Interest from co-operative bank exempt for housing societies
A recent decision by the Income-tax Tribunal (ITAT), Mumbai bench, will bring respite to co-operative housing societies in Mumbai, many of whom had received notices over the past few years as the Income Tax (1-T) department was takinga view that in- terest income from fixed depo- sits in co-operative banks was not exempt.
Co-operative housing societies park their surplus funds with other co-operative entities (that is, banks) and claim tax exemption for the interest under Section 80P of the IT Act. In the case of Palm Court Co- operative Housing Society (CHS) based in suburban Mumbai, ITAT held that inter est from investments made in co-operative banks would be exempt in the hands of the housing society.
For the financial year 2014- 15, Palm Court CHS had declared a total income of Rs 10.49 lakh in its tax returns. Its case was selected for limited scrutiny and the principal commissioner of IT noted that the CHS had received interest in come from co-operative banks of Rs 12.9 lakh, which it had claimed as a deduction under d Section 80P (2)(d) of the IT Act. The principal commissioner held that the CHS was not eligible for the deduction under this section.
Section 80P (2)(d) provides that in respect of any income by way of interest or dividends is derived by a co-operative society from its investments with any other co-operative society, the whole of such income shall be allowed as a deduction. But the principal commissioner took a view that post an amendment made by Finance Act, 2015, co-operative banks are not classified under co-operative societies. Thus the interest earned cannot be eligible for deduction in the hands of investor society (such as a CHS). The ITAT bench composed of Amarjit Singh, accountant member, and Kavitha Rajagopal, judicial member, placed reliance on earlier decisions of the Mumbai bench of the tribunal. These orders had held a co-operative bank continues to be a co-operative socity registered under Co-operative Societies Act, therefore the interest income derived by a CHS from its investments with a co-operative bank would be entitled for tax deduction.