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Lands End Co-operative Housing Society Ltd vs. ITO (ITAT Mumbai)
September, 29th 2016

S. 80P(2)(d): Interest and dividend earned by a co-op society on investments with other co-operative societies is eligible for deduction. The question whether the co-op society is engaged in the business of banking for providing credit facilities to its members and the head under which the income is assessable is not material (Totagar’s Co-op Society 322 ITR 283 (SC) distinguished)

The assessee claimed deduction u/s 80P(2)(d) of the Act in respect of interest of Rs. 14,88,107/- on fixed deposits with Coop. Banks. The AO allowed the said deduction as claimed by the assessee however the CIT(A) enhanced the assessment by rejecting the claim of the assessee by following the decision of the coordinate Mumbai bench in the case of Shiv Samrudhi Co-operative Housing Society in ITA No 1073/Mum/2012. On appeal by the assessee to the Tribunal HELD allowing the appeal:

(i) The CIT(A) enhanced the income of the assessee by rejecting the deduction u/s 80P(2)(d) of the Act of Rs.14,88,107/- being interest on investment with other Coop. banks by following the decision in the case of Shiv Samruddihi Co-operative Housing Society Ltd in ITA No 1073/Mum/2012 which was passed on the basis of the decision passed by the Hon’ble Supreme Court in the case of Totagar’s Co-operative Sale Society Ltd Vs ITO 322 ITR 283. In the case of Totagar’s Co-operative Sale Society Ltd v/s ITAT (supra) the Hon’ble Supreme Court while interpreting the section 80P(2)(a)(i) of the Act held that surplus funds not immediately required in the business and invested in the short term deposit would be assessable under the head “income from other sources” where the Cooperative society is engaged in carrying on business of banking or providing credit facilities to its members and consequently no deduction is allowable u/s 80P(2)(a)(i) of the Act. Whereas in the case before us the issue is whether a co-operative society which has derived income on investment with cooperative banks is entitled to deduction u/s 80P(2)(d). The provisions of Section 80P(2)(d) of the Act provide deduction in respect of income by way of interest or dividend on investments made with other Cooperative society.

(ii) From the close perusal of the provisions of u/s 80P(2)(a)(i) and 80P(2)(d) it is clear that the former deals with deduction in respect of profits and gain of business in case of the co-operative society carrying on business of banking or providing credit facilities to its members if the said income is assessable as income from business whereas latter provides for deduction in respect of income by way interest and dividend derived by assessee from its investments with other cooperative society. Thus it is amply clear that a cooperative society can only avail deduction u/s 80P(2)(d)(i) in respect of its income assessable as business income and not as income from other sources if it carries on business of the banking or providing credit facilities to its members and has income assessable under the head business whereas for claiming u/s 80P(2)(d) it must have income of interest and dividend on investments with other Co-operative society may or may not be engaged in the banking for providing credit facilities to its members and the head under which the income is assessable is not material for the claim of deduction under this section.

(iii) Now will evaluate the assessee’s case in the light of the decision of the Hon’ble Supreme court. The Honble Supreme Court in the case of Totagar’s Co-operative Sale Society Ltd.(Supra) held that a society has surplus funds which are invested in short term deposits where the society is engaged in the business of banking or providing credit facilities to its members in that case the said income from short term deposits shall be treated and assessed as income from other sources and deduction u/s 80(P)(2)(a)(i) would not be available meaning thereby that deduction u/s 80(P)(2)(a)(i) is available only in respect of income which is assessable as business income and not as income from other sources. Whereas in distinction to this , the provisions of section 80(P)(2)(d) of the Act provides for deduction in respect of income of a coop society by way of interest or dividend from its investments with other coop society if such income is included in the gross total income of the such coop society.

(iv) In view these facts and circumstances we are of the considered view that the assessee is entitled to the deduction of Rs. 14,88,107/- in respect of interest received/derived by it on deposits with coop. banks and therefore the appeal of the assessee is allowed by reversing the order of the CIT(A). The AO is directed accordingly.

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