Cooperative Society now can Claim Income Tax Deduction for Interest Income received from Cooperative Bank: HC

The Madras High Court ruled that a Co-operative Society can deduct income tax on interest revenue received from a Co-operative Bank.

Madras HC granted the petition and rejected the reopening notice while considering a plea challenging the beginning of reopening procedures under Section 148 of the Income Tax Act, 1961, which was framed on the issue of entitlement to deduction under Section 80P(2)(d).

The Single Judge Bench headed by Justice Krishnan Ramasamy said “a Co-operative Society referred [in Section 2(19) of Income Tax Act] is only a co-operative society as defined under the Co-operative Societies Act, 1912, be it a Co-operative Society carrying on banking business or Co-operative Society carrying on the other businesses or a Co-operative bank.”

The basic facts of the case were that the Petitioners made investments with the Cooperative Bank and got interest as a result, and thus they are entitled to a deduction under section 80P(2)(d). The AO, however, issued notices under section 148 indicating that the petitioners / Society are not entitled to deduction, claiming that the deduction provided in the abovementioned provision is solely for income and interest received from the Co-operative Society and not from the Co-operative Bank.

After analysing the argument, the Bench determined that if any Co-operative Society received revenue in the form of interest from an investment made in another Co-operative Society, the entire amount of such interest is deductible.

In the current instance, the Bench concluded that the petitioner presented documentation demonstrating that the Co-operative Bank in which they had placed investments was registered under the Tamil Nadu Co-operative Societies Act, 1983 in 2003.

As a result, the petitioner’s investment is a Co-operative Bank registered under the Co-operative Societies Act, noted the Bench.

The Bench determined that ‘Co-operative Society’ means a Co-operative Society registered under the Co-operative Societies Act, 1912, and thus a Co-operative Society referred to therein is only a co-operative society as defined under the Act, whether it is a Co-operative Society carrying on banking business, a Co-operative Society carrying on other businesses, or a Co-operative bank.

As a result, the petition was granted by the High Court.