ITAT Allows Deduction To Credit Cooperative Society On Interest Earned/Dividend From Investment Made With Cooperative Bank

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has allowed the deduction under Section 80P of the Income Tax Act to the cooperative bank, which continued to be a cooperative society.

The bench of Rahul Chaudhary (Judicial Member) and Amarjit Singh (Accountant Member) has observed that though the cooperative bank, pursuant to the insertion of Section 80P(4), is no longer entitled to a claim of deduction under Section 80P of the Income Tax Act, as a cooperative bank continued to be a cooperative society registered under the Cooperative Society Act. Therefore, the interest income earned by a cooperative society from its investment held that cooperative banks would be entitled to a claim of deduction under Section 80P(2)(d).

The assessee is a credit cooperative society registered under the Maharashtra Cooperative Society Act 1960, and its membership is open to employees of the Department of India post within the State of Maharashtra. All business during the year was done only with its members. During the year, the assessee has filed a return of income declaring total income at Rs. nil after claiming deduction under Section 80P.

The case was subject to scrutiny assessment, and a notice was issued. During the course of the assessment, the assessing officer observed that the assessee has shown gross total income from business and claimed the whole amount as a deduction under Section 80P(2)(a)(i).

The AO observed that the assessee has credited interest receipts and dividends received from cooperative banks in its profit and loss account. The AO observed that earning interest/dividend from investment in Cooperative Bank was not the object of the business of the assessee; therefore, it was not eligible for deduction in terms of the provision of Section 80P(2)(a)(i) of the Income Tax Act. The assessing officer also observed that the assessee was not eligible for deduction under Section 80P(2)(d) in view of the provision of Section 80P(4) inserted by the Finance Act 2006 w.e.f. 01.04.2007, which specifically excludes cooperative banks from the definition of cooperative societies for the purpose of benefit of Section 80P.

Section 80P(4) of the Income Tax Act states that the deduction shall not be allowed to the cooperative banks, and cooperative banks are not included in the cooperative societies for the purpose of Section 80P(2)(d) of the Income Tax Act. The assessing officer concluded that benefit of 80P cannot be given either under section 80P(2)(d)(i) as claimed by the assessee or under section 80P(2)(d) of the Act. Therefore, deduction under section 80P(2)(a)(i) to the extent of Rs. 197,79,808 being interest income/dividend received from cooperative banks was rejected and also not allowed as deduction under section 80P(2)(d) of the Income Tax Act.

The tribunal, while allowing the appeal of the assessee, directed the AO to allow the alternative claim of deduction under section 80P(2)(d) to the assessee in respect of interest earned/dividend from investment made with the cooperative bank.

Counsel For Appellant: Madhur Agarwal

Counsel For Respondent: H.M. Bhatt

Case Title: Mumbai Postal Employees Co-operative Credit Versus ITO

Case No.: ITA No.628/Mum/2024

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