Deduction Allowed on Co-operative Bank Interest u/s 80P(2)(d) for Co-operative Society Investments Claimed as Eligible Business Income

ITAT allowed the assessee-co-operative society's appeal, holding that interest income earned from investments with a district co-operative bank qualifies for deduction under s. 80P(2)(d) of the IT Act. Relying on binding jurisdictional HC precedent, the Tribunal treated the co-operative bank as a co-operative society for purposes of s. 80P(2)(d), and rejected the Revenue's stand that interest from a co-operative bank is not eligible for such deduction. Consequently, the disallowance made by the AO and sustained by lower authorities was set aside and the deduction was directed to be granted.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether delay of 212 days in filing the appeal before the Tribunal under section 253(3) of the Income-tax Act, 1961, was liable to be condoned.

1.2 Whether interest income earned by a co-operative society on investments made with a co-operative bank, which is itself a co-operative society, qualifies for deduction under section 80P(2)(d) of the Income-tax Act, 1961, in light of section 80P(4) and the judicial precedents cited.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of delay in filing appeal before the Tribunal

Legal framework (as discussed)

2.1 The Tribunal noted the prescription of limitation for filing an appeal before it under section 253(3) of the Income-tax Act, 1961, and considered whether "sufficient cause" existed for condoning the delay of 212 days.

Interpretation and reasoning

2.2 The Tribunal recorded that the assessee had entrusted its tax matters, including representation in appeal, to an earlier tax consultant whose e-mail ID was registered on the ITBA portal for communication of notices and orders.

2.3 The earlier consultant failed to comply with notices issued by the appellate authority and did not properly inform or advise the assessee, leading to non-pursuit of remedies within time. The assessee subsequently engaged a new consultant, who changed the registered e-mail ID and, upon receipt of a penalty notice under section 271(1)(c), advised filing of the appeal before the Tribunal.

2.4 The Tribunal found that the delay arose due to lapse and non-communication on the part of the earlier tax consultant, and not due to negligence or deliberate inaction by the assessee.

2.5 The reasons set out in the assessee's affidavit were accepted as constituting "sufficient cause" for the delay, particularly as the assessee had relied on professional advice and had provided the consultant's e-mail ID for statutory communication.

Conclusions

2.6 The delay of 212 days in filing the appeal was condoned and the appeal was admitted for adjudication on merits.

Issue 2: Eligibility of deduction under section 80P(2)(d) on interest from investments with a co-operative bank

Legal framework (as discussed)

2.7 The Tribunal examined section 80P(2)(d), which grants 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.

2.8 The Tribunal referred to section 80P(4), which restricts the availability of deduction under section 80P to co-operative banks in specified circumstances.

2.9 The orders of the lower authorities were based on the view that interest and dividend received from a co-operative bank do not fall within section 80P(2)(d), treating a co-operative bank as distinct from a co-operative society and relying on judicial precedents including:

(a) Totagars Co-operative Sales Society Ltd. v. ITO (Supreme Court)

(b) PCIT v. Totagars Co-operative Sales Society (Karnataka High Court)

(c) Federal Bank Ltd. v. S. Srinivasan (Supreme Court)

and decisions holding that co-operative banks are excluded from claiming deduction under section 80P.

2.10 The Tribunal also considered the subsequent judgments of the jurisdictional High Court, including:

(a) PCIT v. Ashwinkumar Arban Co-operative Society Ltd., wherein it was held that deduction under section 80P(2)(d) is available to a co-operative society on interest income from investments with a co-operative bank, which is itself a co-operative society.

(b) PCIT v. Rajkot Lodhika Sahakari Kharid Vechan Sangh Ltd., following Ashwinkumar Arban Co-operative Society Ltd. and reiterating that a co-operative bank is a co-operative society and interest earned from such bank is eligible for deduction under section 80P(2)(d).

Interpretation and reasoning

2.11 The Tribunal noted that the assessee is a registered co-operative society engaged in providing credit facilities to its members (farmers) and had claimed deduction under section 80P on interest income from investments with Surat District Co-operative Bank Ltd.

2.12 It was an admitted and undisputed factual position before the Tribunal that Surat District Co-operative Bank Ltd. is a co-operative society duly registered under the Gujarat Co-operative Societies Act, 1961.

2.13 The Assessing Officer and the appellate authority had denied deduction under section 80P(2)(d) on the ground that:

(a) A co-operative bank cannot be regarded as a "co-operative society" for purposes of section 80P(2)(d).

(b) Section 80P(4) operates to exclude co-operative banks from the purview of section 80P, and thus interest from investments in such banks is ineligible for deduction under section 80P(2)(d).

2.14 The Tribunal observed that the jurisdictional High Court, in Ashwinkumar Arban Co-operative Society Ltd., after considering earlier decisions including Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. and State Bank of India, had held that:

(a) The controversy regarding deduction under section 80P(2)(d) on interest income from investment with a co-operative bank is no longer res integra.

(b) 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, where such bank is, in law, a co-operative society.

2.15 The Tribunal further noted that in Ashwinkumar Arban Co-operative Society Ltd., the High Court held that co-operative banks are co-operative societies registered under the relevant State Co-operative Societies Act, and that allowance of deduction under section 80P(2)(d) in such circumstances is in consonance with the provisions of the Act and prevailing judicial interpretation.

2.16 In Rajkot Lodhika Sahakari Kharid Vechan Sangh Ltd., the jurisdictional High Court reaffirmed that:

(a) A co-operative bank is a co-operative society.

(b) Interest earned by a co-operative society from deposits/investments with a co-operative bank is eligible for deduction under section 80P(2)(d).

2.17 The Tribunal held that, in view of these binding decisions of the jurisdictional High Court, the reasoning adopted by the lower authorities-treating a co-operative bank as not being a co-operative society for purposes of section 80P(2)(d) and relying on Totagars and other decisions-could not be sustained for a co-operative society claiming deduction on interest from a co-operative bank which is itself a registered co-operative society.

2.18 The Tribunal also implicitly accepted that section 80P(4), which disentitles co-operative banks themselves from claiming deduction under section 80P, does not bar a separate co-operative society from claiming deduction under section 80P(2)(d) on interest earned from a co-operative bank, where that bank answers the description of a "co-operative society".

2.19 On the facts, since Surat District Co-operative Bank Ltd. was accepted as a co-operative society registered under the Gujarat Co-operative Societies Act, 1961, interest income of the assessee from its investments with that bank fell squarely within the scope of section 80P(2)(d).

Conclusions

2.20 Interest income of Rs. 23,79,773 earned by the assessee co-operative society from its investments with Surat District Co-operative Bank Ltd., being a co-operative society, is eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961.

2.21 The disallowance made by the Assessing Officer and affirmed by the appellate authority, denying deduction under section 80P(2)(d), was set aside.

2.22 The grounds raised by the assessee on this issue were allowed and the assessee's appeal was allowed in full.

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