2010 (1) TMI 23 - HC - Income Tax

Deduction u/s 80P(2)(a)(i) co-operative bank ITAT decided that interest earned by the Co-operative Bank on deposits of its non SLR funds qualify for deduction u/s 80 P(2)(a)(i) of I.T. Act 1961 held that The deposit exceeding Statutorily Liquidity Rate (SLR) is also in relation to banking activity. Hence the income accrued out of such deposit also attributable to the bank business and deductible under Section 80P(2)(a)(i) of the Act income is eligible for deduction.

Summary

Issues involved:
Interpretation of Section 80P(2)(a)(i) of the Income Tax Act regarding deduction for interest earned by a Co-operative Bank on non SLR funds.

Analysis:
The High Court of Allahabad considered an appeal under Section 260-A of the Income Tax Act concerning the eligibility of a Co-operative Bank's interest earned on non SLR funds for deduction under Section 80P(2)(a)(i) of the Act. The court examined whether the Tribunal was correct in allowing such deduction. The court referred to various precedents, including decisions by the apex Court in cases involving Co-operative Banks engaging in banking activities. The court cited rulings such as Commissioner of Income Tax v. Karnataka State Co-operative Apex Bank, Mehsana District Central Cooperative Bank Ltd. v. Income Tax Officer, and Commissioner of Income Tax v. Nawanshahar Central Co-operative Bank Ltd. These cases established that income derived from funds placed in approved securities as required by statute for banking operations falls under the business of banking and is deductible under Section 80P(2)(a)(i) of the Act. The court noted that the Co-operative Bank in question was solely engaged in banking activities without any other business operations. Therefore, the interest earned on deposits exceeding the Statutorily Liquidity Rate (SLR) was also deemed attributable to banking activities and eligible for deduction under the mentioned section. The court further supported its decision by referencing the apex Court's ruling in the case of M/s. Gorakhpur Kshetriya Gramin Bank v. Commissioner of Income Tax, Allahabad.

The court concluded that the issue at hand had already been settled by previous judicial decisions, and there was no merit in the appeal. As a result, the appeal was dismissed by the court. The judgment was delivered on January 6, 2010.