2007 (7) TMI 224 - HC - Income Tax

Assessee is a Co-operative Bank engaged in the business of banking deduction claimed u/s 80P(2)(a)(i) in respect of income earned from utilization of its voluntary reserves other than the statutory reserves, in HDFC bonds AO disallowed deduction on ground that HDFC is not an approved securities as RBI or NABARD since it is not mandatory to invest funds only in approved securities like RBI, income from HDFC bonds is allowable for deduction u/s 80P(2)(a)(i)

Summary

Issues:
- Interpretation of Section 80P(2)(a)(i) of the Income-Tax Act 1961
- Eligibility of income earned from HDFC bonds for deduction under Section 80P(2)(a)(i)
- Compliance with mandatory requirements for investment in approved securities by banks
- Applicability of judgments in similar cases to the present scenario

Interpretation of Section 80P(2)(a)(i) of the Income-Tax Act 1961:
The judgment addressed the issue of whether the assessee-bank is entitled to claim deduction under Section 80P(2)(a)(i) of the Income-Tax Act 1961 for income earned from the utilization of voluntary reserves other than statutory reserves in HDFC bonds not approved by RBI and NABARD. The Tribunal relied on previous judgments to determine the eligibility of such income for deduction under the mentioned section.

Eligibility of income earned from HDFC bonds for deduction under Section 80P(2)(a)(i):
The Tribunal accepted the assessee's contention that income earned from HDFC bonds was eligible for deduction under Section 80P(2)(a)(i) of the Act. This decision was based on a Division Bench Judgment of the High Court and judgments of the Supreme Court in similar cases. The Tribunal rejected the revenue's argument that such income should be considered as income from other sources and not qualify for exemption under Section 80P(2)(a)(i).

Compliance with mandatory requirements for investment in approved securities by banks:
The revenue argued that banks are required to invest funds in approved securities to maintain statutory liquidity ratio/cash reserve ratio, and the investment in HDFC bonds did not meet the qualifications issued by NABARD. However, the Court found this argument invalid as it was not raised before the Tribunal. The Court noted that no mandatory requirements were pointed out that necessitated investment in approved securities for banking operations. As a result, the Court upheld the Tribunal's decision to allow the claim of the assessee.

Applicability of judgments in similar cases to the present scenario:
The Tribunal's decision was supported by previous judgments of the Supreme Court and the High Court in cases involving cooperative banks and income earned from investments. The Court emphasized that the revenue's argument lacked merit as it was not raised before the Tribunal and did not align with the legal precedents cited by the assessee. Consequently, the Court dismissed the appeals and upheld the Tribunal's order dated 16-6-2006.