2005 (8) TMI 322 - AT - Income Tax

Summary

Issues:
Cross-appeals by assessee and Revenue against CIT(A) orders for asst. yrs. 2000-01 and 2001-02.

Detailed Analysis:
1. The effective ground raised by the assessee pertains to denial of deduction under s. 80P(2)(a)(i) for income from trading in securities. AO and CIT(A) held that such income is not deductible under s. 80P(2)(a)(i) as it is not part of banking business income.
2. Assessee argued that dealing in securities falls within the ambit of s. 6(1)(a) of the Banking Regulation Act, constituting banking business eligible for deduction under s. 80P(2)(a)(i). Cited relevant case laws to support the claim.
3. Departmental Representative contended that trading in securities was a capital activity, not part of normal banking business, justifying the denial of deduction under s. 80P(2)(a)(i).
4. Tribunal analyzed the provisions of the Banking Regulation Act, emphasizing that dealing in securities and resultant profits are part of ordinary banking business, making income eligible for deduction under s. 80P(2)(a)(i). Referred to specific activities listed in the Act to support the decision.
5. Referred to the Punjab Co-operative Bank Ltd. case and the Addl. CIT vs. Ahmedabad District Co-operative Bank Ltd. case to support the view that trading in securities is an integral part of banking business.
6. Noted the Mehsana District Central Co-operative Bank Ltd. case and State Bank of Saurashtra case where deductions were allowed for activities related to banking business, including trading in securities.
7. Concluded that investments in Government securities by the bank, approved by RBI, were part of the normal banking business, justifying the allowance of deduction under s. 80P(2)(a)(i) for income earned from such securities trading.

Conclusion:
1. Assessee's appeals allowed for both years, directing AO to allow deduction under s. 80P(2)(a)(i) for profits from trading in Government securities.
2. Other grounds raised by assessee dismissed as not pressed during the hearing.
3. Revenue's appeals dismissed as the interest income received from investments in mutual funds was held to be eligible for deduction under s. 80P(2)(a)(i) based on Tribunal's previous ruling in the Surat District Co-operative Bank Ltd. case.