1989 (2) TMI 42 - HC - Income Tax

Summary

Issues Involved:
Interpretation of the term "investment" under section 80P(2)(d) of the Income-tax Act, 1961 for deduction of interest on short-term call deposits made by a co-operative society with another co-operative society.

Judgment Summary:

The High Court of Punjab and Haryana addressed the case of a co-operative society, Haryana Co-operative Sugar Mills Ltd., Rohtak, which had deposited surplus funds in short-term call deposits with Rohtak Central Co-operative Bank Ltd. and claimed deduction of interest received under section 80P(2)(d) of the Income-tax Act, 1961. Initially, the Income-tax Officer and the first appellate authority denied the deduction, but the Income-tax Appellate Tribunal granted relief, considering the call deposits as investments between co-operative societies.

The court referred to the Supreme Court's decision in Nawn Estates (P.) Ltd. v. CIT [1977] 106 ITR 45, emphasizing that the term "investment" should be understood in its popular meaning rather than a technical sense. Section 80P aims to provide deductions for co-operative societies, including investments between societies. The court noted that short-term call deposits, although withdrawable before maturity, qualify as investments under section 80P(2)(d) of the Act.

The Tribunal's finding highlighted the compliance with the Co-operative Societies Act, 1961, and Rules regarding making call deposits, supporting the deduction claim based on the interest income earned. The court endorsed the Tribunal's decision, emphasizing that call deposits are a type of fixed deposits yielding interest income, thus meeting the criteria for deduction under section 80P(2)(d).

In response to the Revenue's reliance on Addl. CIT v. Ahmedabad District Co-operative Bank Ltd. [1975] 101 ITR 733, the court distinguished the case involving Government securities and municipal debentures from the present matter, confirming that short-term call deposits constitute investments eligible for deduction under section 80P(2)(d) for the relevant assessment years.

Ultimately, the court ruled in favor of the assessee, affirming that short-term call deposits made by the co-operative society with another qualified as investments under section 80P(2)(d) of the Act, entitling the society to the deduction of interest income for the respective years. Each party was directed to bear its own costs.