2015 (3) TMI 1330 - HC - Income Tax

Interest income from specific savings instruments qualifies for tax exemption under Income Tax Act

The Commissioner of Income TaxII, Versus The Chalisgaon People's Coop. Bank Ltd., And Vice-Versa.

The court upheld the Tribunal's decision, ruling that interest income from deposits in National Saving Certificates and Kisan Vikas Patras is considered ... Exemption u/s 80P denied - income byway of interest generated on the deposits made in National Saving Certificates and Kisan Vikas Patras cannot be treated as income forming part of the banking business and as such the same is not exempted under Section 80P( 2)(a)(i) - Held that:- The Division Bench of this Court in the case of CIT vs. Ratnagiri Dist. Central Cooperative Bank Ltd. [2001 (9) TMI 60 - BOMBAY HIGH COURT] considered income by way of interest derived by assessee formed part of banking business and therefore entitled for exemption under Section 80P(2)(a)(i). The Judgment of the Apex Court in a case of Madhya Pradesh Cooperative Bank Ltd. vs. Additional C.I.T., referred [1996 (1) TMI 8 - SUPREME COURT] relied on by the Appellant has been overruled in the subsequent Judgment in the case of Commissioner of Income Tax vs. Karnataka State Cooperative Apex Bank [2001 (8) TMI 9 - SUPREME COURT]. In the said case, the Apex Court came to the conclusion that interest income arising from investment made out of reserve fund is exempted under Section 80P( 2) (a)(i) of the Income Tax Act. Tribunal has rightly considered that the said deposit is concerned with the banking business and as such the assessee is entitled for exemption under Section 80P(2)(a)(i) - Decided against revenue. Issues:1. Whether interest income from deposits in National Saving Certificates and Kisan Vikas Patras can be considered as part of banking business for exemption under Section 80P(2)(a)(i) of the Income Tax Act.Analysis:The appellant's counsel argued that the interest income from the mentioned deposits should not be treated as part of the banking business and hence not exempt under Section 80P(2)(a)(i). He referred to the judgment in the case of Madhya Pradesh Cooperative Bank Ltd. vs. Additional C.I.T. 1996(218) I.T.R. 438. The counsel contended that the Tribunal erred in its consideration of the issue. On the other hand, the respondent's counsel maintained that the Tribunal correctly deemed the deposits as related to banking business, entitling the assessee to exemption under Section 80P(2)(a)(i). The respondent relied on the judgments in the cases of Commissioner of Income Tax vs. Karnataka State Cooperative Apex Bank and Commissioner of Income Tax vs. Ratnagiri Dist. Central Cooperative Bank Ltd.In the case of investments made by the Respondent Bank in National Saving Certificates and Kisan Vikas Patras, it was noted that the Assessing Officer and other authorities did not investigate whether these investments affected the funds' temporary withdrawal or if they aligned with the definition of banking business. The Division Bench's judgment in the case of Commissioner of Income Tax vs. Ratnagiri Dist. Central Cooperative Bank Ltd. emphasized that the interest income derived by the assessee was part of the banking business, warranting exemption under Section 80P(2)(a)(i). The earlier judgment in the case of Madhya Pradesh Cooperative Bank Ltd. vs. Additional C.I.T. was overturned by the Apex Court in the subsequent case of Commissioner of Income Tax vs. Karnataka State Cooperative Apex Bank, where it was ruled that interest income from investments made out of reserve funds is exempted under Section 80P(2)(a)(i) of the Income Tax Act.In conclusion, the Tribunal's findings were upheld, stating that the interest income from the deposits in question was indeed part of the banking business, making the assessee eligible for exemption under Section 80P(2)(a)(i). The appeals were dismissed, and no costs were awarded.