DEPUTY COMMISSIONER OF INCOME TAX, CIR-3(2), GANGTOK, GANGTOK SIKKIM V. SIKKIM STATE COOPERATIVE SUPPLY AND MARKETING FEDERATION LIMITED, GANGTOK SIKKIM

ITA 1582/KOL/2024

AI Insights

The case involves the Deputy Commissioner of Income Tax, Cir-3(2), Gangtok, as the appellant, and the Sikkim State Cooperative Supply and Marketing Federation Limited, as the respondent. The core issue was the eligibility of the assessee to claim deduction under Section 80P(2)(d) of the Income Tax Act for interest income received from investments in Sikkim State Cooperative Bank Limited and Citizens Urban Cooperative Bank Ltd. The Assessing Officer (AO) had disallowed the deduction, treating the interest income as 'Income from Other Sources' under Section 56 of the Act. The CIT(A) reversed this decision, leading to the Revenue's appeal before the Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 653117 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Other Referred Cases: Totagars Co-operative Sale Society Ltd Vs ITO, State Bank of India Vs CIT, Sri Basaveshwara Credit Co-operative Society Ltd. Vs CIT, National Coal Development Corporation Staff Co-operative Credit Society Ltd. Vs DCIT, Southern Technologies Ltd. Vs JCIT, Coimbatore, Hon'ble High Court of Gujarat in the case of Surat Vankar Sahakari Sangh Ltd. v. Asstt. CIT, ITAT, Pune in the case of Rena Sahakari Sakhar Karkhana Ltd. Vs Pr. CIT, ITAT, Mumbai in the case of Ashok Tower 'D' Co Op Housing Society Ltd. Vs ITO, Karnataka High Court in the case of Pr. CIT Vs Totagars Co-operative Sale Society, Kerala High Court in the case of Pr. CIT Vs Peroorkada Service Co-operative Bank Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Set aside; Business income; Question of law; Bad and doubtful debts; Co-operative Credit Society
• Section: 143(3); 56; 2; 40(a)(ia)

Judgement Text

"आयकर अपीलीय अधिकरण कोलकाता 'ए' पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA श्री प्रदीप क ुमार चौबे, न्याधयक सदस्य एवं श्री राक ेश धमश्रा, लेखा सदस्य क े समक्ष Before SHRI PRADIP KUMAR CHOUBEY, JUDICIAL MEMBER & SHRI RAKESH MISHRA, ACCOUNTANT MEMBER I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Deputy Commissioner of Income Tax, Cir-3(2), Gangtok Vs. Sikkim State Cooperative Supply and Marketing Federation Limited (Appellant) (Respondent) PAN: AADAS4451M Appearances: Department represented by : Sailen Samadder, Add. CIT, Sr. DR. Assessee represented by : A.N. Chatterjee, FCA & A.K. Mitra, FCA. Date of concluding the hearing : 20-March-2025 Date of pronouncing the order : 18-June-2025 ORDER PER BENCH: These appeals filed by the Revenue are against the separate orders of the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AYs 2018-19 & 2020-21 dated 30.05.2024, which have been passed against the assessment orders u/s Page | 2 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 2 of 45 143(3)/143(3A)/143(3B) and 143(3)/144B of the Act, dated 30.03.2021 and 08.09.2022, respectively. 1.1. Since the issues are common, both the appeals were heard together and are being decided vide this common order for the sake of convenience and brevity. 2. The Revenue is in appeal before the Tribunal raising the following grounds of appeal: I. I.T.A. Nos.: 1582; AY 2018-19: “1. Whether Ld. CIT(A) is justified in deleting the addition of Rs. 2,59,49,002/- on account of interest received from the Sikkim State Cooperative Bank Limited and Citizens Urban Cooperative Bank Ltd. considering the said banks as co-operative societies registered under the State laws for registration of co-operative societies ignoring the facts that Sikkim State Cooperative Bank Limited and Citizens Urban Cooperative bank Ltd, though registered under the Sikkim Cooperative Societies Act 1978, they are not Primary Agricultural Credit Society or Primary Co- operative Agricultural and Rural Development Bank. 2. Whether Ld. CIT(A) is justified in deleting the addition of Rs. 2,59,49,002/- on account of interest received from the Sikkim State Cooperative bank Limited and Citizens urban Cooperative Bank Ltd. While Sikkim State Cooperative bank limited itself has declared that it is not qualified for deduction under section 80P. 3. Whether Ld. CIT(A) is justified in deleting the addition of Rs. 2,59,49,002/- on account of interest received from the Sikkim State Cooperative Bank Limited and Citizens Urban Cooperative Bank Ltd on the ground that these banks are registered co-operative societies ignoring the facts the section 80P (4) unambiguously state that this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank.” II. I.T.A. Nos.: 1583; AY 2020-21: “1. Whether Ld. CIT(A) is justified in deleting the addition of Rs. 1,45,86,229/- on account of interest received from the Sikkim State Cooperative Bank Limited and Citizens Urban Cooperative Bank Ltd. Page | 3 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 3 of 45 considering the said banks as co-operative societies registered under the State laws for registration of co-operative societies ignoring the facts that Sikkim State Cooperative Bank Limited and Citizens Urban Cooperative bank Ltd, though registered under the Sikkim Cooperative Societies Act 1978, they are not Primary Agricultural Credit Society or Primary Co- operative Agricultural and Rural Development Bank. 2. Whether Ld. CIT(A) is justified in deleting the addition of Rs. 1,45,86,229/- on account of interest received from the Sikkim State Cooperative bank Limited and Citizens urban Cooperative Bank Ltd. While Sikkim State Cooperative bank limited itself has declared that it is not qualified for deduction under section 80P. 3. Whether Ld. CIT(A) is justified in deleting the addition of Rs. 1,45,86,229/- on account of interest received from the Sikkim State Cooperative Bank Limited and Citizens Urban Cooperative Bank Ltd on the ground that these banks are registered co-operative societies ignoring the facts the section 80P (4) unambiguously state that this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank.” 3. We will first take up the appeal for A.Y. 2018-19. Brief facts of the case are that the assessee is a cooperative society registered under the Sikkim Co-operative Societies Act and is engaged in the business of wholesale supply of consumer goods. The assessee filed its return of income for the AY 2018-19 on 01.10.2018 in the status of an AOP declaring total income at ₹ ‘Nil’ after claiming deduction u/s 80P of the Act. The case was selected for complete scrutiny under Computer Assisted Scrutiny Selection (in short 'CASS') and in the course of the assessment proceedings, statutory notices issued were partly complied by the assessee. The assessment was completed u/s 143(3) read with section 143(3A) and section 143(3B) of the Act on 30.03.2021 at the total income of ₹2,66,72,980/- after making additions/disallowances of - (i) ₹3,65,190/- u/s 36(1)(va) of the Act for delayed payment of employees’ contribution to Provident Fund, (ii) ₹3,58,787/- u/s 40(a)(ia) Page | 4 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 4 of 45 of the Act (iii) ₹2,59,49,002/- u/s 80P(2)(d) of the Act in respect of interest income from investments made with the Cooperative Banks. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) raising several grounds of appeal. The Ld. CIT(A) deleted the addition of Rs 3,65,190/-, gave part relief for addition of ₹3,58,787/- and also deleted the addition u/s 80P made by the Ld. AO. The extract from the order of the Ld. CIT(A) is as under: “10.1 In the course of assessment proceedings, the A.O. noticed that during the year, the appellant had earned the interest income aggregating to Rs. 2,59,49,002/- from investments made, or deposits held with, Sikkim State Co-operative Bank Limited and Citizens Urban Co-operative Bank. The appellant had claimed deduction amounting Rs. 2,59,49,002/- under section 80P (2) (d) of the Act in respect of the entire interest income earned from these investments. AO noted that the aforesaid investments were made out of surplus funds of the appellant society, and therefore interest income arising therefrom was taxable as Income from Other Sources under section 56. AO further observed that the benefit of section 80P(2)(a)(i) was available to a Co-operative Society, only in respect of the profits and gains of business of providing credit facilities to its members, and not for interest income, which was not “operational income\", but in the nature of “other income”. AO has relied on the following authorities, in support of these propositions, - 1. Totagars Co-operative Sales Society Ltd Vs ITO (2010) (188 Taxmann 282) (SC) 2. State Bank of India Vs CIT (2016)(72 Taxmann.com 64)(Gujarat) 3. Sri Basaveshwara Credit Co-operative Society Ltd. Vs CIT (2014)(47 taxmann.com 189)(Bangaore- Trib.) 4. National Coal Development Corporation Staff Co-operative Credit Society Ltd. Vs DCIT (ITA No 1564/Kol/2011) 5. Southern Technologies Ltd. Vs JCIT, Coimbatore (2010) (187 Taxman 346) (SC) 10.2 The AO has further held that income earned from investments made by the appellant with a ‘co-operative bank' would not be eligible for exemption as the same does not fall under the purview of ‘co-operative society’ referred to in section 80P(2)(d) of the Act. A co-operative bank is an entirely different species from co-operative societies, and therefore, interest Page | 5 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 5 of 45 earned from co-operative banks would not qualify for deduction under section 80P(2)(d). AO has relied on the following authorities, in support of these propositions, - 1. Pr. CIT Vs Totagars Co-operative Sale Society (2017) (83 taxmann.com 140) (Karnataka) 10.3 The AO has further observed that the very basis of functioning of any co-operative society is the ‘principle of mutuality’, which is not satisfied in the case of interest income earned by the appellant co-operative society from investments made in another ‘co-operative bank’. The AO has relied on the following authorities, in support of these proposition, - 1. Citizen Co-operative Society Ltd. Vs ACIT (2017) (84 taxmann.com 114) (SC) 2. Bangalore Club Vs CIT (29 Taxmann.com 29) (SC) 10.4 The AO has also observed that the provisions granting concessions should be rigidly interpreted. The AO has taken a view that if the words 'cooperative society’ were to be read as ‘co-operative bank’, the same would render the entire provision redundant, otiose and nugatory; an outcome which is surely not intended by the Parliament. The AO has relied on the following authorities, in support of these proposition, - 1. Oswal Agro Mills (1993 (66) ELT 37) (SC) 2. Dilip Kumar & Company and Ors. (2018) (95 Taxmann.com 327)(SC) 10.5 On being asked, the appellant explained that both these Cooperative Banks are registered as Co-operative Society under the State laws, and therefore, the appellant was eligible to claim deduction of interest earned on investments made with the Cooperative Banks. AO however did not accept this contention of the appellant. AO held that exemption is allowed to interest earned by a Cooperative Society from investments made with a primary agricultural credit Society, or a primary Cooperative Agricultural and Rural Development Bank; but not any other Cooperative Bank. AO further noted that Cooperative Banks are altogether excluded from the ambit of section 80P of the Act, after insertion of sub-section (4) of Section 80P. The AO has relied on the following authorities, in support of this proposition - 1. The Mavilayi Service Coop. Bank Ltd. & Ors. Vs. CIT (Civil Appeal No. 7343-7350 of 2019 dated 12.01.2021) (SC) 2. Pr. CIT Vs Totagars Co-operative Sale Society (Karnataka) (Supra) Page | 6 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 6 of 45 10.6 Accordingly, AO disallowed the claim of deduction under section 80P (2) (d) and held that the entire interest income of Rs. 2,59,49,002/-, was taxable as Income from Other Sources under section 56, as the assessee has failed to produce any evidence to show that it has incurred any expenditure wholly and exclusively to earn such interest income.” 3.3. During the appellate proceedings, the assessee has made detailed written submissions in respect of this ground, wherein it is stated that the appellant is a Co-operative Society registered under the Sikkim Cooperative Societies Act, 1978. The appellant is inter-alia engaged in the business of whole sale supply of consumer goods to multipurpose Cooperative Societies, consumer Cooperatives and various Government Departments. The appellant has admittedly claimed deduction in respect of interest income from investments made with two Cooperative Banks, under section 80P (2)(d) of the Act. The appellant has made following averments in support of its claim of deduction. After considering the submissions made by the assessee the Ld. CIT(A) has held as under: “11. I have carefully considered the relevant and material facts on record, in respect of this ground of appeal, as brought out in the assessment order and submissions made during appeal proceedings. There is no dispute on the fact that the appellant is a co-operative society, registered under the Sikkim Co-operative Societies Act, 1978. The objects of the appellant society, as per the registered Bye-laws, include inter-alia procurement and marketing of various agricultural produce, floricultural produce, animal husbandry products etc. on behalf of its members. During the year, the appellant co-operative society has earned income by way of interest on Fixed Deposits aggregating to Rs. 2,59,49,002/- from investments and deposits made with two co-operative banks, namely Sikkim State Cooperative Bank Ltd. and Citizens Urban Cooperative Bank Ltd. The AO has not reverted any adverse factual finding as to source of these investments made by the appellant co-operative society. There is no dispute on the fact that the profits and gains of business, to the extent attributable to the activity of marketing of agricultural produce, are eligible for deduction under section 80P(2)(a) in the hands of the appellant cooperative society. The appellant co-operative society has, however, claimed total deduction of Page | 7 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 7 of 45 Rs. 2,59,49,002/- under section 80P(2)(d) of the Act. On verification of details of interest income, the AO noticed that the same includes income by way of interest aggregating to Rs. 2,59,49,002/- from investments and deposits made with two co-operative Banks. The only point of dispute is whether the interest income derived by the appellant cooperative society from the investment made by it with other co-operative Banks, namely Sikkim State Cooperative Bank Ltd. and Citizens Urban Cooperative Bank Ltd., shall qualify for deduction in terms of section 80P (2)(d) of the Act. The appellant has furnished copies of certificate of Registration of these two co- operative Banks, from which it is seen that Sikkim State Cooperative Bank Ltd. and Citizens Urban Cooperative Bank Ltd are also registered as a co- operative society under the Sikkim Co-operative Societies Act, 1978. 11.1 In this context, it is pertinent to refer to the relevant provisions of the Act, which are reproduced as under, - \"Deduction in respect of income of co-operative societies. 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:— (a) in the case of a co-operative society, engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or — the whole of the amount of profits and gains of business attributable to any one or more of such activities: ……………. (b) …....... (c) ……… (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other cooperative society, the whole of such income; 11.2 On a careful reading of the relevant provisions, it is noted that income derived by a co-operative society in the nature of interest or dividend is eligible for hundred percent deduction under section 80P (2)(d), subject to the condition that such income is derived from investments made with other Page | 8 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 8 of 45 co-operative society. Thus, the only pre-condition for availing deduction under section 80P (2)(d) is that the investment by the appellant cooperative society should be made in another co-operative society only. The moot point, on the facts of the instant case, is whether or not the investment made in a co-operative Bank (which is also registered as a co-operative society under the State laws) can be regarded as investment in another cooperative society, being eligible for deduction under section 80P(2)(d). 11.3 I find that this question came up for consideration before the Karnataka High Court in the case of Pr. CIT Vs Totagars Co-operative Sale Society (2017) (392 ITR 74) (Kar.), wherein the Hon'ble High Court, on identical facts, has held as under- “8. The issue whether a Co-operative Bank is considered to be a Cooperative Society is no longer res integra. For the said issue has been decided by the IT AT itself in different cases. Moreover the word \"Co-operative Society\" are the words of a large extent, and denotes a genus, whereas the word \"Co- operative Bank\" is a word of limited extent, which merely demarcates and I identifies a particular species of the genus Co-operative Societies. Co- 'perative Society can be of different nature, and can be involved in different activities; the Co-operative Society Bank is merely a variety of the Cooperative Societies. Thus the Co-operative Bank which is a species of the genus would necessarily be covered by the word \"Co-operative Society\". 9. Furthermore, even according to Section 56(i)(ccv) of the Banking Regulations Act, 1949, defines a primary Co-Operative Society bank as the meaning of Co-Operative Society. Therefore, a Co-operative Society Bank would be included in the words 'Co-operative Society'. 10. Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the LT. Act, the said amount of interest earned from a Cooperative Society Bank would be deductable from the gross income of the Co-operative Society in order to assess its total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent.” 3.4. The Ld. CIT(A) has also relied upon the following case laws: i) The Uttar Gujrat Uma Coop Credit Society Ltd Vs ITO (I.T.A. Nos. 1670 & 1671/Ahd/18 dated 28.02.2019), ii) M/s Surendranagar District Co-operative Milk Producers Union Ltd Vs DCIT (2019) (111 Taxmann.com 69) (Rajkot-Trib.), iii) Hon'ble High Court of Gujarat in the case of Surat Vankar Sahakari Sangh Ltd. v. Asstt. CIT [2016] 72 taxmann.com 169, Page | 9 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 9 of 45 iv) 11.6 On similar facts, ITAT, Pune in the case of Rena Sahakari Sakhar Karkhana Ltd. Vs Pr. CIT (2022) (138 taxmann.com 532) (Pune - Trib.) v) ITAT, Pune in the case of Rena Sahakari Sakhar Karkhana Ltd. Vs Pr. CIT (2022) (138 taxmann.com 532) (Pune - Trib.) and vi) ITAT, Mumbai, in the recent case of Ashok Tower “D” Co. Op. Housing Society Ltd. Vs ITO (2024) (161 taxmann.com 518 (Mumbai - Trib.) 3.5 Thereafter he has held as under: “11.8 I have carefully considered the case laws relied upon by the AO. The Supreme Court judgment in the case of Totgars Co-operative Sale Society Ltd. Vs ITO (188 Taxman 282) (SC) deals with the claim of deduction under section 80P (2)(a)(i). In fact, Karnataka High Court in the recent case of Pr. CIT Vs Totagars Co-operative Sale Society (2017) (392 ITR 74) (Kar.) has distinguished the Supreme Court judgement in the said case, with the following observations, - “11. The learned counsel has relied on the case of Totgars Cooperative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the LT. Act. For, in the present case the interpretation that is required is of Section 80P (2)(d) of the LT. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case.” 11.8.1 The Supreme Court judgment in the case of Mavilayi Service Co- operative Bank Ltd. Vs CIT (2021) (123 taxmann.com 161) (SC) also deals with the deals with the eligibility to claim deduction under section 80P (2)(a)(i), particularly in the wake of introduction of sub-section (4) to section SOP. On the facts of case, Hon’ble Apex Court held that where assessee1 was registered as primary agricultural credit society, it was entitled to benefit of deduction under section 80P(2)(a)(i) notwithstanding that it was also giving loans to its members which were not related to agriculture. 11.8.2 Hon’ble Bombay High Court, in the case of CIT Vs Common Effluent Treatment Plant (2010) (328 ITR 362) (Bombay) deals with the ‘principle of mutuality’. The assessee in that case was an association formed with an object of setting up an effluent treatment plant for its members, who ran industrial units in certain areas. In this context, Hon’ble High Court held that interest received on bank deposits, made out of surplus funds, does not Page | 10 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 10 of 45 possess the same character of mutuality as the surplus funds derived by the assessee from the contributions of its members. Thus, the context of the Bombay High Court judgment does not relate to interpretation of provisions of section 80P. 11.8.3 Hon’ble Gujarat High Court, in the case of State Bank of India Vs CIT (2016) (72 Taxmann.com 64) (Gujarat) deals with the interpretation and admissibility of deduction under section 80P(2)(a)(i), in case of a cooperative society engaged in providing credit facilities to its members, in respect of the interest income derived by the society from depositing surplus funds with the State Bank of India. 11.8.4 To sum up, I find that the judgments in all the cases relied on by the AO, have been rendered in different contexts. In some cases, the context of the judgment is the eligibility to claim deduction by a co-operative society, in respect of the profits and gains of business, attributable to the activity of banking, or providing credit facilities to its members, within the meaning of section 80P(2)(a)(i). In other cases, the context is the general principle of mutuality. However, the issue for consideration in the present case is whether or not the income derived from investment made by the appellant co-operative society in a co-operative Bank is eligible for deduction under section 80P(2)(d). The case laws relied on by the AO are clearly distinguished on facts. Therefore, I find that the ratio of these case laws is not applicable on facts of the present case. 12. In view of the facts and circumstances of the case, and the prevailing position of law applicable on such facts, I find that the appellant cooperative society is eligible to claim deduction under section 80P(2)(d) of the Act, in respect of the interest income earned from investments made with other co- operative banks, namely Sikkim State Cooperative Bank Ltd. and Citizens Urban Cooperative Bank Ltd., as these are co-operative societies’ registered under the State laws for registration of co-operative societies; hence a “co- operative society” within the meaning of section 2 (19) of the Act, The jurisdictional Assessing Officer (JAO) is directed to allow the claim of deduction under section 80P(2)(d) and re-compute total income accordingly. These Grounds of appeal are allowed.” 4. The appeal of the assessee was allowed. Aggrieved with the order of the Ld. CIT(A) the revenue has filed the appeal before the Tribunal. Page | 11 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 11 of 45 5. Rival contentions were heard and the submissions made and the paper book filed have been examined. Before us, the Ld. DR has submitted as under: “The allowability of interest from Co-operative Bank and other agencies is much debated issue as several observations have been made by different Courts and Tribunals both in favour of the Department as well as the assessee. However, the treatment of interest income from outside agencies out of the investments made from idle fund of the Society has been decided by the Apex Court. According to the Hon’ble Supreme court in the case of M/s Totgars Co-operative Sale Society Limited dated 08.02.2010, the interest income from outside agencies would fall within the ambit of Section 56 as income from Other Sources and not chargeable to business income u/s. 28. In the instant case, the assessee apart from its regular activity of providing loans to its members, made investment of its idle/surplus fund to Sikkim State Cooperative Bank Limited and Citizens Urban Cooperative Bank Limited. As per observation of the Hon’ble Apex Court, the financial activities of a co-operative society of providing loan to its members and earning interest thereon comes under the principle of mutuality as the relation between the Society and its members fulfils the conditions. However, the financial activities for the purpose of investment of surplus fund to any institution outside the Society do not come under the purview of principle of mutuality. This has been clarified in the Order of the Hon’ble Supreme Court in the case of Bangalore Club also. Investment of surplus in another Co-operative society which is not a member of the co-operative society also is not recognized as business activity of the Society. However, the Act proposed that the interest out of investment in a cooperative society also eligible for deduction u/s. 80P(2)(d) as both the co- operative societies are mutually covered by the principle of mutuality. In this respect the Income Tax Act, 1961 is very specific to allow benefit to a Society subject to the fulfilment of the concept of principle of mutuality only. The conflicts have been raised on the overriding effect of Central Act, being the Income Tax Act, 1961 on the State Act being The Co-operative Societies Act. Another view is that the Hon’ble Courts have taken a sympathetic view on the prospect of co-operative movement. Taxation of interest of any surplus fund may restrict to this prospect to an extent that the payable tax cannot be distributed to the members of the Society only keeping the interest on its regular financial activities outside the ambit of taxation. On this aspect, it is to be kept in mind that the intention of the Parliament/Law Makers are final as per Article 141 of the Indian Constitution, which has vehemently kept the Page | 12 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 12 of 45 interest earned outside the scope of principle of mutuality. Not only the interest earned from any organization like commercial bank etc., but also the interest earned from Co-operative bank has been considered as not allowable deduction u/s. 80P. The concept of activities of Co-operative Societies is described within the purview of the Income Tax Act, 1961, which is as under: (a) Nature of income accrued in Co-operative Societies operating for providing credit facilities to its members: At the outset, the interest and dividend earned from Co-operative Bank is the benefit accrued out of the idle fund accumulated by the Society during its business operation of providing loan to its members for the purpose of which the Society is created. The intention of the Act is not to exclude income of the Co-operative Society from the ambit of the income tax, but to comply with the basics, i.e., by virtue of principles of Mutuality that any income generated within the closed proximity out of the funds accumulated by the members should be devoid of Income Tax separately. However, this is not applicable in respect of the income generated from outside agencies. Here, the Co-operative Bank is an outside agency irrespective of the fact that the Co-operative Bank is also a Co-operative Society or not. Once, the Co- Operative bank is entitled to come into transaction with any outside agency apart from its members or any such agency covered by the restrictions as such, i.e., another Co-operative Society, it loses its character of Co-operative Society in respect of such transactions made with outside agency or general public as such. Explanation to sub section 80P(4) defines a Co-operative bank as follows : “co-operative bank\" and \"primary agricultural credit society\" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949). Now coming to the submission of the assessee, the assessee-society argued that as per the Tamin Nadu Co-operative Societies Act guidelines, it is required by law to keep certain funds in the co-operative banks. In this connection, it is to be stated that the assessee is obliged to keep a part of its funds in banks as per RBI guidelines/instructions, which has nothing to do with the determination of the taxability of interest income derived from such statutory deposits. The Hon. Supreme court in the case of Southern Technologies Ltd. vs. Joint Commissioner of Income-tax, Coimbatore[2010] 187 TAXMAN 346 (SC) held that the RBI directions have Page | 13 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 13 of 45 no overriding effect on the provisions of Income tax. The relevant part of the order vide para 21 is as under: \"It needs to be emphasized that the said 1998 Directions are only Disclosure Norms. They have nothing to do with computation of Total Taxable Income under the Income-tax Act or with the accounting treatment.\" The Hon’ble Supreme Court in the case of Totgars, Co-operative Sale Society Ltd. vs. Income- tax Officer, Karnataka (supra) held in para 11 as under: \"To say that the source of income is not relevant for deciding the applicability of section 80P would not be correct because one needs to give weightage to the words 'the whole of the amount of profits and gains of business' attributable to one of the activities specified in section 80P(2) (a). The words 'the whole of the amount of profits and gains of business emphasize that the income, in respect of which deduction is sought, must constitute the operational income and not the other income which accrues to the society. In the instant case, the evidence showed that the assessee-society earned interest on funds which were not required for business purposes at the given point of time. Therefore, on the facts and circumstances of the instant case, such interest income fell in the category of 'other income' which had rightly been taxed by the department under section 56.\" Despite, the assessee claimed that the case law of Totgars, Co-operative Sale Society Ltd. is not applicable in its case; the fact of the case is very much identical and applicable in this case. The decision of the Hon’ble Supreme Court excludes the possibility of covering the interest and dividend earned from Co-operative Bank within Section 80P(2)(a). In respect of Section 80P(2)(d), the income earned from Co-operative Bank does not qualify for this purpose as the relation between the assessee and the commercial Bank is not covered. (b) Interest income of Cooperative Society: The provisions of section 80P(2)(d) state that: “In respect of any income by way of interest or dividends derived by the Cooperative society from its investments with any other co-operative society the whole of such income”. The plain reading of the above provision, it is clear that the section refers to interest and dividends earned from investments in another co-operative society only. Thus, this deduction cannot be extended to the interest and dividend income earned from the investment in any co-operative bank. It is well-settled rule of interpretation that the Legislative mandate should be so read that no word used by the Parliament should be rendered Page | 14 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 14 of 45 nugatory. If the word “cooperative society” is to read as “Cooperative bank” the same would render the entire provision redundant, otiose and nugatory, an outcome which the Parliament could surely not have intended. It has also been further clarified in Oswal Agro Mills case reported in 1993 (66) ELT 37 (S.C.) that “where the words of the statute are plain and clear, there is no room for applying any of the principles of interpretation which are merely presumption in cases of ambiguity in the statute. The Court would interpret them as they stand. The object and purpose has to be gathered from such words themselves. Words should not be regarded as being surplus nor be rendered otiose”. (c) Interest on amount deposited out of idle funds: The decision of the Hon’ble High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO has been overruled by the Hon’ble Supreme Court in Totgar’s Cooperative Sale Society Ltd. v ITO 322 1TR 283, the issues are identical in both case. The Hon’ble Supreme Court in Totgar’s Cooperative Sale Society Ltd. v ITO 322 ITR 283 held that interest on deposits were not business income but income from other sources and the society was not entitled to special deduction u/s 80P(2). The finding of the Hon’ble Supreme Court reads as follows:- “The words “the whole of the amount of profits and gains of business” in section 80P (2) of the Income-tax Act, 1961, emphasise that the income in respect of which deduction is sought by a cooperative society must constitute the operational income and not the other income which accrues to the society. 7. The Hon’ble Apex Court in the case of Banglore Club V CIT (2013] 29 taxmann.com 29 (SC) w.r.t. interest earned from member bank have denied mutuality benefit and have held vide para 25 to 28 as under: ………The interest earned from fixed deposits kept with non-member bank was offered for taxation and the tax due was paid. Therefore, we are required to examine the case of the assessee, in relation to the interest earned on fixed deposits with the member banks, on the touchstone of the three cumulative conditions, enumerated above. Para 26…. as soon as these funds were placed in fixed deposits with banks, the closed flow of funds between the banks and the club suffered from deflections due to exposure to commercial banking operations. During the course of their banking business, the member banks used such deposits to advance loans to their clients. Hence, in the present case, with the funds of the mutuality, member banks engaged in commercial operations with third parties outside of the mutuality, rupturing the ‘privity of mutuality’, and consequently, violating the one to one identity between the contributors and participators as Page | 15 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 15 of 45 mandated by the first condition. Thus, in the case before us the first condition for a claim of mutuality is not satisfied. (d) Motive of Deduction u/s. 80-P: There is no conflict between the claim of deduction u/s 80P in respect of entire income except the interest income incurred from several Banks, which are normally falls under the head Income from Other Sources and to be recognized u/s 80P(2)(d). The provisions of section 80P(2)(d) state that: “In respect of any income by way of interest or dividends derived by the Cooperative society from its investments with any other co-operative society the whole of such income”. The plain reading of the above provision, it is clear that the section refers to interest and dividends earned from investments in another co-operative society only. Thus, this deduction cannot be extended to the interest and dividend income earned from the investment in any co-operative bank. (e) Principal of Mutuality: In CIT vs. Bangalore Club, Hon’ble Karnataka High Court has clarified that interest income from Bank would not come within the principle of Mutuality. Hence, the assessee’s contention in this regard is not acceptable. So far as the principle of interpretation applicable to a taxing statute is concerned, it is right to quote the by now classic words of Rowlatt, J., in Capce Brandy Syndicate v. IRC [1921] 1 KB 64: “... In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.” (p. 71). The principle laid down by Rowlatt, J., has also been time and again approved and applied by the Supreme Court in different cases including the one Hansraj Gordhandas v. H.H. Daye, Assistant Collector of Central Excise & Customs AIR 1970 SC 755 at p. 759. 3.3 Further, the conditions or restrictions contemplated by one statute having a different object and purpose should not be lightly and mechanically imported and applied to a fiscal statute for non-levy of excise duty, thereby causing a loss of revenue. [Medley Pharmaceuticals Limited v. Commissioner of Central Excise and Customs, Daman - (2011) 2 SCC 601 = 2011 (263) ELT 641 (SC) and Commissioner of Central Excise, Nagpur v. Shree Baidyanath Ayurved Bhavan Limited - 2009 (12) SCC 419 = 2009 (237) ELT 225 (SC)]. The Hon. Supreme court in the case of Southern Technologies Ltd. v. Joint Commissioner of Income-tax, Coimbatore [2010] 187 TAXMAN 346 (SC) with Page | 16 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 16 of 45 respect to RBI direction over provisions under Income tax vide para 21 have held as under: It needs to be emphasized that the said 1998 Directions are only Disclosure Norms. They have nothing to do with computation of Total Taxable Income under the Income-tax Act or with the accounting treatment. The said 1998 Directions only lay down the manner of presentation of NPA provision in the balance sheet of an NBFC. Provisions relating to concessions are ordinarily expected to be rigidly interpreted: The Hon’ble Apex Court rendered in the case of Union of India v. Wood Papers Ltd (AIR 1991 SC 2049) and the decision of Hon’ble Andhra Pradesh High Court rendered in the case of CIT v. Anakapalli Co-operative Marketing Society Ltd., [(2000) 245 ITR 616 (AP)], wherein it was held that the provisions relating to concessions are ordinarily expected to be rigidly interpreted. The Hon Supreme court in the case of Thalappalam Ser. Co Op Bank ltd & Ors vs. State Of Kerala & Ors vide civil Appeal No. 9017 of 2013 (arising out of SLP(C) No. 24290 of 2019 on definition of public authority under section 2(h) of The Right to information Act, 2005) have discussed at length about accountability and transparency in cooperative societies in general and formation of Public information officer which has no application over judgment on fiscal statute like Income Tax because one word occurring in different sections of the Act can have different meaning, if the object of the two sections are different and when both operate in different fields. In view of judgment of Hon Supreme Court in the case of Southern Technologies Ltd. v. Joint Commissioner of Income-tax, Coimbatore [2010] 187 TAXMAN 346 (SC) and also in view of judgment of Hon Supreme Court in the case of Medley Pharmaceuticals Limited v. Commissioner of Central Excise and Customs, Daman - (2011) 2 SCC 601 = 2011 (263) ELT 641 (SC) and in view of judgment of Hon Supreme Court in the case of Commissioner of Central Excise, Nagpur v. Shree Baidyanath Ayurved Bhavan Limited - 2009 (12) SCC 419 = 2009 (237) ELT 225 (SC)]. Even if some other similarly situated persons have been granted some benefit inadvertently or by mistake, such order does not confer any legal right on the petitioner to get the same relief. (Vide Chandigarh Administration & Anr Vs. Jagjit Singh & Anr., AIR 1995 SC 705, Smt Sneh Prabha Vs. State of U.P. & Ors., AIR 1996 SC 540; Jalandhar Improvement Trust Vs. Sampuran Singh, AIR 1999 SC 1347; State of Bihar & Ors. Vs. Kameshwar Prasad Singh & Anr., AIR 2000 SC 2306; Union of India & Ors. Vs. Rakesh Kumar, AIR 2001 SC 1877; Yogesh Kumar & Ors. Vs. Government of NCT Delhi & Ors., AIR 2003 SC 1241; Union of India & Anr. Page | 17 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 17 of 45 Vs. International Trading Company & Anr., AIR 2003 SC 3983; M/s Anand Button Ltd. Vs. State of Haryana & Ors., AIR 2005 SC 565; K.K. Bhalla Vs. State of M.P. & Ors., AIR 2006 SC 898; and Maharaj Krishan Bhatt & Anr. Vs. State of Jammu & Kashmir & Ors., (2008) 9 SCC 24). 4. Vide submission dated 09/11/2015, the assessee had submitted as below: “The term co- operative society has been defined in the Act in section 2(19) which read as : Co-operative society means a society registered under the Co-operative Societies Act, 1912 or under any other law for the time being in force in any state for the *registration of co-operative societies - A regional rural bank to which provisions of the Regional Rural Bank Act, 1976 .apply, is also defined as co-operative society.” Further, all the co-operative banks are registered under Co-operative Societies Act, 1912 or under any other law for the time being in force in any state for the registration for co-operative societies. In short; the provisions of various acts, governing co-operative societies are applicable to co-operative banks since these banks are also co- operative societies within the meaning of these various acts governing co- operative societies. It will be observed that the co-operative bank fall within the definition of the term co-operative society. Thus, interest received by co- operative society from co-operative bank is nothing but interest received from cooperative society. 5. However, the assessee’s above submission is not factual. Even this definition, as contained in section 2(19) of the Income tax Act, 1961, speaks only of “Co-operative Society” and not a “Co-operative Bank.” The assessee further submitted that a regional rural bank to which provisions of Regional Rural Bank Act, 1976, apply is also defined as co- operative society. However, even this contention of the assessee cannot come to the rescue of the assessee for the reason that the interest is not earned from the Regional Rural Bank but ordinary Co-operative bank. As submitted by the assessee in the submission dated 09/11/2015, the above referred interest income of Rs. 1,06,77,541/- was derived from its investment in the following banks, a) NKGSB Co-operative Bank Ltd., b) Dombivali Nagari Sahakari Bank Ltd., c) The Saraswat Co-operative Bank Ltd. d) The TJSB Sahakari Bank Ltd., e) The Maharashtra State Co-op. Bank Ltd. f) Abhyudaya Co-op Bank Ltd. All these five banks are neither Co- operative Societies nor be Regional Rural Banks governed under Regional Rural Development Bank. 1976. The very basis of functioning of any co-operative society would be the principle of mutuality. If we go through the principle of mutuality, the three important basic conditions of the Principle are as under: 1) There must be a complete identity between the contributors and participators. Page | 18 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 18 of 45 2) The actions of the participators and contributors must be in furtherance of the mandate of the association. 3) There must be no scope of profiteering by the contributors from a fund made by them which could only be expended or returned to themselves. However, all the above conditions are not satisfied in the, case of interest earned from cooperative banks by the co-operative society (assessee). There is an element of profiteering in the activities of co-operative society while earning interest at higher rates the surplus therefore will form part of its general reserve fund, even if the same is distributed as dividend even then the principle of mutuality is not satisfied as held by The Hon. Supreme Court in the case of CIT vs. Kumbakonam Mutual Benefit Fund Ltd., 53 ITR 241 (SC) wherein it was held that if the profits are distributed to shareholders as shareholders, the principle of mutuality is not satisfied. Further, in a very recent land mark judgment in the case of M/s. Bangalore Club vs. Commissioner of Income tax, The Hon’ble Supreme Court of India has gone into minute details for deciding the nature/character of “Principle of Mutuality”, under which the tax exemption has been claimed by various Societies. The Honorable Supreme Court held that “in our opinion, unlike the surplus amount’ itself, which is exempt from tax under the doctrine of mutuality, the amount of interest earned by the assessee (Bangalore Club) from the member banks will not fall within the ambit of the mutuality principle and will therefore, be exigible to Income-Tax in the hands of the assessee-club”. In this case, the surplus funds in the hands of the assessee were placed at the disposal of the corporate members viz. the banks, with the sole motive to earn interest, which brings in the commerciality element and thus, the interest so earned by the assessee has to be treated as a revenue receipt, exigible to tax. The facts of this case are similar to the facts of the instant case of Elamakkara Samoohya Kshema Sahakarana Sangham Limited had placed its surplus fund at the disposal of the co- operative banks, with sole motive to earn interest, which brings in the commerciality of the element. Therefore, the interest so earned by it has to be treated as the revenue receipt, taxable under the Income tax Act, 1961. The Hon’ble Supreme Court in Totgar’s Cooperative Sale Society Ltd. v ITO 322 ITR 283 held that interest on deposits were not business income but income from other sources and the society was not entitled to special deduction u/s 80P(2). The finding of the Hon’ble Supreme Court reads as follows:- “The words “the whole of the amount of profits and gains of business” in section 80P (2) of the Income-tax Act, 1961, emphasise that the income in respect of which deduction is sought by a cooperative society must constitute the operational income and not the other income which accrues to Page | 19 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 19 of 45 the society. 7. The Hon’ble Apex Court in the case of Banglore Club V CIT [2013] 29 taxmann.com 29 (SC) w.r.t. interest earned from member bank have denied mutuality benefit and have held vide para 25 to 28 as under: ……The interest earned from fixed deposits kept with non-member bank was offered for taxation and the tax due was paid. Therefore, we are required to examine the case of the assessee, in relation to the interest earned on fixed deposits with the member banks, on the touchstone of the three cumulative conditions, enumerated above. Para 26… as soon as these funds were placed in fixed deposits with banks, the closed flow of funds between the banks and the club suffered from deflections due to exposure to commercial banking operations. During the course of their banking business, the member banks used such deposits to advance loans to their clients. Hence, in the present case, with the funds of the mutuality, member banks engaged in commercial operations with third parties outside of the mutuality, rupturing the ‘privity of mutuality’, and consequently, violating the one to one identity between the contributors and participators as mandated by the first condition. Thus, in the case before us the first condition for a claim of mutuality is not satisfied. ... As aforesaid, the second condition demands that to claim an exemption from tax on the principle of mutuality, treatment of the excess funds must be in furtherance of the object of the club, which is not the case here. In the instant case, the surplus funds were not used for any specific service, infrastructure and maintenance or for any other direct benefit for the member of the club. These were taken out of mutuality when the member banks placed the same at the disposal of third parties, thus, initiating an independent contract between the bank and the clients of the bank, a third party, not privy to the mutuality. This contract lacked the degree of proximity between the club and its member, which may in a distant and indirect way benefit the club; nonetheless, it cannot be categorized as an activity of the club in pursuit of its objectives. It needs little emphasis that the second condition postulates a direct step with direct benefits to the functioning of the club. For the sake of argument, one may draw remote connections with the most brazen commercial activities to a club’s functioning. However, such is not the design of the second condition. Therefore, it stands violated. The facts at hand also fail to satisfy the third condition of the mutuality principle i.e. the impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves. This principle requires that the funds must be returned to the contributors as well as expended solely on the contributors. True, that in the present case, the funds do return to the club. However, Page | 20 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 20 of 45 before that, they are expended on non-members i.e. the clients of the bank. Banks generate revenue by paying a lower rate of interest to club-assessee, that makes deposits with them, and then loan out the deposited amounts at a higher rate of interest to third parties. This loaning out of funds of the club by banks to outsiders for commercial reasons, in our opinion, snaps the link of mutuality and thus, breaches the third condition. Since all the three conditions are not satisfied Interest earned by assessee club on fixed deposits from its member banks would not be exempt from tax on basis of doctrine of mutuality. Judgment needs to be call back or appealed against or to be reviewed: The Hon. Gujarat High court in the case of Surat Vankar Sahakari Sangh Ltd. v. Assistant Commissioner of Income-tax [2016] 72 taxmann.com 169 (Gujarat) has talked about only interest received from co-operative society but gave judgment by approving Tribunal view that interest received from Co Operative Bank which amounts to granting unwanted benefit vide para 8.1 of the order which is as under: Para 8.1.... In our opinion, the learned Tribunal was right in law in allowing deduction under Section 80P(2)(d) of the Income- tax Act, 1961. in respect of interest of RS. 4,00,919 on account of interest received from Nawanshaln Central Co-operative Bank without adjusting the interest paid to the bank. Therefore, the reference is answered against the Revenue in the affirmative and in favour of the assessee.’ Note: Further, the judgment in the case of State Bank of India (SBI) Vs. Commissioner of Income-tax [2016] 72 taxmann.com 64 (Gujarat-HC) was not brought to the notice of the Hon. Court. The Hon ITAT Mumbai in the case of Lands End Co-operative Housing Society Ltd Vs. ITO ward-16(1)(3) Mumbai, I.T.A. No. 3566/Mum/2014 decided for Assessment Year: 2009-10 on 15.01.2016. Before The Hon Tribunal learned AR has talked about only “co-operative society including co-operative bank” with respect to interest earned by Co Operative housing society/Mutual Association from Co Operative Bank. Therefore, it amounts to playing with word beyond the law framed by the parliament, restricting benefit only to interest earned from any other co operative society. Therefore, The Hon. ITAT granted benefit to interest received from bank in concluding part of the order which is impliedly a deviation and erroneous, therefore needs to be reconsidered and reviewed or appealed against based on legal position laid down vide para 2 to Para 7 hereinabove. The Hon Punjab & Haryana High Court in the case of C1T v. Doaba Co-op. Sugar Mills Ltd. [1998] 96 TAXMAN 509 (PUNJ. & HAR.) the facts of the case Page | 21 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 21 of 45 are as under: “…The assessee has paid interest to Jalandhar Central Co- operative Bank and has also received interest from the said co-operative bank, thereby showing that the assessee has on the aggregate paid interest to the bank...” The Hon. High Court has in operative part of the order talked about only co operative society and granted benefit to interest received from bank in concluding part of the order which is impliedly a deviation and erroneous therefore does not form a precedent based on legal position laid down herein above. (f) Consideration of Co-operative Bank as Co-operative Society for the purpose of deduction u/s. 80P(2)(d) of the Income Tax Act, 1961: Undoubtedly all cooperative banks are primarily registered as cooperative societies under the relevant State Act, but have been awarded with the status of Co-operative Bank later and license for operating commercially with the general public, not being member of the Society. Section 5 of the RBI Act has made distinction between several entities. Cooperative Bank comes under clause (cci) of the provision, whereas Cooperative Societies come within the clauses of (ccii) and (cciia). For the purpose of the Income Tax Act, 1961, the following features are observed. (i) Co-operative Bank is an institution, which has been primarily registered as cooperative Society to venture its loan activities with its members for profit generation, has been allowed to extend its activities to people in general like a commercial bank for generating revenue from loan activities. The financial operation with non-members definitely does not come under the purview of principle of mutuality. (ii) The operation of Co-operative banks is guided by the RBI Act, whereas operation of co-operative societies is guided by respective State Co-operative Societies Act. (iii) Although a co-operative bank does not lose its recognition as a co- operative society, but itself seldom claims the benefits of Section 80P in its Return of Income or restricts its claim in respect of transactions made with its members only. (iv) The Hon'ble Karnataka High Court while giving effect to the direction of the Hon’ble Supreme Court in the case of Totagars Cooperative Sales Society Ltd vs. ITO, has acknowledged that interest earned on investment in co- operative bank does not qualify for deduction u/s. 80P(2)(d), which is recognized as the decision of the Apex court as well. Page | 22 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 22 of 45 So, the intention of the Parliament has been satisfied in the proposition made in sub-section (4) of Section 80P keeping the interest/dividend earned from a co-operative bank outside the ambit of Section 80P(2)(d). The assessee wished to be benefitted with any available option of deduction u/s. 80P(2)(d) on interest of Rs. 2,59,49,002/- received from investment in Sikkim State Cooperative Bank and Citizen Urban Cooperative Bank Limited, which has not been considered as eligible u/s. 80P(2)(d) in the assessment order. Considering various judgments delivered by the Hon’ble Courts and Tribunals relied by the assessee, it is considered as convenient to avoid discussions on every judgments but to discuss on the propositions of law as well as the observations of different Courts. The intention of the Act was to allow benefits to the Co-Operative Societies by way of deduction u/s. 80P in respect income covered by principles of mutuality. All the co-operative banks were primarily registered under the Co-operative Societies Act, but later transformed to co-operative banks to operate commercially with agencies other than its members. The law is distinct in the Sub-section (4) of Section 80P. However, debate could not be stopped. Analysis of the order of the Ld. CIT(A): The Ld. C1T(A) has analyzed the acceptability of the assessment order rebutting the observation of the Assessing Officer. It has been considered that the dispute should be restricted to the allowability of deduction u/s. 80P(2)(d) only. However, while deciding the case, he has erred as under: (i) The Ld. CIT(A) has relied on the decision of the Karnataka High Court in the case of PCIT vs. Totagars Co-operative Sales Society (2017) instead of the decision of the same Court in 2015, which was in remand of the Apex Court and on the identical issue. An order in effect of a high court overrides the decision of the lower court as per judicial principle. (ii) He has relied on the decision of the Hon’ble ITAT in the case of The Uttar Gujrat Uma Co-op Credit Society Ltd Vs. ITO to justify that principle of mutuality is not a prerequisite for availing benefit of deduction u/s. 80(P)(2)(d) ignoring the decision of the Apex Court observed severally; (iii) It has been relied upon the decision of the Hon’ble ITAT, Rajkot in the case of M/s. Surendranagar District Co-operative Milk Producers Union Ltd vs DCIT for coming at a conclusion that interest from Co-operative Bank on Page | 23 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 23 of 45 investment of surplus fund always qualifies for deduction u/s. 80P(2)(d), which is against the proposition of the Act and also the observation of the Hon’ble Karnataka High Court giving effect to the order of the Apex court in the case of Totagars Co-operative Sales Society. The reliance of the case laws Rena Sahakari Sakhar Karkhana Ltd vs. PCIT, Surat Vankar Sahakari Sangh Ltd, Ashok Tower D Co Op Housing Society Ltd also suffers the shortcomings'. (iv) The observation of the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative bank Ltd vs. CIT (2021) does not deserve its interference in the present case as the status of the investor of surplus fund is different. In this case, the Hon’ble Supreme Court has observed that the Co-operative bank has not lost its Society character within the permissibility of the State Act and is eligible for deduction u/s. 80P(2)(a)(i), which deals with operative fund only and not surplus fund. Finally, the decision of the Ld. CIT (A) that the interest earned on investment of surplus fund to Sikkim State Cooperative Bank Ltd. and Citizens Urban Co-operative Bank Ltd would be eligible for deduction u/s. 80P(2)(d) of the Income Tax Act, 1961 is not accepted as the same is violating the proposition of the Act. The Penalty u/s. 270A is also imposable on account of under reporting of income in consequence of mis-reporting of income once it is determined that the claim of deduction u/s. 80(P)(2)(d) of the Income Tax Act, 1961 is wrong.” 6. The Ld. AR has also filed the written submissions as under: “The basic issue is whether the interest received by a co-operative society from a co-operative bank should be eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). At the time of the argument the following decisions were relied upon: (i) Danda Co-operative Credit Society Ltd. Vs ITO ITA No: 2980/MUM/2022, which relied on another decision of the Mumbai ITAT in ITA No. 3240/MUM/2019 for AY 2012-13. (ii) RBI Staff and officers Co-operative Society Ltd. Vs ITO in ITA No 3114/MUM/2023. (iii) Bhairabnala Samabay Krishi Unnayan Samity Ltd. Vs ITO in ITA No 111/Kol/2012. (iv) DCIT vs Bongaon Co-operative Credit Society Ltd. In ITA No 1101/Kol/2023 (v) Kalidas Udyog Bhawan Premises Co-operative Ltd. Vs ITO in ITA No 6547/MUM/2017 Page | 24 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 24 of 45 In the aforesaid judgments the Tribunals, including the jurisdictional Tribunal repeatedly held that a cooperative society is entitled to deductions u/s 80P(2)(d) of the Act on interest received from a cooperative bank. At this point the Ld. DR had cited the decision of Hon’ble Karnataka High Court in the case of Pr. CIT Hon’ble Vs Totgars’ Co-operative Sale Society reported in 395 ITR 61 l(Kar) where the Hon’ble Karnataka High Court held that by virtue of introduction of Section 80P(4) of the Act interest received from a co-operative bank will not be eligible for deduction u/s 80P(2)(d). In this background it is humbly submitted that- (i) Kind attention is drawn towards the decision of The Hon’ble Gujarat High Court in its recent decision on 3rd March 2025 in Principal CIT Vs Shree Aradhana Urban Co-operative Credit Society Ltd. in R/Tax Appeal No. 400 of 2024 (copy attached and marked as Annexure ‘A’). The Hon’ble Gujarat High Court had decided the identical issue in favour of the assessee. We humbly request the Bench to refer to Para No. 5 of the judgment. The Hon’ble Court relied upon this earlier decision of the Gujarat High Court in Pr. CIT Vs Ashwinikumar Arban Co-operative Society Ltd. (discussed separately hereinafter). In fact the Gujarat High Court is of the view that sub-section (4) of section 80P is in the nature of a proviso to the main provision contained in sub- sections (1) and (2) of Section 80P (page 8 of 12). (ii) Also please refer to the decision of Pr. CIT Vs Ashwinikumar Arban Co- operative Society Ltd. Gujarat High Court (R/Tax Appeal No. 538 of 2024 with R/tax Appeal No. 221 of 2022 with R/Tax Appeal No. 419 of 2023). Copy of the judgment enclosed and is marked as Annexure B. The Gujarat High Court had the occasion to consider the view of Karnataka High Court that interest earned from investment any bank not being a co- operative society is not deductible under Section 80P(2)(d). Your attention is drawn towards the Paragraph No. 15 in particular. Also please refer to paragraphs 28 & 30 in the decision section. The Paragraph No. 33 is very clear in this matter and it was clearly held that therefore the exclusion of applicability of Section 80P to Co-operative Banks by Section 80P(4) of the Act would not disentitle the respondent assessee from claiming deduction under Section 80P(2)(d) of Act in absence of any amendment in the said Section and that would not be sufficient and Page | 25 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 25 of 45 deny the claim of the respondent assessee for deduction of interest earned from investment made in co-operative bank which is also a co-operative society from the total income (Para 30). (iii) Further your attention is drawn towards Pr. CIT Thiruvananthapuram Vs Peroorkada Service Co-operative Bank Ltd. In ITA No. 323 of 2019 of Kerala High Court, Ernakulum Bench. The copy the judgment is enclosed and marked as Annexure ‘C’. The Kerala High Court decision came in Nov, 2021, much after the decision of the Karnataka High Court relied upon by the Ld. DR. We would like to draw the attention of the Bench the Para 8 of the Order. Also please refer the Paragraph 12.2 of the Order where in page 38 it has clearly held the interest income earned from district co-operative Bank/state co-operative bank do come within Section 80P(2)(d). In view of the above it is submitted that: (1) The view of the Karnataka High Court relied upon by the Ld. DR has been negated by at least two High Courts subsequently. (2) In the absence of any decision of the jurisdictional High Court and contradictory judgments of other High Courts, the view favorable to the assessee should be followed - specially when more than two High Courts, i.e., Gujarat and Kerala had negated subsequently the view taken by the Hon’ble Karnataka High Court. (3) Reliance is also placed on the decision of the Supreme Court in case of Mavilayi Service Cooperative Bank (2021 SC 78) wherein it was held that Section 80P being a henceforth provision enacted by the Parliament to encounter and promote the credit & this co-operative sector in general must be read literally and reasonably, and if there is any ambiguity, in favour of the assessee. The Supreme Court itself had implied that Section 80P(4) is read as a proviso. (4) Reliance is also placed on the decision of the Apex Court in the case of CIT Vs Vegetable Products Ltd. (1973) 88 ITR 192 wherein the Highest Court of the Country had observed that if two reasonable constitutions of a taxing provision are possible, then the constitution which favours the taxpayers must be adopted. Finally it is submitted that in view of the aforesaid judicial pronouncements the Hon’ble Bench may please uphold the decision of the Ld. CIT(A) that the interest received by the co-operative assessee from co-operative banks should be allowed as a deduction under Section 80P(2)(d) of the Act.” Page | 26 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 26 of 45 5.1. The assessee has also relied upon the following case laws: “CASE -1 Commissioner of Income Tax, Coimbatore vs M/s. The Nilgiris Co- operative Marketing Society Ltd., Sailing House, Ooty (Chennai High Court) (TAX CASE (Appeal) No.758 of 2016) CASE – 2 Danda Co-op Credit Society Ltd. vs ITO - ITA.NO.2980/MUM/2022 (Tribunal - Mumbai) Quoting from Coordinate Bench in case of the same assessee ITA.No. 3240/Mum/2019 for the A.Y. 2012-13 Pg 8 - Last paragraph CASE – 3 Reserve Bank Staff and Officers co-op credit society Ltd, vs ITO (Tribunal -Mumbai) ITA No. 3114/Mum/2023 CASE – 4 Bhairabnala Samabay Krishi Unnavan Samity Ltd, vs ITO (Tribunal - Kolkata) ITA No. 111/Kol/2022 CASE – 5 DCIT vs Bongaon Co Operative Credit Society Limited (Tribunal - Kolkata) I.T.A. No. 1101/Kol/2023 CASE – 6 Kaliandas Udyog Bhavan Premises Co-op Society Ltd, vs. ITO (Tribunal - Mumbai) ITA No. 6547/MUM/2017 CASE – 7 Thorapadi Urban Co-op Credit Society Ltd, vs. ITO (High Court - Chennai) (2024) 296 Taxman 250 CASE – 8 PCIT and Another vs. Totgars Co-operative Sale Society (High Court - Karnataka) (2017) 392 ITR 74 6. The Ld. DR also filed documents from the return of income of Citizens Urban Cooperative Bank Ltd. in which the status is Cooperative Bank other than Primary Agricultural Credit Society or a Primary Cooperative Agricultural and Rural Development Bank and also from the website of Citizens Urban Cooperative Bank Ltd. which is a Primary (Urban) Cooperative Bank registered under Sikkim Co-Operative Society Act, 1978 and licensed by the RBI, License No. being UBD-WB. 04/2001-2002 under the Banking Regulation Act 1949 (As applicable to Cooperative Societies). The Sikkim State Cooperative Bank Ltd., (SISCO Bank) was registered in the year 1996 and came into operation Page | 27 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 27 of 45 from 1999 under the RBI license. It is regulated by the Reserve Bank of India (RBI) and the National Bank for Agriculture and Rural Development (NABARD) and the Co-operation Department, Government of Sikkim. It is the first Bank of its kind registered in the State of Sikkim with an objective to raise Deposits and Share Capital for extending loans to its Member-Cooperative Societies and other individuals for viable projects and schemes both in farm and non-farm sectors. SISCO Bank being an apex federated body has unique features i.e. membership of primary cooperatives and also individuals’ membership. As of now, there are 393 primary cooperative Societies and 6371 individuals as its members. At present, SISCO Bank Ltd has 14 branches. The Ld. DR stated that both these are Cooperative Banks and not Cooperative Societies. Further, our attention was also drawn to the case of Principal Commissioner of Income-tax, Hubballi vs. Totagars Co- operative Sale Society [2017] 83 taxmann.com 140 (Karnataka)/[2017] 395 ITR 611 (Karnataka)/[2017] 297 CTR 158 (Karnataka)[16-06-2017] in which exhaustive discussion has been made out which is extracted as under: “11. The Assessment Years involved in the present batch of appeals are Assessment Years 2007-2008 to 2011¬2012. The bone of contention is that the deduction under Section 80P(2) of the Act is now claimed by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act. The reason is that now the investments and deposits after the Supreme Court's decision against the assessee Totgars Co-operative Sale Society Ltd. (supra), the assessee has shifted the deposits and investments from Schedule Banks to Co-operative Bank and such Co- operative Bank is essentially a Co-operative Society also and Clause (d) allows deduction of income by way of interest or dividends derived by the assessee Co-operative Society from its investments with any other Co- operative Society. Page | 28 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 28 of 45 12. The sheet anchor of the contention of the learned counsel for the assessee misses two essential points required for claiming the exemption or 100% deduction from gross total income for a co-operative society: (i) that the character or nature of income, namely interest on investments or deposits, does not change irrespective of the fact whether it is earned or received from a Schedule Bank or Co-operative Bank. (ii) that What the Hon'ble Supreme Court held in the case of the respondent assessee itself, against the assessee, was that such interest income on its surplus and idle funds not immediately required for its business, is not income from business taxable under Section 28 of the Act, but was taxable as \"income from other sources\" under Section 56 of the Act, whereas for availing the exemption or 100% deduction under Section 80P of the Act the income is specified in clauses (a) to (f) of Subsection (2) of Section 80P of the Act should be its business or operational income. 13. What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society. The words 'Co- operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co- operative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section 80P of the Act. 14. The banking business, even though run by a Co-operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under Section 80P of the Act. The purpose of bringing on the statute book sub-section (4) in Section 80P of the Act was to exclude the applicability of Section 80P of the Act altogether to any co-operative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in Section 80P(4) are significant. They are: \"The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society…\". The words \"in relation to\" can include within its ambit and scope even the interest income earned by the respondent-assessee, a co-operative Society from a Co- operative Bank. This exclusion by Section 80P(4) of the Act even though without any amendment in Section 80P(2)(d) of the Act is sufficient to deny the claim of the respondent assessee for deduction under Section 80P(2)(d) of the Act. The only exception is that of a Page | 29 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 29 of 45 primary agricultural credit society. The depository Kanara District Central Bank Limited in the present case is admittedly not such a primary agricultural credit society. 15. The amendment of Section 194A(3)(v) of the Act excluding the Co- operative Banks from the definition of \"Co- operative Society\" by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co-operative Banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act. 16. If the legislative intent is so clear, then it cannot contended that the omission to amend Clause (d) of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise. 17. As stated above, it is the character and nature of income which determines its taxability or exemption from taxability. It is needless to say that the provisions relating to exemption and deduction need to be strictly construed and no liberal interpretation or intendment can be inferred in such provisions. What was clearly held to be not exempt and not deductible under Section 80P(2)(a) of the Act by the Hon'ble Supreme Court in the case of respondent assessee, cannot be contrarily held as exempted and deductible now for these years, merely because the depository bank, with whom the investments were made by the respondent assessee happens to be a co-operative bank. We cannot appreciate this distinction so as not to apply the binding precedent of the Hon'ble Supreme Court for subsequent years merely on account of the change of the Bank where such deposits were made by the respondent assessee, all other facts remaining the same, particularly the nature and character of the income earned by it. The interest income of assessee continues to be not attributable to its business operations even in these subsequent years. 18. The contention of the learned counsel for the assessee that a co-ordinate bench of this Court dismissed the Revenue's appeals by referring, but not applying the decision of the Hon'ble Supreme Court, we observe with greatest respects that we do not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Court in the case of the respondent assessee in the said order passed by the co-ordinate Bench and therefore, we are unable to follow the same in the face of the binding Page | 30 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 30 of 45 precedent laid by the Hon'ble Supreme Court. We find in paragraph 8 of the said order passed by a co-ordinate bench that the learned Judges have observed that \"the issue whether a co-operative bank is considered to be a co-operative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate Tribunal itself in different cases \". No other binding precedent was discussed in the said judgment. Of course, the Bench has observed that a Co-operative Bank is a specie of the genus co- operative Society, with which we agree, but as far as applicability of Section 80P(2) of the Act is concerned, the applicability of the Supreme Court's decision cannot be restricted only if the income was to fall under Section 80P(2)(a) of the Act and not under Section 80P(2)(d) of the Act. 19. In our opinion, it would not make a difference, whether the interest income is earned from investments/deposits made in a Scheduled Bank or in a Co-operative Bank. Therefore, the said decision of the Co-ordinate Bench is distinguishable and cannot be applied in the present appeals, in view of the binding precedent from the Hon'ble Supreme Court. 20. In Udaipur Sahakari Upbhokta Thok Bhandar Ltd. v. CIT [2009] 315 ITR 21/182 Taxman 287 (SC), the Hon'ble Supreme Court while dealing with a case falling under Section 80P(2)(e) of the Act also negatived the claim of this special deduction to a co-operative society, while holding that the income derived by the Co-operative Society from the letting of the godowns or the warehouses was eligible for this deduction under Section 80P(2) of the Act only if such income was derived by such letting of godowns and warehouses for storage, processing or facilitating the marketing of commodities. Where the rental income was derived by the assessee, where the income claimed as deduction under Section 80P(2)(e) of the Act was by way of netting/difference between the sale of own trade stock stored in such warehouses or godowns was claimed as deductible, the Hon'ble Supreme Court denied the said claim, holding that the burden was on the assessee to establish that the income comes within the four corners of Section 80P(2)(e) of the Act. The relevant portion of the said judgment from the Head Note is quoted below for ready reference: \"HELD, affirming the decision of the High Court, that the burden was on the assessee under section 80P(2)(e) to establish that the income comes within the four corners of section 80P(2)(e) of the Act. The exemption was available in respect of income derived from the letting of godowns or warehouses, only where the purpose of letting was storage, processing or facilitating the marketing of commodities. If the godown was let out (including user) for any purpose besides storing, processing or Page | 31 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 31 of 45 facilitating the marketing of commodities, then the assessee was not entitled to such exemption. Any income derived by the society unconnected with such letting or use of the godown would not fall under clause (e). The High Court was right in coming to the conclusion that the assessee was storing the commodities in question in its godowns as part of its own trading stock and hence, it was not entitled to claim the deduction under Section 80P(2)(e). In this case, the issue price was set off against the sale price which clearly indicated that the netting/difference between the two prices constituted receipt on a commercial basis or net profit. A Venkata Subbarao v. State of Andhra Pradesh AIR 1965 SC 1773 applied. CIT v. South Arcot District Co-operative Marketing Society Ltd. [1989] 176 ITR 117 (SC) distinguished. Surath Venkar Sahakari Sangh Ltd v. CIT [1971] 79 ITR 722 (Guj) approved. Decision of the Rajasthan High Court in CIT v. Udaipur Shahakari Upbhokta Thok Bhandara Ltd. [2007] 295 ITR 164 Affirmed.\" 21. The aforesaid decision of the Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd. (supra) was followed by a Division Bench of the Gujarat High Court in the case of State Bank of India v. CIT [2016] 389 ITR 578/241 Taxman 163/72 taxmann.com 64 and the Division Bench of the Gujarat High Court has held as under: \"(ii) That the assessee did not carry on any banking business and its objects did not contemplate investment of surplus funds received from its members. The business of a credit society like that of the assessee was limited to providing credit to its members and the income that was earned by providing such credit facilities to its members was deductible under section 80P(2)(a)(i). The character of interest was different from the income attributable to the business of the assessee-society providing credit facilities to its members. The interest income derived from investing surplus funds with the bank must be closely linked with the business of providing credit facilities for it to be held attributable to the business of the assessee. Therefore, the profits and gains could be said to be directly attributable to the business of providing credit facilities to its members if there was a direct and proximate connection between the profits and gains and the business of the assessee. There was no obligation on the assessee to invest its surplus funds with the bank. Investing surplus funds in a bank was no part of the business of the Page | 32 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 32 of 45 assessee providing credit facilities to its members and hence it could not be said that the interest derived from depositing its surplus funds with the bank was profits and gains of business attributable to the activities of the assessee. It was only the interest income derived from the credit provided to its members which was deductible under section 80P(2)(a)(i) and the interest income derived by depositing the surplus funds with the bank not being attributable to the business carried on by the assessee could not be deducted under section 80P(2)(a)(i). There was no infirmity in the orders of the Appellate Tribunal warranting interference. Totgar's Co-Operative Sale Society Ltd. v. ITO [2010] 322 ITR 283 (SC) followed.\" ** ** ** \"Thus, in the light of the principles enunciated by the Supreme Court in Totgar's Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co- operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act.\" 22. Again, the Division Bench of Punjab and Haryana High Court in still a later decision reported in the same volume of ITR in the case of CIT v. Punjab State Co-operative Agricultural Development Bank Ltd. [2016] 389 ITR 607/76 taxmann.com 307 (Punj. & Har.) concurred with the aforesaid view of the Gujarat High Court, distinguishing the view taken by the Andhra Pradesh High Court and Karnataka High Court, held in the following terms: '30. We are entirely in agreement with the judgment of the Gujarat High Court especially the observation that the judgment of the Supreme Court is not restricted only to the investments made by the assessee from the amounts retained by it which were payable to its members and that the judgment also applies in respect of other funds not immediately required for business purposes. We reproduced paragraph 15 of the judgment only to indicate that we uphold the appellant's case only on the ground that the assessee is not Page | 33 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 33 of 45 entitled to the said deduction on the basis that it is engaged in carrying on the business of providing credit facilities to its members. We do not express any opinion as to whether the appellant would be entitled to the said benefit in the event of it being held that the assessee is also engaged in carrying on the business of banking. That is an issue that the Tribunal would decide upon remand pursuant to this order. 31. Mr. Bansal relied upon the judgment of the Andhra Pradesh High Court in CIT v. A. P. State Co-operative Bank Ltd. [2011] 336 ITR 516 (AP). The judgment is distinguishable. In that case, the respondent- assessee was a co-operative society engaged in the business of banking and it was held that the assessees were subject to the regulations of the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949. The Division Bench distinguished the judgment of the Supreme Court in Totgar's case (supra) on the ground that the Supreme Court was not dealing with the case relating to co-operative banks. The present appeal is not being considered on the basis that banking is the assessee's business either. 32. Mr. Bansal relied upon the judgment of the Karnataka High Court in Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO [2015] 55 taxmann.com 447 (Karn). In that case, the assessee-co- operative society provided credit facilities to its members and earned interest from short- term deposits with banks and from savings bank accounts. The interest income earned by the assessee by providing credit facilities to its members was deposited in banks for a short duration which earned interest. The question was whether this interest was attributable to the business of providing credit facilities to the members. The Division Bench held as follows: \"8. Therefore, the word 'attributable to' is certainly wider in import than the expression 'derived from'. Whenever the Legislature wanted to give a restricted meaning, they have used the expression 'derived from'. The expression 'attributable to' being of wider import, the said expression is used by the Legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A co-operative society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of Page | 34 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 34 of 45 providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under section 80P of the Act. 9. In this context when we look at the judgment of the apex court in the case of Totgar's Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-co-operative society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was brought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-society was a liability and it was shown in the balance- sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or under section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the apex court held the Assessing Officer was right in taxing the interest income indicated above under section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. A. P. State Co-operative Bank Ltd. reported in [2011] 336 ITR 516 (AP) ; [2011] 200 Taxman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is Page | 35 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 35 of 45 unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the Revenue. Hence, we pass the following order. Appeal is allowed.\" (The reproduction is from the original website of the Karnataka High Court). There is an important distinction. The Division Bench expressly held in paragraph 10 that interest income was attributable to the business of banking and, therefore, liable to be deducted under section 80P(2)(a)(i) of the Act. At the cost of repetition, we have not considered whether the assessee carries on the business of banking. If it is established upon remand that the assessee carries on the business of banking the result may be different. In any event assuming that the judgment is not distinguishable on this ground, we would with respect disagree with the same in view of the judgments that we have already referred to and on the basis of our interpretation of Totgar's case. In any event, we are with respect unable to agree with the observations that the Supreme Court in Totgar's case (supra) did not lay down any law. 33. For the same reason, the judgment of the Karnataka High Court in Guttigedarara Credit Co-operative Society Ltd. v. ITO [2015] 377 ITR 464 (Karn); [2015] 60 taxmann.com 215 (Karn) is of no assistance to the respondent-assessee.' 23. Thus, the aforesaid judgments supports the view taken by this Court that character of income depends upon the nature of activity for earning that income and though on the face of it, the same may appear to be falling in any of the specified Clauses of Section 80P(2) of the Act, but on a deeper analysis of the facts, it may become ineligible for deduction under Section 80P(2) of the Act. The case in Udaipur Sahakari Upbhokta Thok Bhandar Ltd. (supra) was that of Section 80P(2)(e) of the Act, whereas in the present case, it is under Section 80P(2)(d) of the Act. Hence, the income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or a co-operative bank and thus, clause (d) of Section 80P(2) of the Act would not apply in the facts and circumstances of the present case. The person or body corporate from which such interest income is received will not change its character, viz. interest income not arising from its business operations, which made it ineligible for deduction under Section 80P of the Act, as held by the Hon'ble Supreme Court. Page | 36 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 36 of 45 24. In view of the aforesaid, we are of the opinion that the appeals filed by the Revenue deserve to be allowed and the appeals filed by the assessee deserve to be dismissed. 25. The issue relating to the justifiability of the reassessment under Section 147/148 of the Act also becomes academic once the conclusion is arrived at that the deduction under Section 80P(2) of the Act was not available to the assessee for these Assessment Years. 26. The substantial questions of law framed above are thus answered in favour of the Revenue and against the assessee and it is held that the income by way of interest earned by the assessee co-operative society during the Assessment Years 2007-2008 to 2011-12 on the investments made in the co-operative bank are not eligible for deductions under Section 80P(2)(d) of the Act. 27. The appeals of the Revenue are accordingly allowed and those of the assessee are dismissed. No order as to costs.” {emphasis supplied} 7. Similar issue arose in the case of Gomati Co-Operative Milk Producers Union Limited Vs. ACIT-National-E-Assement Centre, New Delhi in ITA 136/GTY/2023 in which the decision in the case of Totagars Co-operative Sale Society (supra) has been relied upon. The relevant extracts from the order are as under: “11. We now refer to the provisions of Section 80P(2)(d) of the Act which are as under: “80P(2)(d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society, the whole of such income”. Thus, section 80P(2)(d) states that the income by way of interest or dividends derived from investments with any other co-operative society is eligible for deduction. 12. Further, we have to examine as to whether the Tripura State Co- operative Bank Ltd. is a co-operative bank or merely a co-operative society. The Tripura State Co-operative Bank Ltd. is a Co-operative Bank Page | 37 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 37 of 45 and there is no dispute. In this connection, we may refer to the definition of Co-operative bank as defined under the Tripura Co-operative Societies Act, 1974 which defines the Co-operative Bank as under: \"Co-operative Bank\"\" means a society registered under this Act and doing the business of banking as defined in clause (b) of sub- section (1) of section 5 of the Banking Regulation Act, 1949. Thus, a Co-operative Bank is a Co-operative society which is doing the business of banking and is distinguishable from a society not doing the business of banking. 13. Again, by the 2nd amendment of the Tripura Co-operative Societies Act, 2009, the Tripura State Co-operative Banks have been declared as a Co- operative Society doing the business of banking with their jurisdiction defined as under: \"State Co-operative Bank means an apex co-operative society doing the business of banking as defined in clause (b) of section 5 of the Banking Regulation Act, 1949 and having jurisdiction over whole of Tripura State and declared as such by the State Government under clause (u) of section 2 of the National Bank for Agriculture and Rural Development Act, 1981 (Central Act No. 61 of 1981)\". 14. In this respect, as per section 2(19) of IT Act \"co-operative society\" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies. Further, as per the provisions of section 80P(4) of IT Act, the provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. 15. Since for the purpose of section 80P of the Act Co-operative Bank has the meaning assigned to it in PART V of the Banking Regulation Act, 1949 inserted by Act 23 of 1965, s. 14 (w.e.f. 1-3-1966) and is regarding application of the Banking Regulation Act, 1949 to co-operative banks, it is imperative to refer to section 56 of the same, which is as under: [PART V APPLICATION OF THE ACT TO CO-OPERATIVE BANKS 56. Act to apply to co-operative societies subject to modifications.—8[Notwithstanding anything contained in any other Page | 38 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 38 of 45 law for the time being in force, the provisions of this Act], shall apply to, or in relation to, co-operative societies as they apply to, or in relation to, banking companies subject to the following modifications, namely:— (a) throughout this Act, unless the context otherwise requires,- (i) references to a “banking company” or “the company” or “such company” shall be construed as references to a co-operative bank, (ii) references to “commencement of this Act” shall be construed as references to commencement of the Banking Laws (Application to Co- operative Societies) Act, 1965 (23 of 1965); 1[(iii) references to “memorandum of association” or “articles of association” shall be construed as references to bye-laws; (iv) references to the provisions of the Companies Act, 1956 (1 of 1956), except in Part III and Part IIIA, shall be construed as references to the corresponding provisions, if any, of the law under which a co-operative bank is registered; (v) references to “Registrar” or “Registrar of Companies” shall be construed as references to “Central Registrar” or “Registrar of Co- operative Societies”, as the case may be, under the law under which a co-operative bank is registered;] (b) in section 2, the words and figures “the Companies Act, 1956 (1 of 1956), and” shall be omitted; (c) in section 5,— 2[(i) after clause (cc), the following clauses shall be inserted namely:— (cci) “co-operative bank” means a state co-operative bank, a central co-operative bank and a primary co-operative bank; (ccii) “co-operative credit society” means a co-operative society, the primary object of which is to provide financial accommodation to its members and includes a co-operative land mortgage bank; 3[(cciia) “co-operative society” means a society registered or deemed to have been registered under any Central Act for the time being in force relating to the multi-State co-operative societies, or any other Central or State law relating to co-operative societies for the time being in force;] (cciii) “director”, in relation to a co-operative society, includes a member of any committee or body for the time being vested with the management of the affairs of that society; 2[(cciiia) “multi-State co-operative bank” means a multi-State co- operative society which is a primary co-operative bank; (cciiib) “multi-State co-operative society” means a multi-State co- operative society registered as such under any Central Act for the time Page | 39 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 39 of 45 being in force relating to the multi-State co-operative societies but does not include a national co-operative society and a federal co-operative;] (cciv) “primary agricultural credit society” means a co-operative society,— (1) the primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including the marketing of crops); and (2) the bye-laws of which do not permit admission of any other co- operative society as a member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such co- operative society out of funds provided by the State Government for the purpose; (ccv) “primary co-operative bank” means a co-operative society, other than a primary agricultural credit society,— (1) the primary object or principal business of which is the transaction of banking business; (2) the paid-up share capital and reserves of which are not less than one lakh of rupees; and (3) the bye-laws of which do not permit admission of any other co- operative society as a member: Provided that this sub-clause shall not apply to the admission of a co- operative bank as a member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose; (ccvi) “primary credit society” means a co-operative society, other than a primary agricultural credit society,— (1) the primary object or principal business of which is the transaction of banking business; (2) the paid-up share capital and reserves of which are less than one lakh of rupees; and (3) the bye-laws of which do not permit admission of any other co- operative society as a member: Provided that this sub-clause shall not apply to the admission of a co- operative bank as a member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose. Explanation.—If any dispute arises as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi), a determination thereof by the Reserve Bank shall be final; Page | 40 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 40 of 45 (ccvii) “central co-operative bank”, 1*** “primary rural credit society” and “state co-operative bank” shall have the meanings respectively assigned to them in the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981);] 2[(ii) clauses (ff), (h) and (nb) shall be omitted;] 16. Thus, both “co-operative bank” as well as “co-operative credit” society are defined under sub-clauses (cci) and (ccii) in section 56 read with section 5 of the Banking Regulation Act, 1949 [PART V] and while a primary co-operative bank is a co-operative society, all co-operative societies are not co-operative banks. Thus, the terms co-operative society and co-operative bank have to be understood in the context in which they are used and are not interchangeable in all situations. In view of the aforesaid discussion made in the preceding paras, it is evident that, the Tripura State Co-operative Bank Ltd. is co-operative Society doing the business of banking and therefore, it is a co-operative bank and not merely a cooperative society which is doing the business of banking. Thus, the Tripura State Co-operative Bank Ltd. is a co-operative bank even though it may be a co-operative society. 17. As is elaborated above, a co-operative society per se is not permitted to carry on the business of banking as per Part V of the Banking Regulation Act unless it is a Co-operative Bank which has been issued the requisite license by the RBI. The assessee relies upon the provisions of Section 80P(2)(d) of the Act in support of its claim that the Tripura State Co-operative Bank Ltd. is a Society and therefore, the interest from the same should be allowed as a deduction u/s 80P(2)(d) of the Act. In this respect, the provisions of the statute have to be read as a whole and not in isolation. Since the terms ‘Society’ and ‘Co-operative Bank’ appear specifically at different places in section 80P and as per Section 80P(2)(d) of the Act, the interest or dividend income of the cooperative Society received from any other cooperative Society is exempt, but by virtue of the amendment with effect from 01.04.2007, the provisions of Section 80P of the Act shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, all of which have been defined as per Part V of Banking Regulation Act, 1949 and therefore, a Co-operative Bank, though being a Society and carrying on the business of banking, however is not entitled to the benefit of Section 80P of the Act by virtue of sub-Section (4) thereof, as it is treated at par with a bank and is granted the deduction available to the bank as per section 36(1) of the Act. It would be apposite to also refer to the memorandum to the Finance Act, 2007 which explains the rationale behind amendment in Sections 80P and 36(1) of the Act. In the Memorandum to the Page | 41 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 41 of 45 FINANCE BILL, 2007 for PROVISIONS RELATING TO DIRECT TAXES, the substance of the main provisions in the Bill relating to direct taxes is explained in the paragraphs following therein. Under the RATIONALISATION AND SIMPLIFICATION MEASURES - Deduction in respect of any provision for bad and doubtful debts to be allowed in the case of co-operative banks under section 36(1)(viia), it is explained as under: Under the existing provisions of clause (viia) of sub-section (1) of section 36, deduction of an amount not exceeding seven and one-half per cent. of the total income (computed before making any deduction under the said clause and Chapter VIA) and an amount not exceeding ten per cent. of the aggregate average advances made by the rural branches of a scheduled bank or a non-scheduled bank computed in the prescribed manner is allowed as deduction in the computation of income of such banks. “Scheduled bank”, as defined in the Explanation to clause (viia) of sub-section (1) of the section 36, does not include a co-operative bank. The deduction earlier allowable under section 80P in the case of a co- operative society engaged in carrying on the business of banking (co- operative banks) has been withdrawn from assessment year 2007- 2008 barring in the case of a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Since profits of co-operative banks are now taxable after withdrawal of deduction available to a co-operative society engaged in carrying on the business of banking under section 80P, such co-operative society banks should be allowed deduction in respect of any provision for bad and doubtful debts as its profits have become taxable. The amendment proposes to allow this deduction to co- operative banks not being a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The definition of scheduled bank in clause (ii) of Explanation to said clause (viia) is also proposed to be amended to include scheduled co- operative banks within the definition. Under the existing provisions contained in the Explanation to item (fa) of sub-clause (iv) of clause (15) of section 10, the expression “scheduled bank” has been defined to have the meaning assigned to it in clause (ii) of the Explanation to clause (viia) of sub-section (1) of section 36 which does not include co-operative banks. However, the definition of “scheduled bank” after the proposed amendment will include scheduled co-operative banks. The referral definition of “scheduled bank” presently occurring in the Explanation to the aforesaid item (fa) does not allow exemption of interest payable to a non-resident or a not ordinarily resident by a co-operative bank. In Page | 42 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 42 of 45 order to continue with this position, the definition of “scheduled bank” in its pre-amended form in clause (ii) of Explanation to clause (viia) of sub-section (1) of section 36 is being substituted for the existing Explanation in the aforesaid item (fa) to ensure that the scope of the exemption allowed under the aforesaid item (fa) is not changed. The proposed substitution of the definition of “scheduled bank” in the said item (fa) meets with this objective. The proposed amendment to the definition of “scheduled banks” as it appears in section 36 will also have the effect of making the provisions of section 43D applicable to scheduled co-operative banks. These amendments will take effect, retrospectively, from 1st April, 2007 and will, accordingly apply in relation to the assessment year 2007-2008 and subsequent years. [Clauses 6 and 12 ] 18. Thus, the legislative intention behind the amendments was to bring Co- operative Banks at par with commercial Banks and the provisions of Clause (d) of sub-Section (2) of Section 80P of the Act apply in respect of any income by way of interest or dividend derived by the co-operative Society from its investments with any other Society. Since Co-operative Bank and co- operative Society have been specified at different places in Section 80P of the Act, the reference to co-operative Society in Section 80P(2)(d) of the Act is a reference to the co-operative Society which is not a Co-operative Bank and is not carrying on any banking activity while the reference to Co- operative Bank in sub-Section (4) of Section 80P of the Act is to an entity which is a cooperative Society but is carrying on the business of banking and is governed by the rules and regulations of the RBI. Simultaneous to the insertion of sub-Section (4) to Section 80P of the Act, the Co-operative Banks were treated at par with the other commercial banks and the deduction u/s 36(1)(viia) of the Act in respect of provisions made for bad and doubtful debts was also extended to a Co-operative Bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank with effect from 01.04.2007. Therefore, with effect from 01.04.2007 all Co-operative Banks for the purpose of Income Tax Act have been brought at par with other commercial banks and any interest or dividend received from a Co-operative Bank is no longer allowable as a deduction u/s 80P(2)(d) of the Act. Thus, even in respect of interest from Tripura State Co- operative Bank Ltd., (which has been declared as a co-operative Society by virtue of the second amendment of the Tripura Cooperative Societies Act, 2009), by virtue of the prohibitory amendment introduced by way of introduction of sub-Section (4) to Section 80P of the Act, the interest from Tripura State Co-operative Bank Ltd., is not deductible u/s 80P of the Act. Part V of the Banking Regulation Act, 1949 specifically bars a Co-operative Bank to be a member of any other co-operative Society. Therefore, both on Page | 43 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 43 of 45 the principle of mutuality and the provision of Section 80P(4) of the Act read with Part V of the Banking Regulation Act, 1949, the interest from Tripura State Co-operative Bank Ltd. is also not exempt. Treating a Co-operative Bank at par with co-operative Society and allowing them the benefit of Clause (d) of sub-Section (2) of Section 80P of the Act would render the provisions of sub-Section (4) of section 80P otiose. Therefore, all the grounds of appeal are dismissed relating to interest from Tripura State Co-operative Bank Ltd. and United Bank of India and the order of the Ld. CIT(A) in this regard is hereby confirmed. 19. In the result, the appeal of the assessee is dismissed.” 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. 9. Since the issues in I.T.A. No: 1583/KOL/2024 are similar, the finding as in AY 2018-19 shall mutatis mutandis also apply to the appeal Page | 44 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 44 of 45 for the AY 2020-21 and the appeal of the Revenue is allowed, the order of the Ld. CIT(A) is set aside on this issue and the order of the Ld. AO is confirmed. 10. In the result, the appeals filed by the Revenue are allowed. Order pronounced in the open Court on 18th June, 2025. Sd/- Sd/- [Pradip Kumar Choubey] [Rakesh Mishra] Judicial Member Accountant Member Dated: 18.06.2025 Bidhan (P.S.) Page | 45 I.T.A. Nos.: 1582 & 1583/KOL/2024 Assessment Years: 2018-19 & 2020-21 Sikkim State Cooperative Supply and Marketing Federation Limited. Page 45 of 45 Copy of the order forwarded to: 1. Deputy Commissioner of Income Tax, Cir-3(2), Gangtok. 2. Sikkim State Cooperative Supply and Marketing Federation Limited, 1 Simfed Building Development Area Gangtok, Gangtok Bazar SO, Gangtok, East Sikkim-737101. 3. CIT(A)-NFAC, Delhi. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata "