Introduction

The case of Rena Sahakari Sakhar Karkhana Ltd. vs. Pr. Commissioner of Income-tax-2, Aurangabad addressed significant issues pertaining to the eligibility of cooperative societies to claim deductions under Section 80P(2)(d) of the Income Tax Act, 1961. This appellate tribunal judgment, delivered on January 7, 2022, by the Income Tax Appellate Tribunal (ITA) "B" Bench in Pune, examined whether the assessee, a cooperative society, was rightfully entitled to deduct interest income derived from investments in cooperative banks.

Summary of the Judgment

The appellant, Rena Sahakari Sakhar Karkhana Ltd., filed an appeal against the Pr. Commissioner of Income Tax-2, Aurangabad, challenging the latter's order under Section 263 of the Income Tax Act. The crux of the dispute was the eligibility of the cooperative society to claim a deduction of ₹75,38,534 under Section 80P(2)(d) for interest income earned from investments in cooperative banks.

The Pr. CIT contended that following the insertion of sub-section (4) to Section 80P by the Finance Act 2006, deductions under this section were no longer applicable to cooperative banks unless they were primary agricultural credit societies or primary cooperative agricultural and rural development banks. However, the ITA, after a thorough examination of statutory provisions and relevant precedents, sided with the appellant, affirming the eligibility of the deduction.

Analysis

Precedents Cited

The judgment heavily relied on several precedents to substantiate the appellant's position:

• M/s Solitaire CHS Ltd. vs. Pr. CIT (ITA No. 3155/Mum/2019): Affirmed the eligibility of cooperative societies to claim deductions under Section 80P(2)(d) for interest income from cooperative banks.
• Majalgaon Sahakari Sakhar Karkhana Ltd. vs. ACIT (ITA No. 308/Pun/2018): Reinforced the interpretation that cooperative banks qualify as cooperative societies under the Act.
• Kaliandas Udyog Bhavan Premises Co-op Society Ltd. vs. ITO (ITA No. 6547/Mum/2017): Supported the view that interest income from cooperative banks is deductible under the specified section.
• Pr. Commissioner of Income Tax vs. Totagars Cooperative Sale Society (Karnataka HC, 2017) and State Bank Of India Vs. CIT (Gujarat HC, 2016): Both High Courts held that interest income from cooperative banks is eligible for deduction under Section 80P(2)(d).
• K. Subramanian and Anr. vs. Siemens India Ltd. and Anr (Bombay High Court, 1985): Established that in case of conflicting High Court decisions, the view favorable to the assessee prevails.

Legal Reasoning

The ITA engaged in a meticulous interpretation of Section 80P(2)(d) alongside the implications of sub-section (4) introduced by the Finance Act 2006. The primary argument from the Pr. CIT was that post-amendment, deductions under Section 80P were restricted, thereby excluding cooperative banks from eligibility unless they served specific primary functions.

However, the Tribunal dissected the definition of "co-operative society" under Section 2(19) of the Act, which includes banks registered under the Co-operative Societies Act, 1912, or similar state laws. Consequently, as long as the cooperative banks in question qualify as cooperative societies, the interest income derived from them remains eligible for deduction.

Moreover, the Tribunal addressed conflicting judicial pronouncements by prioritizing decisions that favored the assessee, in line with established legal principles. This approach reinforced the consistency of the deduction's eligibility irrespective of changes made by sub-section (4).

Impact

This judgment has profound implications for cooperative societies across India. It clarifies the scope of Section 80P(2)(d), ensuring that legitimate interest income from cooperative banks remains deductible, thereby promoting financial stability and incentivizing cooperative structures. Future cases involving similar factual matrices will likely reference this judgment to uphold the eligibility of deductions, thereby reducing ambiguities surrounding Section 80P provisions.

Complex Concepts Simplified

Conclusion

The ITA's decision in favor of Rena Sahakari Sakhar Karkhana Ltd. underscores the judiciary's commitment to safeguarding the financial interests of cooperative societies. By affirming the eligibility of deductions under Section 80P(2)(d) for interest income from cooperative banks, the ruling not only resolves the immediate dispute but also sets a clear precedent. This enhances the clarity and predictability of tax benefits for cooperative entities, fostering a conducive environment for their growth and contribution to the economy.

In essence, the judgment reinforces that as long as the cooperative banks qualify as cooperative societies under the statutory definitions, their associated interest incomes remain eligible for tax deductions, aligning with the intended spirit of supporting cooperative models in India.