2005 (8) TMI 59 - HC - Income Tax

Deduction under section 80P(2)(a)(i) claimed - reassessment was completed under section 143(3) read with section 148 - The deduction under section 80P(2)(a)(i) claimed by the assessee with respect to interest received on Government securities earmarked against statutory reserve fund came to be disallowed - Learned counsel appearing for the Revenue fairly brought to our notice the judgment of the apex court in the case of CIT v. Karnataka State Cooperative Apex Bank, wherein the apex court held that interest arising from investment made, in compliance with statutory provisions to enable it to carry on banking business, out of reserve fund by a co-operative society engaged in banking business, is exempt under section 80P(2)(a)(i) of the Act. In this view of the judgment of the apex court, we do not see any reason to issue directions to the Tribunal to set out the case. The application is without any merit

Summary

Issues:
1. Validity of disallowance of deduction under section 80P(2)(a)(i) in reassessment.
2. Application under section 256(2) for reference of questions of law to the High Court.

Analysis:
1. The judgment pertains to an application under section 256(2) of the Income-tax Act, 1961, concerning a reassessment for the year 1992-93. Initially, the respondent's claim for deduction under section 80P(2)(a)(i) was allowed. However, the Assessing Officer, after referring to a judgment of the apex court, issued a notice under section 148 for reassessment. The subsequent reassessment disallowed the deduction claimed by the assessee related to interest received on Government securities earmarked against the statutory reserve fund. The Commissioner of Income-tax (Appeals) directed the Assessing Officer to restrict the disallowance to interest related to Government securities forming part of the reserve fund. The respondent-assessee appealed this decision before the Income-tax Appellate Tribunal, which allowed the appeal, stating that the reassessment was invalid due to the notice under section 148 being issued beyond the prescribed time.

2. The Revenue, dissatisfied with the Tribunal's decision, moved an application under section 256(1) to refer questions of law to the High Court. Subsequently, the Revenue filed an application under section 256(2) seeking directions against the Tribunal to refer the questions of law arising from the Tribunal's order. The questions raised by the Revenue included the eligibility of the assessee for deduction under section 80P(2)(a)(i) and the cancellation of interest under section 234B of the Income-tax Act, 1961. The High Court, after considering the judgment of the apex court in a similar case, held that the interest on Government securities earmarked for the statutory reserve fund was part of banking business and eligible for deduction under section 80P(2)(a)(i). Consequently, the High Court found no merit in issuing directions to the Tribunal and disposed of the application with no order as to costs.