The Calcutta High Court, comprising Chief Justice T.S. Sivagnanam and Justice Chaitali Chatterjee (Das), has ruled in favour of the West Bengal State Co-operative Agriculture & Rural Development Bank Ltd., granting it deduction under Section 80P(2)(a)(i) of the Income Tax Act for interest income earned on surplus funds deposited in banks.
The appeal arose from an Income Tax Appellate Tribunal order that upheld the Assessing Officer's disallowance of deduction on interest income of ₹2.83 crore, relying on the Supreme Court's decision in Totgars Cooperative Sales Society Ltd. v. ITO. The bank argued that its surplus funds, generated during its lending operations, were temporarily invested in short-term deposits to meet NABARD repayment schedules, and such earnings were part of its core credit-lending business.
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Quoting the Karnataka High Court’s view in Guttigedarara Credit Co-operative Society Ltd., the bench emphasised that the term "attributable to" under Section 80P is wider than "derived from" and covers income incidental to the main business. Since the deposits were not liabilities to members, interest from them qualified for deduction.
The court held that Totgars was distinguishable, as that case involved retention of sale proceeds owed to members. Here, the funds came from the bank’s own operations and were used solely for lending purposes.
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The bench allowed deductions on interest from personal loans to members but denied deductions for interest on house-building loans to staff, agreeing with the tax department’s stance on that component.
"The expression 'attributable to' is of wider import… such interest income is attributable to the profits and gains of providing credit facilities to members," the court observed.
The appeal was allowed in part, with substantial questions of law largely answered in favour of the assessee.
Case TItle:- The West Bengal State Co-operative Agriculture & Rural Development Bank Ltd. vs. Deputy Commissioner of Income Tax, Circle-54, Kolkata
