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2025 Supreme(Online)(Sikk) 60
HIGH COURT OF SIKKIM
Biswanath Somadder, CJ, Meenakshi Madan Rai, J
Sikkim State Cooperative Supply And Marketing Federation Limited – Appellant
Versus
Deputy Commissioner Of Income-Tax – Respondent
TAX APP. NO. 02 OF 2025
For the Appellants/Petitioners: Dhiraj Lakhotia, Abhinav Kant Jha, Radhika Agarwal
For the Respondents: Sangita Pradhan, Sittal Balmiki
A non-banking cooperative society is entitled to claim income tax deductions under Section 80P(2)(d) for interest income earned from investments in cooperative banks, as the exclusionary provision under Section 80P(4) applies exclusively to cooperative banks and not to non-banking cooperative entities.
Headnote:The case involves a dispute under S. 80P(2)(d) of the Income Tax Act, 1961 regarding an assessee's eligibility to claim deductions on interest earned from investments in cooperative banks. The assessee, a registered cooperative society, challenged an order of the Tribunal which denied the deduction by misapplying S. 80P(4), which is limited to cooperative banks. The Court found that the assessee was not a cooperative bank and thus did not fall under the statutory exclusion. The central issue was whether S. 80P(4) could be used to deny S. 80P(2)(d) benefits to a non-banking cooperative society and whether previous apex court rulings on S. 80P(2)(a)(i) were applicable. The Court reasoned that S. 80P(2)(d) specifically allows deductions for interest income derived by a cooperative society from investments in another cooperative society/bank, and that the exclusionary provisions of S. 80P(4) are distinct and inapplicable to non-banking entities. The ratio established that interest income earned by a non-banking cooperative society from investments in cooperative banks remains entitled to full deduction under Section 80P(2)(d). The Court set aside the order of the Income Tax Appellate Tribunal and allowed the appeal in favour of the assessee.
| Table of Content |
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| 1. factual background and tax status of the cooperative society appellant. (Para 1 , 3 , 5 , 6 , 7 , 8) |
| 2. interpretation of section 80p(4) and section 80p(2)(d) of the income tax act. (Para 4 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18) |
| 3. arguments and history of the erroneous interpretation of income tax law. (Para 9) |
| 4. final outcome and reversal of the lower tribunal order. (Para 19 , 20) |
1. This is an appeal under section 260A of the Income Tax Act, 1961, filed in respect of an impugned order dated 18th June, 2025, passed by the learned Income Tax Appellate Tribunal, Kolkata ‘A’ Bench, Kolkata in I.T.A. Nos.: 1582/KOL/2024 in respect of the Assessment Year: 2018-19. 2. By the impugned order, the learned Tribunal allowed the Revenue’s appeal with inter alia the following observations:-
“ …….
8. Therefore, considering the totality of facts and circumstances of the case and in view of the legal provisions enumerated in the preceding paras that the exemption provisions have to be strictly interpreted, the submissions of the Ld. DR and as has been elaborately discussed and brought out in the orders of the Hon’ble Karnataka High Court in the case of Bangalore Club as well as Totagars (supra) in which reliance has been placed upon the judgment of Hon’ble Supreme Court, the interest received from Cooperative banks, even though they are Cooperative Societies, is not allowable in view of the express provision of sub-section (4) of section 80P of the Act as the Cooperative Banks have been treated at par with the Scheduled Banks and the deduction u/s 80P of the Act is allowable only for the interest received from the Cooperative Society per se and not from the Cooperative Bank. The Ld. DR has amply demonstrated how the reliance on the decisions by the Ld. AR is not applicable to the facts of the case being distinguishable. Hence, the appeal of the Revenue is allowed, the order of the Ld. CIT(A) is set aside and the order of the Ld. AO is confirmed on this issue.
………”
3. The appellant before us is Sikkim State Cooperative Supply and Marketing Federation Limited (hereinafter referred to as SIMFED), being a co-operative society registered under the Sikkim Co-operative Societies Act, 1978.
4. When we took up the matter on 12th November, 2025, the following substantial questions of law were framed:-
“1. Whether the learned Tribunal misinterpreted section 80P(4), which only bars cooperative banks from claiming deductions on their own income and wrongly applied it to deny section 80P(2)(d) deductions to the Appellant, being a non-bank cooperative society, in respect of interest received from cooperative banks?
2. Whether the learned Tribunal correctly applied the ratio in Totgars’ Cooperative Sale Society Ltd. {322 ITR 283 (SC)}, which concerned section 80P(2)(a)(i) and retained members’ funds shown as liability to deny deductions under section 80P(2)(d), when the facts and statutory provisions in the present case are materially different?”
5. We notice from the facts of the instant case that SIMFED is the apex co-operative society in Sikkim, registered under the Sikkim Co- operative Societies Act, 1978, with the Government of Sikkim holding 93% of its shares. SIMFED is the central body of the State of Sikkim’s co-operative infrastructure, primarily focusing on wholesale supply of consumer goods, bulk marketing and procurement of agricultural, horticulture produce and also providing storage and cold chain infrastructure. Furthermore, it appears from the records that SIMFED acts as an agent for members’ societies in respect of product handling, quality assurance and facilitating credit while also undertaking procurement activities on behalf of the Government and public sector undertakings.
6. During the relevant assessment year, SIMFED, earned interest income from investments made in two co-operative banks, namely, Sikkim State Co-operative Bank Limited and Citizens Urban Co-operative Bank Limited, both registered as co-operative socie
