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January 31, 2023

Interest Income Earned by Co-op Society from Co-op Bank is Deductible Under Section 80P(2)(d)

by CA Shivam Jaiswal in Income Tax

Interest Income Earned by Co-op Society from Co-op Bank is Deductible Under Section 80P(2)(d)

Fact and issue of the case

Though the assessee has raised seven(7) grounds of appeal, but the main grievance of assessee is with regard to allowability/allowable of deduction u/s. 80P(2)(d) of the Act for the interest income earned on the investments held with other co-operative society.

Brief facts of the case are that the assessee is a cooperative society registered under the West Bengal Co-operative Societies Act, 1983 and it is a Primary Agricultural Credit Co-operative Society. Nil income declared in the return filed on 25-03-2018 after claiming deduction u/s, 80P of the Act. During the course of assessment proceedings being carried out after selecting the case for scrutiny through CASS for examining the deduction u/s. 80P followed by serving of valid notices u/s. 143(2)/142(1) of the Act, the ld. AO found that the assessee earned interest income on short term deposit and recurring deposit from Burdwan Central Co-operative Bank Ltd. at Rs. 16,04, 004/-. The ld. AO asked the assessee as to why the said interest income should not be excluded from the deduction u/s. 80P of the Act. The submissions filed by the assessee was considered, but not found acceptable by ld.AO and addition of Rs.16,04,004/- was made treating the income earned from ‘other sources’ along with minor additions of Rs.201/- and Rs.19,543/-. Income assessed at Rs.16,23,748/-. Thereafter, the assessee moved an application u/s. 154 of the Act stating that there are some apparent mistakes in the assessment order passed u/s. 143(3) of the Act dt. 05-12-2019 wrongly treating the interest income received from investments made in cooperative bank as income from ‘other sources’. Mistakes as pointed out by the assessee were partly rectified and as per order passed u/s. 154 r.w.s 143(3) of the Act dt. 20-02-2020 after necessary rectification, assessed income recomputed at Rs.14,02, 814/-.

The assessee challenged the order passed u/s. 154 of the Act before the ld. CIT(A), but failed to succeed as the ld. CIT(A) held that firstly the assessee is not eligible for deduction u/s. 80P(2)(a)(i) of the Act for the alleged interest income, the issue which is pointed out is not apparent mistake subject to rectification and lastly directed the ld.AO that if the profits and gains from the activities of credit facilities and banking increases due to Interest Income being considered separately under other head, the appellant/assessee would be entitled to deduction u/s. 80P of the Act.

Aggrieved, now the assessee is in appeal before this Tribunal.

The Ld. Counsel for the assessee stated that the alleged interest income is received from investments made in co-operative bank and eligible for deduction u/s80P(2)(d) of the Act and ld. CIT(A) ought to have given said relief.

Per contra, the Ld. Departmental Representative vehemently argued supporting the orders of both the lower authorities.

We have heard the rival contentions and perused the records placed before us. The effective issue before us is that whether the assessee is eligible for deduction u/s. 80P of the Act for the interest earned on fixed deposits and recurring deposits held with Burdwan Central Co-operative Bank Ltd. Though this issue of deduction u/s. 80P(2)(d) of the Act was not raised before the authorities below, but in view of the judgment of Hon’ble Apex Court in the case of National Thermal Power Corporation Ltd. 229 ITR 383, I admit this legal ground.

Observation of the court

As far as section 80P(4) of the Act, it only provides that provisions of section 80P shall not be applied in relation to any co­operative bank other than agricultural credit society or any agricultural rural bank. In simple words such cooperative Bank cannot claim deduction u/s.80P(2) & 80P(3) of the Act. Since the assessee is not a cooperative bank, but a Primary Agricultural Credit Society therefore, provisions of section 80P(4) of the Act is not applicable and thus, it is entitled to deduction u/s. 80P of the Act to the extent allowable as per relevant provisions.

Now the alleged interest income of Rs. 16,04,004/- is earned from idle funds invested in the bank and as far as deduction u/s. 80P(2)(i) is concerned, which refers to income earned from carrying on banking business or providing credit facilities to its members, I find that the alleged interest income is not earned by the assessee from its members and therefore, not eligible for deduction u/s. 80P(2)(i) of the Act.

However, on going through the provisions of section 80P(2)(d) of the Act the co-operative society is eligible for deduction of income in respect of any income by way of interest or dividends derived from its investments with any other co-operative society, Now the assessee has earned interest income from Burdwan Central Co­operative Bank Ltd. Though the Burdwan Central Co-operative Bank Ltd is having license under the Banking Regulation Act, 1949 to carry on Banking Business, but basically it is a cooperative society, which has been allowed to do banking business under the said Banking Regulation Act, 1949. Section 80P(2)(d) only refers to word ‘co-operative society’ and it has not been specifically mentioned under the said provisions of the Act that investments made in cooperative banks are to be excluded. In my humble understanding since the cooperative banks are basically co-operative societies only therefore, the words ‘cooperative society’ mentioned in Sec. 80P(2)(d) of the Act includes these cooperative societies also which are carrying on banking business as cooperative banks. Therefore, I am of the considered view since the assessee has earned interest of Rs. 16,04,004/- from other cooperative society, which in this case is a cooperative bank, is eligible for deduction u/s. 80P(2)(d) of the Act. I, therefore, reverse the findings of the ld. CIT(A) and allow the sole issue raised by the assessee. Thus, the effective grounds on merits raised by the assessee are allowed.

In the result, the appeal of assessee is allowed.

Read the full order from here



The tribunal has ruled in favour of the assessee and dismiss the appeal.

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