ITAT: Section 80P(2)(d) Deduction Permitted To Co-operative Society On Interest Earned From Co-operative Bank

ITAT: Section 80P(2)(d) Deduction Permitted To Co-operative Society On Interest Earned From Co-operative Bank

The AO erred in viewing that it was not allowed as the revenue was not from the assessee’s business activities.

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the deduction under Section 80P(2)(d) of the Income Tax Act, 1961 is allowable to the co-operative society on interest earned from co-operative banks.

The bench of Kul Bharat (Judicial Member) observed that the assessee, Co-operative Credit Society Ltd, earned interest and dividend income by making deposits with the Delhi State Co-operative Bank Ltd, Janpath, registered under the Co-operative Societies Act.

The bank is primarily a Co-operative Society, hence under Section 80P(2)(d) of the Income Tax Act, 1961, the assessee was entitled to a deduction.

Under Section 80P, co-operative societies (other than the ones under the purview of the Reserve Bank of India (RBI), are eligible for a deduction. A co-operative society conducting banking activities is not a co-operative bank licensed by the RBI. Therefore, it can claim deductions under Section 80P.

The assessee filed its Income Tax Return (ITR) under the ‘AOP’ status on 31.08.2018, declaring ‘Nil’ income. The ITR was processed by the Centralized Processing Centre (CPC) and statutory notices were issued to the assessee.

In response, the assessee submitted its detailed response. The assessing officer (AO) noted that the assessee claimed a deduction of Rs.43,29,747 under Section 80P. The amount was interest income derived from deposits in banks/co-operative banks.

The AO viewed that deduction was not allowed as the income was not from the assessee’s business activities. He held that the assessee deposited the surplus fund with banks and earned interest income from other sources.

The AO refused the submissions of the assessee and made additions of Rs.7,60,197 after making disallowance of deduction claimed under Section 80P(2)(a)(i).

Aggrieved by the outcome, the assessee appealed before the Commissioner of Income Tax (Appeals), who sustained the addition and dismissed the assessee’s appeal.

The assessee explained that the interest on term deposits was received by it from the Delhi State Co-operative Bank. The interest from Savings Bank was also received from the Delhi State Co-operative Bank. Thus, it was eligible for deduction under Section 80P of the IT Act.

However, the revenue department contended that Section 80P(2)(d) of the IT Act was not applicable because of Section 80P(4), which prohibited the application of Section 80P(4) qua the co-operative banks.

Thus, the tribunal, while allowing the assessee’s appeal held that it was eligible for deduction under Section 80P(2)(d).