ITAT Pune: Dividend Income from Co-operative Banks Qualifies for Deduction Under Section 80P(2)(d)
Case Overview
Case Name: Narayandas Ramdas Sevak Sahakari Patsanstha Maryadit Vs ITO (ITAT Pune)
Assessment Years: 2018-19 and 2020-21
Forum: Income Tax Appellate Tribunal, Pune Bench
The Pune Bench of the Income Tax Appellate Tribunal recently delivered a significant ruling in favour of a co-operative society, holding that dividend income earned from investments made in co-operative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961. The Tribunal allowed both appeals — covering Assessment Years 2018-19 and 2020-21 — by following consistent coordinate bench decisions on the subject.
Background and Nature of the Assessee
The assessee in this matter is a co-operative society whose primary business activities involve accepting deposits from members and extending credit facilities to them. As part of its financial operations, the society deployed its surplus funds into various investments, thereby generating income in the form of interest and dividends.
For Assessment Year 2018-19, the assessee filed its return of income on 23.07.2018, declaring nil income. The case was subsequently selected for limited scrutiny assessment on two specific issues:
- Investments, Advances, and Loans
- Deductions from total income under Chapter VI-A of the Income Tax Act, 1961
Assessment and Disallowance by the Assessing Officer
The Assessing Officer completed the scrutiny assessment under Section 143(3) read with Section 143(3A) and Section 143(3B) of the Income Tax Act, 1961 on 17.03.2021. During the course of assessment, the Assessing Officer rejected the assessee's claim for deduction under Section 80P and made the following disallowances:
- Interest income disallowed: ₹3,60,122
- Dividend income disallowed: ₹2,10,000
For Assessment Year 2020-21, the dispute involved:
- Interest income: ₹10,86,523
- Dividend income: ₹4,14,002
The core contention of the Assessing Officer was that dividend income received from co-operative banks could not be covered within the ambit of Section 80P and was therefore liable to tax.
CIT(A) / NFAC Order — Partial Relief
The Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi, considered the matter and provided partial relief to the assessee. The relevant observations made by the CIT(A)/NFAC at paragraphs 7.2 and 7.3 of the appellate order read as follows:
"7.2 Hence, respectfully following the decision of the Hon'ble ITATs discussed above, the AO is directed to allow the deduction u/s.80P(2)(d) of the Income Tax Act, 1961 to the extent of interest earned from the Co-operative Societies and Cooperative Banks. For the interest received from members of the society, the AO is directed to allow deduction u/s.80P(2)(a)(i) of the act.
7.3 The dividend income received does not fall under the legal interpretations of the case laws and the statutory provisions. Therefore the additions made on dividend income earned to the extent of Rs.2,10,000/- by the Assessing Officer is upheld."