2010 (2) TMI 54 - HC - Income Tax

Cooperative bank qualifies for tax deduction based on business activities, Court rejects revenue's compliance arguments

Commissioner of Income Tax, Tiruchirappalli Versus M/s Kamalambika Co-operative Urban Bank Ltd.,

Commissioner of Income Tax, Tiruchirappalli Versus M/s Kamalambika Co-operative Urban Bank Ltd., - tmi Issues:1. Interpretation of Section 80-P(2)(a)(i) of the Income Tax Act for deduction in respect of income derived from banking activities.2. Applicability of Supreme Court judgments in determining eligibility for deduction under Section 80-P(2)(a)(i).3. Whether investments should be limited to members of the society for deduction under Section 80-P(2)(a)(i).4. Compliance with Reserve Bank of India norms in determining eligibility for deduction under Section 80-P(2)(a)(i).Analysis:1. The primary issue in this case revolves around the interpretation of Section 80-P(2)(a)(i) of the Income Tax Act for claiming deductions related to income derived from banking activities. The assessee, a cooperative urban bank, claimed exemption under this section for the assessment year 2004-2005. The assessing officer denied the deduction under Section 80-P(2)(a)(i) on the grounds that the bank was engaged in purchasing and selling securities, which were deemed not part of banking activities. However, the Tribunal allowed the appeal, stating that the bank's activities qualified as business activities, entitling the assessee to the deduction.2. The second issue pertains to the applicability of Supreme Court judgments in determining the eligibility for deduction under Section 80-P(2)(a)(i). The respondent relied on the judgment in Commissioner of Income Tax v. Nawanshahar Central Co-operative Bank Ltd. and other related cases to support their claim for deduction. The revenue contested this, arguing that the Supreme Court judgments were not directly applicable to the present case due to specific factual distinctions.3. Another issue raised was whether investments should be restricted to members of the society for claiming deduction under Section 80-P(2)(a)(i). The revenue contended that investments should only be with the members of the society and not with outsiders to qualify for the deduction. However, the Court did not delve into this issue as it was not raised earlier in the proceedings and was not a ground of appeal.4. The final issue concerns compliance with Reserve Bank of India norms in determining eligibility for deduction under Section 80-P(2)(a)(i). The revenue argued that the assessee could only hold up to ten percent in approved securities as per RBI norms, and any amount exceeding this limit would not be eligible for deduction. However, the Court noted that this argument was raised for the first time during the appeal before the Court and was not considered by the assessing officer or the Tribunal. As a result, the Court declined to entertain this argument, emphasizing that it was a factual issue raised belatedly.In conclusion, the Court dismissed the tax case appeal, finding no merit in the revenue's contentions and upholding the Tribunal's decision to allow the deduction under Section 80-P(2)(a)(i) for the assessee's banking activities.