2019 (4) TMI 1174 - HC - Income Tax

Deduction u/s 80P(2)(a)(i) - interest on securities and dividend are business income of banking business? - HELD THAT - These questions of law have been decided in favour of the assessee and against the Department in the earlier Income Tax Appeal The Commissioner of Income Tax vs. M/s United Mercantile Cooperative Bank Ltd 2011 (11) TMI 666 - ALLAHABAD HIGH COURT on the basis of the Apex Court judgment reported in Commissioner of Income Tax vs. Karnataka State Cooperative Apex Bank 2001 (8) TMI 9 - SUPREME COURT wherein it has been held that interest arising from investment made in compliance with the statutory provisions to enable it to carry on banking business would be exempt u/s 80P(2)(a)(i). In this view of the matter we are of the considered opinion that the order of the Tribunal does not suffer from any legal infirmity - appeal dismissed

Summary

Issues:
1. Interpretation of Income Tax Act, 1961 regarding the treatment of interest on securities as business income under section 80P(2)(a)(i).
2. Application of legal precedents set by the Supreme Court in cases related to interest income from securities and dividends as business income.

Analysis:

1. The High Court heard an appeal under Section 260-A of the Income Tax Act, 1961, against the Income Tax Appellate Tribunal's order regarding the treatment of interest on securities for the assessment year 1998-99. The primary issue was whether the interest on securities should be considered as business income and thus deductible under section 80P(2)(a)(i) of the Act. The court noted that the Tribunal had previously ruled in favor of the assessee based on the Apex Court judgment in Commissioner of Income Tax vs. Karnataka State Cooperative Apex Bank. This judgment established that interest arising from investments made in compliance with statutory provisions to facilitate banking business would be exempt under section 80P(2)(a)(i) of the Act.

2. The second question of law revolved around whether the Tribunal correctly applied legal precedents set by the Supreme Court in cases such as Vijaya Bank Vs. Commissioner of Income Tax and Commissioner of Income Tax vs. Bangalore District Cooperative Central Bank Limited. The court affirmed that these cases had indeed held that interest income from securities and dividends constituted business income for the assessee. Based on the previous rulings and legal interpretations, the High Court concluded that the Tribunal's order did not have any legal flaws. Consequently, the court dismissed the appeal, upholding the decision in favor of the assessee.

In summary, the High Court's judgment affirmed the treatment of interest on securities as business income under section 80P(2)(a)(i) of the Income Tax Act, 1961, based on legal precedents and statutory provisions. The court's decision was guided by established case law and upheld the Tribunal's ruling in favor of the assessee, leading to the dismissal of the appeal filed by the Department.