Income Tax Act | Sikkim High Court Allows S.80P(2)(d) Deduction On Interest Earned From Co-operative Banks By Non-Bank Co-operative Society
The Sikkim High Court has held that a non-bank co-operative society is entitled to claim deduction under Section 80P(2)(d) of the Income Tax Act, 1961, on interest income earned from investments made with co-operative banks, and that Section 80P(4) does not bar such deduction. A Division Bench of Chief Justice Biswanath Somadder and Justice Meenakshi Madan Rai allowed the tax appeal...
The Sikkim High Court has held that a non-bank co-operative society is entitled to claim deduction under Section 80P(2)(d) of the Income Tax Act, 1961, on interest income earned from investments made with co-operative banks, and that Section 80P(4) does not bar such deduction.
A Division Bench of Chief Justice Biswanath Somadder and Justice Meenakshi Madan Rai allowed the tax appeal filed by the Sikkim State Cooperative Supply and Marketing Federation Limited (SIMFED) and set aside the order of the Income Tax Appellate Tribunal (ITAT), Kolkata, which had denied the benefit.
The SIMFED, registered under the Sikkim Co-operative Societies Act, 1978, earned interest income during Assessment Year 2018–19 from deposits made with two co-operative banks Sikkim State Co-operative Bank Ltd. and Citizens Urban Co-operative Bank Ltd.
SIMFED claimed deduction under Section 80P(2)(d), which allows exemption on interest or dividend income earned by a co-operative society from investments with another co-operative society.
However, the Assessing Officer disallowed the deduction.
While the Commissioner (Appeals) allowed the claim, the ITAT reversed the decision, holding that interest from co-operative banks is not eligible for deduction, relying on the Supreme Court judgment in Totgars' Cooperative Sale Society Ltd [322 ITR 283(SC)].
The issue before the High Court was whether Section 80P(4), which excludes co-operative banks from claiming deduction, can be used to deny deduction to a non-bank co-operative society earning interest from co-operative banks.
The Bench clarified that Section 80P(4) only bars co-operative banks from claiming deduction on their own income and does not affect the entitlement of other co-operative societies.
The Bench observed that SIMFED is not a co-operative bank, but a non-bank co-operative society, and therefore, Section 80P(4) has no application to it.
The Bench also noted that Section 80P(2)(d) clearly allows deduction of interest income earned by a co-operative society from investments made with any other co-operative society, and co-operative banks are also registered as co-operative societies under State law.
The Bench distinguishing the Supreme Court ruling in Totgars' Cooperative Sale Society Ltd., held that the Totgar's decision dealt with Section 80P(2)(a)(i) and interest earned on surplus funds retained from members, which is factually and legally different from the present case.
It further noted the Gujarat High Court decision in PCIT v. Ashwin Kumar Urban Co-operative Society Ltd. (2024) 168 taxmann.com 314 (Gujarat), wherein it was held that Totgars does not apply to claims under Section 80P(2)(d).
The Bench held that the ITAT had misinterpreted the law, the High Court ruled in favour of the assessee and allowed the appeal, restoring the deduction under Section 80P(2)(d) of the Act.
In view of the above, the Bench set aside the ITAT's order, and SIMFED was held entitled to the claim deduction.
Case Title: Sikkim State Cooperative Supply and Marketing Federation Limited Vs Deputy Commissioner of Income-Tax, Circle 3(2) Gangtok
Case No.: Tax App. No. 02 of 2025
Appearance for Appellant: Mr. Dhiraj Lakhotia, Mr. Abhinav Kant Jha, and Ms. Radhika Agarwal.
Appearance for Respondnet: Ms. Sangita Pradhan, Deputy Solicitor General of India with Ms. Sittal Balmiki