The Calcutta High Court has held that the interest earned by the West Bengal State Co-operative Agriculture & Rural Development Bank Ltd. on surplus funds parked in bank deposits qualifies for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
The bench of Chief Justice T.S. Sivagnanam and Justice Chaitali Chatterjee (Das) observed that interest income from surplus funds parked in bank deposits is attributable to the cooperative’s business of providing credit facilities and thus eligible for deduction under Section 80P(2)(a)(i). Interest on personal loans to members also qualifies for the deduction.
However, the bench noted that the interest earned on house building loans to staff does not qualify, as it is not directly linked to the cooperative’s primary business of member lending.
The case arose from the Income Tax Department’s disallowance of deductions on interest income amounting to Rs. 2.83 crore for the assessment year 2013–14. The Assessing Officer had relied heavily on the Supreme Court’s decision in Totgars’ Cooperative Sale Society Ltd. v. ITO, contending that such income was not eligible for deduction. The disallowance was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] and later by the Income Tax Appellate Tribunal (ITAT), Kolkata.
The cooperative bank argued that the interest income was earned from short-term deposits of surplus funds — funds that originated from NABARD loans and were temporarily parked before being disbursed to members. The bank maintained that these activities were integral to its core function of providing credit facilities and therefore qualified for deduction under Section 80P(2)(a)(i).
The court allowed the appeal and answered in favour of the appellant/assessee.
Case Details
Case Title: The West Bengal State Co-Operative Agriculture & Rural Development Bank Ltd. Vs Deputy Commissioner Of Income Tax, Circle-54, Kolkata
Case No.: ITAT/36/2025 IA NO: GA/1/2025
Date: 06.08.2025
Counsel For Petitioner: Subash Agarwal, Adv.
Counsel For Respondent: Prithu Dudhoria, Adv.
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