High Court affirms ITAT decision on deduction for interest income from non-cooperative banks

The High Court upheld the ITAT decision, allowing the deduction under section 80P(2)(a)(i) of the Income Tax Act for interest income on fixed deposits from non-cooperative banks. The Court held that such investments by Cooperative banks constitute banking business, making the income attributable to the business of banking and therefore deductible. The Court distinguished this case from decisions related to Cooperative Sale Societies, emphasizing that income from investments by Cooperative banks is eligible for the deduction. The appeal by the Revenue was dismissed, and no costs were awarded.

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Issues involved: Interpretation of deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961 for interest income on fixed deposits placed with banks other than cooperative banks.

Summary:

Issue 1: Deduction u/s 80P(2)(a)(i) for interest income on fixed deposits from non-cooperative banks

The case involved a Cooperative Bank for A.Y. 2003-04 where the Assessing Officer disallowed interest on fixed deposits from non-cooperative banks for deduction u/s 80P(2)(a)(i). The CIT (A) upheld the disallowance, but the ITAT allowed the claim based on a Supreme Court decision. The Revenue challenged this decision.

Judgment: The High Court upheld the ITAT decision, stating that investments by Cooperative banks to earn interest constitute banking business, making the income attributable to the business of banking. Referring to the Nawanshahar Central Cooperative Bank case, the Court emphasized that income from such investments is deductible u/s 80P(2)(a)(i). The Court distinguished the Totgars Cooperative Sale Society case, noting that decisions related to Cooperative banks differ from those related to Cooperative Sale Societies.

Result: The appeal by the Revenue was dismissed, and no costs were awarded.

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