VDCC is registered as a Co-operative Central Bank u/s. 9 of Tamil Nadu Co-operative Societies Act, 1983. In light of the certificate of registration of the bank, it is clear that said cooperative bank registered under the Tamil Nadu Co-operative Societies Act is to be treated as co-operative society and the interest income received by the assessee from such society is eligible for deduction u/s.80P(2)(d). FAA is justified in holding that assessee is entitled to deduction u/s.80P(2)(d) - Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether interest income earned by a co-operative society on investments/deposits with a district central co-operative bank registered under the State Co-operative Societies Act qualifies for deduction under section 80P(2)(d) of the Income-tax Act, 1961. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Deduction under section 80P(2)(d) on interest from deposits with a district central co-operative bank Legal framework (as discussed) 2.1.1 Section 80P(2)(d) allows deduction in respect of interest or dividend income derived by a co-operative society from its investments with 'any other co-operative society'. Section 2(19) defines 'co-operative society' as a society registered under the Co-operative Societies Act, 1912 or under any law for the time being in force in any State for registration of co-operative societies. Section 80P(4) restricts deduction in respect of income of co-operative banks from banking business, but does not expressly restrict deduction to other co-operative societies claiming under section 80P(2)(d). Interpretation and reasoning 2.1.2 The Tribunal noted that it is undisputed that the assessee is a co-operative society and that the impugned interest income arises from investments with Villupuram District Central Co-operative Bank (VDCC). 2.1.3 Referring to its earlier order in the assessee's own case for earlier assessment years, the Tribunal reiterated that once it is accepted (i) that the assessee is a co-operative society and (ii) that interest income is earned from investments with another co-operative society (including a co-operative bank), the entire such interest is deductible under section 80P(2)(d). 2.1.4 The Tribunal emphasized that though co-operative banks themselves are not entitled to deduction under section 80P on their banking income by virtue of section 80P(4), this restriction does not apply to other co-operative societies claiming deduction under section 80P(2)(d) in respect of interest from such co-operative banks, provided those banks are 'co-operative societies' within section 2(19). 2.1.5 The Tribunal relied on the jurisdictional High Court's decisions, particularly in Thorapadi Urban Co-op Credit Society Ltd., Virupachipuram Urban Co-op Credit Society Ltd., and in Salem Agricultural Producers' Cooperative Marketing Society, holding that interest from deposits made by a co-operative society in a district central co-operative bank, which is also a co-operative society, is eligible for deduction under section 80P(2)(d) (and, in certain contexts, under section 80P(2)(a)(i)). 2.1.6 The Tribunal followed its coordinate bench decision in Subramania Siva Co-operative Sugar Mills Ltd., which, after applying the jurisdictional High Court ruling in Salem Agricultural Producers' Cooperative Marketing Society, held that interest income from deposits with a district co-operative bank (also a co-operative society) is deductible under section 80P(2)(d). 2.1.7 As to the Revenue's reliance on an earlier Tribunal decision in the case of another assessee (Villupuram District Consumer Co-operative Wholesale Stores Ltd.), the Tribunal distinguished the present case on the basis of factual evidence produced: a certificate from the Deputy Registrar of Co-operative Societies showing that VDCC is registered as a Co-operative Central Bank under section 9 of the Tamil Nadu Co-operative Societies Act, 1983. On this basis, the Tribunal treated VDCC as a 'co-operative society' for purposes of section 80P(2)(d). 2.1.8 The Tribunal rejected the Revenue's argument that VDCC's status as a co-operative bank regulated by the RBI and the Banking Regulation Act, 1949, excludes it from the expression 'co-operative society' under section 80P(2)(d), holding that registration under the State Co-operative Societies Act satisfies the definition in section 2(19), irrespective of separate banking regulation. 2.1.9 The Tribunal also noted that, in light of the jurisdictional High Court decisions and its own earlier orders in the assessee's case, the issue is no longer res integra and consistently stands decided in favour of allowing deduction on such interest income. Conclusions 2.1.10 Villupuram District Central Co-operative Bank, being registered as a co-operative central bank under the Tamil Nadu Co-operative Societies Act, is a 'co-operative society' within the meaning of section 2(19). 2.1.11 Interest income earned by the assessee co-operative society from investments/deposits with VDCC constitutes interest from investments with another co-operative society and is eligible for deduction under section 80P(2)(d) of the Act. 2.1.12 The restriction in section 80P(4) applicable to co-operative banks' own income does not bar a separate co-operative society from claiming deduction under section 80P(2)(d) on interest income received from such co-operative banks. 2.1.13 The First Appellate Authority was justified in directing the Assessing Officer to allow deduction under section 80P(2)(d) on the impugned interest income from VDCC, and the Revenue's appeals were accordingly dismissed.