It’s important for cooperative societies to closely monitor the performance and stability of the cooperative banks where they have invested their funds to ensure the safety and security of their investments and interest income. Section 80P specifically emphasises on allowing deductions to these cooperative societies, serving as the foundation of several sectors such as agriculture, banking, fishing, labour and housing. It’s important for cooperative societies to understand the specific provisions of Section 80P(2) and ensure compliance with the relevant requirements to avail of the deduction.
The Mumbai bench Income Tax Appellate Tribunal (ITAT) held that income from the fixed deposit of cooperative banks are eligible for deduction under Section 80P(2)(d) of Income Tax Act, 1961 in the case of Reserve Bank Staff and Officers co-op credit society Ltd.
What does Section 80P provides?
Section 80P(2) of the Income Tax Act in India provides for a deduction in respect of income of cooperative societies. The primary objective of Section 80P(2) is to provide tax relief to cooperative societies, including cooperative banks, by allowing them a deduction from their total income. The deduction allowed under Section 80P(2) is equal to the income derived by the cooperative society from the specified activities. In other words, the income from these activities is exempt from tax up to the limit specified in the section. The provisions of Section 80P(2) are applicable to both urban and rural cooperative societies, including cooperative banks, subject to fulfillment of the prescribed conditions. In short, upon fulfilling the specified conditions, entire amount of Income generated by co-opeartive societies is exempt from the tax.
Issues Involved:
Reserve Bank Staff and Officers co-op credit society Ltd. case was selected for scrutiny after filing the return of Income. Later on, it was found that the assessee has claimed deduction under Section 80P(2) of the Income Tax Act on interest income amounting to ₹2,57,97,789/- and the same was allowed.
The assessee for AY 13-14 declared a total income of ₹.0. The case was selected for scrutiny and was assessed u/s 143(3) of the act, at assessed income of ₹5,98,430. Later on, it was found that assessee has claimed deduction under Section 80P(2) of the Act on interest income amounting to ₹257,97,789/- and same was allowed. Assessing Officer denied this entire deduction claiming that assessee is a co-operative bank and not a co-operative society and hence not eligible for deduction u/s 80P(2)(a)(i).
Facts Explained:
After denying the deduction, AO computed Total Income of Assessee at ₹2,63,96,220. Assessee appealed before CIT (A) where CIT (A) held assessee eligible for deduction partly. Aggrieved, assessee again appealed against CIT(A). However, CIT(A) contended with the view that benefit of deduction under Section 80P(2)(d) of the Act is not available on interest received from investment made with co-operative banks and therefore, such deduction is required to be disallowed.
However, most importantly, the assessee is a co-operative society engaged in carrying on the business of providing credit facilities to its members. The whole of the amount profits and gains of such business attributable to such activities is deductible under Section 80P(2)(a) of the Act. Even otherwise, in respect of any income by way of interest or dividend derived by the co- operative society from its investment with any other co- operative society is also allowable as deduction fully under Section 80P(2)(d) of the Act, the facts are clear that assessee is a co-operative society and co-operative banks are also co-operative societies.
Conclusion:
The provisions of Section 80P (4) of the Act specifically denies deduction only to co-operative banks. The assessee is admittedly not a co-operative bank. Assessing Officer instead of treating the assessee as credit co- operative society considered the assessee as primary co- operative bank without any basis.
It was held that interest income earned by the assessee on fixed deposits with the co-operative banks are eligible for deduction under Section 80P(2)(d) of the Act. After analyzing the submission of both parties, the bench comprising Sandeep Singh Karhail and Om Prakash Kant, held that interest income earned by the assessee on fixed deposits with the co-operative banks are eligible for deduction under Section 80P(2)(d) of the Income Tax Act.
About Author:
CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.