2013 (7) TMI 624 - HC - Income Tax

Income from other sources - Income from voluntary reserve - Whether income earned by the assessee from voluntary reserve is its income from business or profession and not the income which is to be assessed under the head income from other sources - Held that - The question as to whether the business is derived from or attributable to SLR or non-SLR funds would not make any difference for the purposes of qualifying the interest earned by the cooperative bank under Section 80P (2) (a) (i) as the deposits of surplus idle money available from working capital, including reserves, excess collection of interest tax and other incomes are all attributable to the business of banking. The interest from such deposits cannot be said to be beyond the legitimate business activities of the bank - Following decision of Commissioner of Income Tax Vs. M/s District Co-operative Bank Ltd 2013 (7) TMI 560 - ALLAHABAD HIGH COURT - Decided against the revenue.

Summary

Issues:
1. Interpretation of income earned from voluntary reserve as income from business or profession.
2. Allowability of deduction under section 80-P(a)(i) on income earned for voluntary reserves by a Co-operative Society engaged in banking business.

Analysis:
Issue 1: The primary issue in this case revolves around determining whether the income earned by the assessee from voluntary reserves should be categorized as income from business or profession or as income from other sources. The Tribunal had to decide whether the interest earned by a cooperative bank on surplus idle money, including reserves, falls under the business activities of banking. The High Court referred to a previous judgment in a similar case, where it was held that the interest earned on such deposits is attributable to the business of banking and qualifies for exemption under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Court concluded that the Income Tax Appellate Tribunal did not err in its findings, and the questions raised by the revenue were decided against them in favor of the respondent assessee.

Issue 2: The second issue pertains to the allowability of deduction under section 80-P(a)(i) on the income earned for voluntary reserves by a Co-operative Society engaged in the banking business. The High Court, in its analysis, highlighted that the deposits of surplus idle money, reserves, excess collection of interest tax, and other incomes are all attributable to the business of banking. The Court emphasized that the interest earned from such deposits is not beyond the legitimate business activities of the bank. Therefore, the Court upheld the Tribunal's decision that the Co-operative Bank qualifies for exemption under Section 80P(2)(a)(i) of the Act. Consequently, the questions framed by the revenue were decided against them, and in favor of the respondent assessee.

In conclusion, the High Court dismissed the Income Tax Appeal as the points raised by the revenue were addressed in a previous decision, and the appeal had no merits. The judgment favored the respondent assessee, affirming the Tribunal's findings regarding the classification of income earned from voluntary reserves and the allowability of deduction under section 80-P(a)(i) for a Co-operative Society engaged in the banking business.