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Judgment
PER VIKAS AWASTHY, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as 'the CIT(A)') dated 19.06.2025 for AY 2020-21.
The solitary issue raised by the assessee in appeal is against the disallowance of deduction u/s.80P(2)(a)(i) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') amounting to Rs.8,61,30,035/-.
Facts of the case in brief as emanating from records, are: The assessee is a cooperative society. The assessee has made investments in banks/cooperative banks. During the period under appeal, the assessee earned interest income from such investments. The assessee claimed the entire amount of interest income as deduction u/s 80P(2)(a)(i) of the Act. The Assessing Officer (AO) held that the said interest income is not eligible for deduction u/s 80P(2)(a)(i) of the Act and is liable to be taxed as ‘Income from Other Sources’. Aggrieved by the assessment order dated 08.09.2022, the assessee carried the issue in appeal before the CIT(A). The First Appellate Authority, following the decision rendered by the Hon’ble Delhi High Court in the case of Mantola Co-operative Thrift & Credit Society Ltd. vs. CIT, reported as 110 DTR 89 (Del.), upheld findings of the AO and dismissed appeal of the assessee.
Shri Saurav Rohatagi, appearing on behalf of the assessee submits that the assessee is eligible for claiming deduction u/s.80P of the Act on the interest income earned in light of the decision of Coordinate Bench of the Tribunal in the case of The Veer Cooperative Group Housing Society Ltd. in ITA Nos. 2787 & 2788/Del/2018 for A.Ys. 2013-14 and 2014-15 decided on 04.09.2018.
Without prejudice to his primary submissions, the ld. Counsel submitted that deduction u/s.80P of the Act may be restricted to interest income earned on investments with cooperative banks.
Per contra, Shri Om Prakash, representing the Department vehemently defending the impugned order, prayed for dismissing appeal of the assessee. The ld. DR submits that the issue is now well settled that no deduction u/s. 80P(2)(a)(i) of the Act can be allowed in respect of investments made in banks. The interest received from banks is taxable as income from other sources u/s.56 of the Act. In support of his arguments, he placed reliance on the decision of the Hon’ble Supreme Court of India in the case of The Totgars Co-operative Sale Society Ltd. vs. ITO, 188 Taxmann 282 (SC) and the decision of the Hon’ble Delhi High Court in the case of Mantola Co-operative Thrift & Credit Society Ltd. vs. CIT (supra).
We have heard the submissions made by rival sides and have examined the orders of the authorities below. We have also considered the decisions on which both sides have placed reliance in support of their respective submissions. Undisputedly, during the period relevant to the assessment year under appeal, the assessee has claimed deduction u/s.80P(2)(a)(i) of the Act in respect of interest income earned on investments with banks/cooperative banks. The Hon’ble Supreme Court of India in the case of The Totgars Co-operative Sale Society Ltd. vs. ITO (supra) has held that interest earned on amounts retained by the societies and thereafter parked in short-term deposits is not eligible for benefit of deduction u/s 80P(2)(a)(i) of the Act and such interest income is chargeable to tax as income from other sources u/s 56 of the Act.
The Hon’ble Jurisdictional High Court in the case of Mantola Co-operative Thrift & Credit Society Ltd. vs. CIT (supra) has taken a similar view and held that interest on fixed deposits of surplus funds parked with banks does not qualify for deduction u/s 80P(2)(a)(i) of the Act. Such interest income would fall u/s 56 of the Act.
The ld. Counsel for the assessee has vehemently placed reliance on the decision in the case of The Veer Cooperative Group Housing Society Ltd. in ITA Nos. 2787 & 2788/Del/2018 for A.Ys. 2013-14 and 2014-15 decided on 04.09.2018. We find that the facts of said case are distinguishable. In the said case deduction was claimed u/s.80P(2)(d) of the Act. In fact, the Coordinate Bench in the said order itself has distinguished assessee’s claim of deduction u/s. 80P(2)(d) of the Act from the deduction u/s.80P(2)(a)(i) of the Act. For the sake of ready reference, findings of the Coordinate Bench are as under:-
“8.1.In the above decision, Hon’ble Karnataka High Court has clearly provided that the Co-operative Society Banks are merely a variety of Co-operative Societies and are covered under the term ‘Cooperative Society’. This further clarifies the provision as laid down in section 80P(2)(d) that ‘any interest income earned from the investments made in Cooperative Bank shall be allowed as deduction on account of interest income received from Cooperative Societies’. The Ld. CIT(A) in his decision has relied upon the judgment of Apex Court in the case of M/s. The Totgars' Cooperative Sale Society Limited vs., income Tax Officer. Karnataka, [2010] 322 ITR 283 (SC) which deals with the interpretation of the deduction under section 80P(2)(a)(i) of the I.T. Act, 1961. However, Ld. CIT(A) has erred in applying the provisions, on the decision by Apex Court, as the facts of such case and the decision given by Karnataka High Court relied upon by the assessee-society are on totally different parameters and involve different questions of law.
8.2.In order to avoid any confusion between the said two judgments of Hon’ble Karnataka High Court and Hon’ble Apex Court, the Karnataka High Court in the case of The Pr. CIT v. Totagars Cooperative Sale Society (supra) made clear distinction between the two judgments as under :
“11.The learned counsel has relied on the case of The Totgars Co-operative Sale Society Ltd. Vs. Income Tax Officer, (supra). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the I. T. Act. For, in the present case the interpretation that is required is of Section 80P(2)(d) of the I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case.”
8.3.Thus, from the above position, it is clear that the present case of the assessee-society relates to the provisions as laid down under section 80P(2)(d) and not under 80P(2)(a)(i) and the issue under consideration has been wrongly dealt by Ld. CIT(A). The Learned Counsel for the Assessee placed further reliance on the following cases
i.ITO-21 (1) (1) , Mumbai vs., M/s. Abhaylaxmi Co-op. Credit Society Ltd. And Vice-Versa, ITA NO. 1525/MUM/2017 And ITA NO. 1614/MUM/2017, dt. 31.07.2017
ii.Merwanjee Cama Park Co-op Housing society Ltd. vs., Income Tax Officer-Range, Mumbai, ITA No. 6139/Mum/2014, dt. 27.09.2017
iii.ACIT, Circle 38(1), New Delhi vs. Jawala Cooperative Urban Thrift & Credit Society Ltd., New Delhi, ITA No. 2607/Del/2012, dt. 19.12.2014
iv.Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha vs., CIT, ITA No. 609 and 610/Bang/2014, dt. 06.02.2015”
In the present case, the assessee has claimed deduction u/s.80P(2)(a)(i) of the Act, hence, the decision of the Coordinate Bench in the case of The Veer Cooperative Group Housing Society Ltd. (supra) does not come to the rescue of the assessee.
In light of the law laid down by the Hon’ble Apex Court and the Hon’ble Jurisdictional High Court in respect of eligibility to claim of deduction u/s 80P(2)(a)(i) of the Act, we find no merit in appeal of the assessee. In view of the settled legal position, even the alternate claim made by ld. AR of the assessee lacks merit. Hence, the appeal of assessee is dismissed being devoid of any merit.