2003 (8) TMI 26 - HC - Income Tax

Whether the respondent-Co-operative bank is entitled for deduction under section 80P(2)(a)(i) of the Act in respect of the interest and dividend income earned by it out of the investment made by it in other banking institutions Held yes - appeal is liable to be rejected and accordingly it is rejected.

Summary

Issues:
Entitlement of a cooperative bank for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 for interest and dividend income earned from investments in other banking institutions.

Analysis:
The High Court of Karnataka considered an appeal filed under section 260A of the Income-tax Act, 1961, challenging the order of the Income-tax Appellate Tribunal. The key issue was whether a cooperative bank is entitled to deduction under section 80P(2)(a)(i) of the Act for interest and dividend income from investments in other banking institutions. The Tribunal had allowed the deduction for the cooperative bank for the assessment year 1998-99. The appellant's counsel contested the Tribunal's decision, arguing it was legally incorrect.

The court referenced a previous case, CIT v. Sri Ram Sahakari Bank Ltd., where it was held that a cooperative society engaged in banking activities is eligible for the deduction under section 80P(2)(a)(i) of the Act for income earned from investments in other banking institutions. The court emphasized the normal practice of banks to invest surplus funds to generate returns, which are considered part of their business profits. The court rejected the appellant's argument and upheld the Tribunal's decision based on the legal precedent established in the Sri Ram Sahakari Bank case.

Based on the legal principles established in the Sri Ram Sahakari Bank case and the commercial nature of banking operations, the court concluded that the cooperative bank in question was entitled to the deduction under section 80P(2)(a)(i) of the Act for the interest and dividend income earned from investments in other banking institutions. Therefore, the court dismissed the appeal and declined to award costs in this matter.