Interest/Dividend earned from Investment in Co-operative Banks is allowable deduction u/s 80P

The issue in this appeal of the assessee in regard to the disallowance of interest/dividend income earned from investment in Co-operative Bank u/s 80P of the Income Tax Act, 1961 (The Act).

In this matter, the assessee is Indian Bank Employees Cooperative Credit Society Limited. During the year, assessee had offered net income from business and profession at Rs.40,31,437/- being interest receipts/dividend from Cooperative Bank and deduction under section 80P of Rs. 40, 31, 427/- is claimed against said income from business and profession. The Assessing Officer was not satisfied with the deduction claimed under section 80P of interest earned from Co-operative bank. He referred to the provisions of section 80P(4) of the Act. He was of the opinion that same is applicable in the case of the assessee. He further referred some decisions and disallowed assessee’s claim.

Upon assessee appeal learned CIT(A) confirmed the same. Against the above order, assessee is in appeal before ITAT.

ITAT in its order relied on the decision of Hon’ble Supreme Court in the case of Citizen Cooperative Society Ltd. (Civil Appeal No. 10245 of 2017 vide order dated 8.8.2017) and allowed the deduction of interest/dividend income. The Hon’ble Apex Court in the case of Citizen Cooperative Society Ltd. (supra) stated as follows:

(I) That section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee;

(II) That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in subsection (2) of section 80P must be given by way of deduction;

(III) That this Court in Kerala State Cooperative Marketing Federation Ltd. and Ors. (supra) has construed section 80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within anyone head of deduction, it would be free from tax notwithstanding that the conditions of another head of the deduction are not satisfied;

(IV) This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co-operative society, such as is evident from section 80P(2)(b) qua milk co-operative societies, the legislature expressly says so – which is not the case with section 80P(2)(a)(I);

(V) That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co-operative banks, which are cooperative societies who must possess a licence from the RBI to do banking business. Given the fact that the assessee, in that case, was not so licensed, the assessee would not fall within the mischief of section 80P(4).”

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