2023 (9) TMI 486 - HC - Income Tax

Court Upholds Deduction for Co-op Societies' Interest Income as Business Income, Dismissing Revenue's Appeal.

The Calcutta HC dismissed the revenue's appeal against the Income Tax Appellate Tribunal's decision, affirming the deduction under Section 80P(2)(a)(i) ... Deduction u/s 80P(2)(a)(i) - Income earned by co-operative Bank on deposits of its non SLR deposits (i.e. funds other than those advanced as loans and the banking reserves) - HELD THAT:- The substantial questions of law raised by the revenue have been answered in favour of the assessee and against the revenue in the case of Commissioner of Income Tax vs. Karnataka State Co-operative Apex Bank [2001 (8) TMI 9 - SUPREME COURT] and Mehsana District Central Co-operative Bank Ltd. [2001 (8) TMI 15 - SUPREME COURT]. In the said decision, it has been held that interest arising from investment made, in compliance with statutory provisions to enable the co-operative society to carry on banking business, out of reserve fund by such society engaged in banking business, is exempt under Section 80P(2)(a)(i) - placement of such funds being imperative for the purpose of carrying on banking business the income therefrom would be income from the assessee’s business. Therefore, it was held that the assessee/co-operative society was entitled to deduction under Section 80P(2)(a)(i) of the Act in respect of interest earned from funds utilised for such statutory reserves. Decided against the revenue. Issues:- Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal regarding deduction under Section 80P(2)(a)(i) for the assessment year 2004-05.Analysis:The appeal before the Calcutta High Court was filed by the revenue challenging the order of the Income Tax Appellate Tribunal related to the deduction under Section 80P(2)(a)(i) for the assessment year 2004-05. The substantial question of law raised in the appeal was whether the Tribunal was correct in allowing the deduction under Section 80P(2)(a)(i) to the assessee based on a previous decision. The Court noted that the substantial questions of law raised by the revenue had already been addressed by the Hon'ble Supreme Court in previous cases, specifically Commissioner of Income Tax vs. Karnataka State Co-operative Apex Bank and Mehsana District Central Co-operative Bank Ltd. In these cases, it was established that interest arising from investments made in compliance with statutory provisions for carrying on banking business by a co-operative society is exempt under Section 80P(2)(a)(i) of the Act. The Court emphasized that income from such investments is considered as income from the assessee's business, making them eligible for deduction under the said section.Therefore, based on the legal precedents set by the Supreme Court in the aforementioned cases, the Calcutta High Court dismissed the appeal by the revenue and answered the substantial question of law against them. The judgment reaffirmed the principle that interest earned from funds utilized for statutory reserves by a co-operative society engaged in banking business is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.