ITAT Mumbai Allows Co-operative Society Tax Deduction On Interest Income From Co-op Banks

The Mumbai Bench of the Income Tax Appellate Tribunal has granted relief to a co-operative society by holding that deduction under Section 80P(2)(d) is allowable on interest income earned from deposits with co-operative banks, noting that the issue is already covered by judicial precedents including Pathare Prabhu Cooperative Housing Society Ltd. v. ITO.

“As the issue is squarely covered in favour of the Assessee by the aforesaid judgment referred to above, thus, the addition under consideration is deleted, subject to factual verification by JAO.”

The Tribunal ruled in favour of New Bombay Co-operative Commercial Complex Premises Society Ltd and deleted the disallowance made by the Assessing Officer.

A coram of Judicial Member Narender Kumar Choudhry and Technical Member Arun Khodpia noted that the controversy relates to disallowance of deduction of Rs.1,76,987 claimed under Section 80P(2)(d) on interest income earned from deposits maintained with Maharashtra State Co-operative Bank Limited and Saraswat Bank.

The disallowance stemmed from a rectification order passed under Section 154 by the Assessing Officer, a view that was later endorsed by the Commissioner of Income Tax (Appeals), prompting the assessee to move the Tribunal.

In examining the issue, the Tribunal noted that courts and coordinate benches have repeatedly taken the view that interest income earned by a cooperative society from deposits with co-operative banks falls within the scope of Section 80P(2)(d).

The bench did not accept the Assessing Officer's reliance on Section 80P(4), which bars co-operative banks from claiming deduction, observing that this restriction cannot be extended to deny a co-operative society the benefit of deduction on such interest income.

It also pointed out that despite the exclusion under Section 80P(4), a co-operative bank continues to retain its character as a co-operative society under Section 2(19) of the Act.

Viewed in that light, the tribunal held that interest earned by a co-operative society on deposits placed with a co-operative bank remains eligible for deduction under Section 80P(2)(d).

The addition was consequently deleted, subject to factual verification by the Jurisdictional Assessing Officer, with the appeal allowed.

For Assessee:  Advocate Mona Solanki

For Revenue: Advocate Tushar Mohite