S. 80P(4) Can’t Be Used to Deny S. 80P(2)(d) Deduction on Interest Earned From Cooperative Banks by Non-Bank Cooperative Societies: Sikkim High Court

The Sikkim High Court has held that Section 80P(4) under the Income Tax Act, 1961 cannot be used to deny deduction under Section 80P(2)(d) on interest earned from cooperative banks by non-bank cooperative societies. The bench of Chief Justice Biswanath Somadder and Justice Meenakshi Madan Rai has observed that a non-banking cooperative 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 cooperative banks. The assessee, Sikkim State Cooperative Supply and Marketing Federation Limited (SIMFED), an apex cooperative society registered under the Sikkim Cooperative Societies Act, 1978, functions as a central body in the State’s cooperative infrastructure. With the Government of Sikkim holding 93 per cent of its shareholding, SIMFED is engaged in wholesale supply of consumer goods, marketing and procurement of agricultural and horticultural produce, and providing storage and cold chain infrastructure. During the relevant assessment year, SIMFED earned interest income from deposits and investments made with two cooperative banks—Sikkim State Cooperative Bank Limited and Citizens Urban Cooperative Bank Limited—both registered under the State Cooperative Societies Act. The investments were made from surplus funds and statutory reserves, as mandated under the Sikkim Cooperative Societies Act, which requires cooperative societies to invest funds only in approved securities or cooperative banks approved by the Registrar. SIMFED claimed deduction of this interest income under Section 80P(2)(d) of the Income Tax Act. However, the Assessing Officer disallowed the deduction, taking the view that interest earned from cooperative banks was not eligible for exemption. While the Commissioner of Income Tax (Appeals) granted relief to SIMFED, the Revenue succeeded before the ITAT, which relied heavily on judgments in Totgars’ Cooperative Sale Society Ltd. to deny the deduction. When the appeal came up for hearing, the High Court framed two substantial questions of law. The first was whether Section 80P(4), which excludes cooperative banks from claiming deductions, could be applied to deny deductions to a non-bank cooperative society like SIMFED in respect of interest received from cooperative banks. The second question concerned the applicability of the Supreme Court’s ruling in Totgars’ Cooperative Sale Society Ltd., which dealt with a different provision of Section 80P. Answering the first question in favour of the assessee, the High Court held that Section 80P(4) only bars cooperative banks themselves from claiming deductions on their own income and does not restrict a non-banking cooperative society from claiming deduction under Section 80P(2)(d) on interest earned from investments made with other cooperative societies, including cooperative banks. The Bench emphasized that SIMFED was admittedly not a cooperative bank within the meaning of Part V of the Banking Regulation Act, 1949, and therefore could not be denied the benefit of deduction. On the second issue, the Court distinguished the Supreme Court’s decision in Totgars’ Cooperative Sale Society Ltd., observing that it pertained to Section 80P(2)(a)(i) and involved retained members’ funds shown as liabilities. The Court noted that SIMFED’s case squarely fell under Section 80P(2)(d), which specifically allows deduction on interest or dividend income derived from investments with any other cooperative society. Relying on a recent Gujarat High Court judgment in PCIT v. Ashwin Kumar Urban Cooperative Society Ltd. (2024), the Bench held that Totgars was not applicable to the facts at hand. Concluding that the ITAT had misinterpreted the statutory provisions and wrongly denied the deduction, the High Court set aside the Tribunal’s order dated June 18, 2025, and restored the benefit of deduction under Section 80P(2)(d) to SIMFED. Consequently, Tax Appeal No. 02 of 2025 was allowed. Case Details Case Title: Sikkim State Cooperative Supply and Marketing Federation Limited Versus Deputy Commissioner of Income-tax Case No.: TAX APP. NO. 02 OF 2025 Date: 10/12/2025 Counsel For Petitioner: Dhiraj Lakhotia Counsel For Respondent: Sangita Pradhan, Deputy Solicitor General of India Click Here To Read Order Read More: GST ITC | Once Returns Submitted U/s 16(5), Time Limit U/s 16(4) Loses Its Significance: Kerala HC

S. 80P(4) Can’t Be Used to Deny S. 80P(2)(d) Deduction on Interest Earned From Cooperative Banks by Non-Bank Cooperative Societies: Sikkim High Court

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