2002 (11) TMI 244 - AT - Income Tax

Summary

Issues Involved:
1. Deduction under section 80P of the Income-tax Act, 1961.
2. Eligibility of interest income from investments for deduction under section 80P(2)(a)(i).
3. Treatment of locker rent income under section 80P(2)(a)(i).
4. Treatment of excess collection of interest tax under section 80P(2)(a)(i).

Summary:

Issue 1: Deduction under section 80P of the Income-tax Act, 1961
The Appellate Tribunal ITAT Ahmedabad constituted a Special Bench to address cases involving Co-operative Banks and the grant of deduction u/s 80P of the Income-tax Act, 1961. The appeals from various Co-operative Banks, including Surat District Co-operative Bank Ltd., Kalupur Commercial Co-operative Bank Ltd., Unnati Co-operative Bank Ltd., Baroda Peoples Co-operative Bank Ltd., and Baroda Central Co-operative Bank Ltd., were considered.

Issue 2: Eligibility of interest income from investments for deduction under section 80P(2)(a)(i)
The Tribunal examined whether interest income from investments in Government Securities, Fixed Deposits, and other approved modes of investments made by Co-operative Banks is eligible for deduction u/s 80P(2)(a)(i). The Tribunal referred to the judgments of the Hon'ble Supreme Court in the cases of Karnataka State Co-operative Apex Bank and Mehsana District Central Co-operative Bank Ltd., which held that interest income from investments made in compliance with statutory provisions to enable banking business is exempt under section 80P(2)(a)(i). The Tribunal concluded that such interest income is an integral part of banking activities and eligible for deduction.

Issue 3: Treatment of locker rent income under section 80P(2)(a)(i)
The Tribunal considered the eligibility of locker rent income for deduction under section 80P(2)(a)(i). Referring to the Hon'ble Supreme Court's judgment in Mehsana District Central Co-operative Bank Ltd., which held that providing safe deposit vaults is part of ordinary banking business, the Tribunal concluded that locker rent income qualifies for deduction under section 80P(2)(a)(i).

Issue 4: Treatment of excess collection of interest tax under section 80P(2)(a)(i)
The Tribunal addressed the issue of excess collection of interest tax and its eligibility for deduction under section 80P(2)(a)(i). It was held that the surplus amount of interest tax collected by Co-operative Banks is a part of trading receipt and integral to banking activities, thus qualifying for deduction under section 80P(2)(a)(i).

Conclusion:
The Tribunal allowed the appeals, holding that the entire income in question, including interest income from investments, locker rent, and excess collection of interest tax, is attributable to the business of banking and eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.