2011 (9) TMI 1085 - HC - Income Tax

Summary

Issues involved:
Tax Appeal No.1528 of 2009 - Assessment year 2002-03: Disallowance of deduction u/s 80P
Tax Appeal No.1529 of 2009 - Assessment year 2001-02: Disallowance of deduction u/s 80P

Tax Appeal No.1528 of 2009 - Assessment year 2002-03:
The Assessing Officer disallowed part of the deduction claimed u/s 80P on the ground that the income did not arise out of the banking business. The issue was carried in appeal before the CIT (Appeals) who allowed the appeal in part. CIT (Appeals) held that the reinvestment/utilization of sale proceeds of securities in Government of India securities fell within the banking business of the assessee, entitling them to deduction u/s 80P. However, investments made in UTI Bank Ltd., HDFC Bank Ltd., etc. were not approved investments under the Gujarat Cooperative Societies Act, hence no deduction u/s 80P was available for those. The Tribunal allowed the appeal, directing the Assessing Officer to allow the deduction u/s 80P as claimed by the assessee. The Revenue filed a Tax Appeal questioning the Tribunal's decision.

Tax Appeal No.1529 of 2009 - Assessment year 2001-02:
The Assessing Officer denied deduction u/s 80P in respect of what was referred to as non-banking profit. The CIT (Appeals) found that certain proceeds on sale of securities were invested with a cooperative bank which was not approved under the Gujarat Cooperative Societies Act, hence the capital gain was not eligible for deduction u/s 80P(2)(a)(i). The Tribunal allowed the assessee's appeal based on a previous decision. The Revenue filed a Tax Appeal raising the same question as in the previous appeal.

Judgment Summary:
The Apex Court's decision in C.I.T. v. Karnataka State Coop. Apex Bank clarified that income derived from investments made in compliance with statutory provisions for carrying on banking business by a cooperative society is exempt under section 80P(2)(a)(i) of the Act. The Revenue's objection to deduction claimed by the assessee for non-banking profits was settled in favor of the assessee. The Tribunal correctly allowed the deduction u/s 80P as the income was derived from sale of approved securities. The Revenue's argument regarding irregular investments not qualifying for deduction was dismissed as the issue was about income derived from sale proceeds and not further investments. The Tribunal's decision was upheld, and no error was found. Therefore, the Tax Appeals were dismissed.