Interest Income Derived By Co-Operative Society From Its Investment With Any Other Co-Operative Society Is Allowable U/s 80P(2)(D): Mumbai ITAT

While directing the AO to allow deduction u/s 80P(2)(a) or 80P(2)(d) of the Income-tax Act, 1961 of interest income earned by the assessee from the co-operative bank, the Mumbai ITAT clarified that co-operatives bank is also a co-operative society.

The Bench comprising Rahul Chaudhary (Judicial Member) and Prashant Maharishi (Accountant Member) observed that, “in respect of any income by way of interest or dividend derived by the co-operative society from its investment with any other co-operative society is also allowable as deduction fully under Section 80P(2)(d) of the Act, the facts are clear that assessee is a co-operative society and co-operative banks are also co-operative societies.” (Para 9)

As per the brief facts of the case, the Assessee's return was selected for scrutiny, wherein AO found that assessee has claimed deduction u/s 80P(2) on interest income and same was allowed. The AO was of the view that assessee has earned income from co-operative bank and not from co-operative societies on which deduction u/s 80P(2)(d) is not available and therefore, notice u/s 148 was issued and denied the deduction u/s 80P (2) (a) as well as (d).

The CIT(A) partly allowed assessee's appeal by observing that assessee is eligible for claim of deduction u/s 80P(2)(d) and directed the AO to assess the interest earned on the deposits held with schedule bank/ co-operative banks holding license issued by the Reserve Bank of India, Commercial Bank and Financial Institutions under the head income from other sources.

The Coram noted that the assessee is a co-operative society engaged in carrying on the business of providing credit facilities to its member, and the whole of the amount of profits and gains of such business attributable to such activities is deductible u/s 80P(2)(a).

The Bench observed that the provisions of Sec 80P(4) specifically denies deduction only to co-operative banks and the assessee is admittedly not a co-operative bank.

The Bench found that the AO instead of treating the assessee as credit co-operative society considered the assessee as primary co-operative bank without any basis.

The Bench expressed that interest income earned by the assessee on fixed deposits with the co-operative banks are eligible for deduction u/s 80P(2)(d).

Therefore, referring to the decision of Supreme Court in case of Kerala State Co-Operative Agricultural & Rural Development Bank Ltd. [2023] 154 taxmann.com 305 (SC), the ITAT allowed the claim of assesse u/s 80P(2)(d).

Counsel for Appellant/ Taxpayer: Siddesh Mayekar

Counsel for Respondent/ Department: Mahita Nair

Case Title: Reserve Bank Staff and Officers co-op credit society Ltd. verses Income Tax Officer

Case Number: ITA No. 3114/Mum/2023

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