2013 (1) TMI 552 - HC - Income Tax

High Court upholds Cooperative Bank's tax deduction under Income Tax Act, emphasizes regulatory compliance

Commissioner Of Income Tax. Ghaziabad Versus Ghaziabad Zila Sahkari Bank Ghaziabad

The Allahabad High Court dismissed the appeal, affirming the legality of a Cooperative Bank's operations and upholding the Tribunal's decision to allow ... Deduction u/s 80P(2)(a)(i) - respondent - assessee is a Cooperative Bank - Held that:- Reserve Bank of India had permitted the assessee - opposite party to continue to operate its banking activities. Thus, for all practical purposes, the assessee is entitled to claim deduction under Section 80P(2)(a)(i). The banking activities carried out by the respondent - assessee cannot be termed to be illegal, contrary or in violation of any statutory provisions - in favour of assessee. Issues:Interpretation of Section 80P(2)(a)(i) of the Income Tax Act for a Cooperative Bank.Analysis:The appeal before the Allahabad High Court was filed under Section 260 (A) of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, New Delhi. The main question of law proposed by the Commissioner of Income Tax, Ghaziabad was whether the assessee bank is entitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act. The respondent, a Cooperative Bank formed for the development of agriculture and industries, claimed the deduction based on its activities. The bank operates under the U.P. Cooperative Societies Act, 1965, and had permission from the Reserve Bank of India to continue its banking activities pending the grant of a license. The Assessing Officer initially denied the deduction claim, but it was allowed by the Commissioner of Income Tax, Appeals. The appeal by the Revenue against this decision failed.The High Court noted that the Reserve Bank of India had permitted the bank to continue its banking activities pending the license decision. Therefore, the court found the bank entitled to claim deduction under Section 80P(2)(a)(i) of the Act. The court emphasized that the banking activities of the respondent bank were not illegal or in violation of any statutory provisions. Consequently, the court held that the Tribunal's decision, which allowed the deduction claim, was legally justified and did not have any legal infirmity. As a result, the appeal was dismissed by the High Court.In conclusion, the judgment clarified the interpretation of Section 80P(2)(a)(i) of the Income Tax Act in the context of a Cooperative Bank's activities. It highlighted the importance of permissions granted by regulatory authorities in determining the eligibility for deductions under the Act. The court's decision affirmed the legality of the bank's operations and upheld the Tribunal's ruling in favor of allowing the deduction claim.