4 Section 80P – Interest earned by a co-operative society from deposits kept with co-operative bank is deductible u/s. 80P.

The assessee, a co-operative housing
society, derives income from subscription, service charges, etc. from
members and interest income from savings and fixed deposits kept with various
banks.  In the return of income filed,
the assessee claimed that interest of Rs. 88,70,070, earned on fixed deposits
with co-operative banks as deductible u/s. 80P(2)(d) of the Act. The Assessing
Officer (AO) while assessing the total income of the assessee denied the claim
for deduction of Rs. 88,70,070 made u/s. 80P of the Act on the ground that
section 80P(4) has withdrawn deduction u/s. 80P to co-operative banks. 

Aggrieved, the assessee preferred an appeal
to the CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal
to the Tribunal.

HELD

The Tribunal observed that an identical
issue was considered in the case of ITO vs. Citiscape Co-operative Housing
Society Ltd. (ITA No. 5435 & 5436/Mum/2017 dated 8.12.2017). In the
said case the Tribunal has noted that there are divergent views on this
matter.  The Karnataka High Court has in
the case of Pr. CIT vs. The Totagars Co-operative Sale Society & Others
(ITA No. 100066 of 2016  dated 16.6.2017)
has held that interest income earned by a co-operative society from a
co-operative bank is not deductible u/s. 80P(2)(d) of the Act.  The  
Himachal   Pradesh   High 
Court has in the case of CIT vs. Kangra Co-operative Bank
(2009)(309 ITR 106)(HP) has held that interest
income from investments made in any co-operative society would also be entitled
for deduction u/s. 80P. Having noted the divergent decisions, the Tribunal in
the case of ITO vs. Citiscape Co-operative Housing Society Ltd. (supra)
held that if two reasonable constructions of a taxing statute are possible that
construction which favors the assessee must be adopted. The Tribunal held that
interest income earned by assessee from co-operative banks, which are basically
co-operative societies carrying on banking business, is deductible u/s.
80P(2)(d) of the Act.

Consistent with the view taken by the
co-ordinate bench in ITO vs. Citiscape Co-operative Housing Society (supra),
the Tribunal set aside the order passed by CIT(A) and directed the AO to allow
deduction of interest earned by the asseessee from co-operative banks u/s.
80P(2)(d) of the Act.

The appeal filed by the assessee was
allowed.