2016 (7) TMI 193 - HC - Income Tax

Deduction u/s.80P(2)(a)(i) - A.O. disallowed the exemption to short term / long term capital gains and restricted the deduction under Section 80P on profits relating to business of banking - Held that - By virtue of the decision of the Apex Court in the case of C.I.T. v. Karnataka State Coop. Apex Bank 2001 (8) TMI 9 - SUPREME Court , the entire issue has been settled and decided in favour of the assessee as observed that there is nothing in the phraseology of section 80P(2)(a)(i) which makes it applicable only to income derived from working or circulating capital. It was further observed that from investment made, in compliance with statutory provisions to enable it to carry on banking business out of reserve fund by a cooperative society is exempt under section 80P(2) (a)(i) of the Act and placement of such funds being imperative for the purpose of carrying on banking business, income therefrom would be income from the assessee s business. In that view of the matter, the Revenue s objection to the deduction claimed by the assessee to its so called non-banking profits must rest here. The assessee had derived income from sale of Government securities and other approved investments. Such proceeds were thereafter invested in securities and deposits which may not have been approved under section 71 of the Gujarat Cooperative Societies Act. What we are concerned with is the treatment that such income out of sale proceeds and securities should receive and not what income from further investments should receive. In short, claim for deduction under section 80P(2) of the Act raised by the assessee related to income derived from sale of approved securities.That being the position, the assessee was justified in claiming deduction as available under law. See ITO WARD-1 ANAND Versus ANAND MERCANTILE CO OP BANK LTD 2011 (9) TMI 1085 - GUJARAT HIGH COURT - Decided in favour of assessee

Summary

Issues:
Challenge to ITAT order disallowing exemption to capital gains and restricting deduction under Section 80P for a Cooperative Bank.

Analysis:
1. The appellant-revenue challenged the ITAT order for the assessment year 2002-2003, where the assessee's claim of loss was withdrawn in a revised return, but the AO found no revised return and reopened the assessment under Sections 147/148. The AO disallowed exemption to capital gains and restricted the deduction under Section 80P, resulting in a total income of &8377; 1,21,54,772.

2. The CIT (Appeals) partly allowed in favor of the assessee, who then appealed to the ITAT. The ITAT partly allowed the appeal, leading to the current Tax Appeal.

3. The appellant-revenue contended that the ITAT made a serious error in considering the issue, seeking to quash the ITAT order.

4. The respondent-assessee argued that the issue was similar to a previous judgment and requested the court to dismiss the appeal based on the earlier decision in Tax Appeal No.1528 and 1529 of 2009.

5. The court found the issue identical to previous cases and cited relevant observations. The court noted that the Apex Court's decision in C.I.T. v. Karnataka State Coop. Apex Bank, 251 ITR 194, settled the matter in favor of the assessee regarding deduction under Section 80P(2)(a)(i) for income derived from investments made in compliance with statutory provisions for banking business.

6. The court addressed the argument regarding irregular investments and clarified that the deduction claimed by the assessee related to income derived from the sale of approved securities, not further investments. The court found no error in the ITAT's decision and dismissed the Tax Appeal in favor of the assessee based on the settled legal position.

In conclusion, the court upheld the ITAT's decision, citing the settled legal position regarding deductions under Section 80P for a Cooperative Bank's income from investments made in compliance with statutory provisions for banking business.