2014 (11) TMI 609 - HC - Income Tax

Allowability of deduction on interest income u/s 80P(2)(a)(i) - Whether the Tribunal was right in law in allowing deduction u/s 80(P)(2)(a)(i) on interest income as being attributable to the business of banking Held that - In Commissioner of Income-Tax Versus Baroda Peoples Co-operative Bank Ltd. 2005 (7) TMI 33 - GUJARAT High Court it has been held that as per the Scheme of the Income Tax Act net income relatable to a particular head or item has to go in as a component of the gross total income before any deduction under Chapter VIA is allowed u/s 80P(2)(a)(i) of the Act the two activities, viz., business of banking or providing credit facilities to its members, are distinct and separate activities; the former connotes a larger activity than the activity of providing credit facilities to its members - the Tribunal was right in allowing deductions u/s 80P(2)(a)(i) of the Act on interest income as being attributable to the business of banking decided against revenue.

Summary

Issues:
1. Disallowance of business loss set-off by Assessing Officer.
2. Non-allowance of deduction under section 80P(2)(d) of the Act for interest income.
3. Interpretation of Section 80P(2)(a)(i) of the Income Tax Act.

Issue 1: Disallowance of business loss set-off by Assessing Officer

The appellant, a company, filed its return of income for the assessment year 1996-97, showing a loss in trading business and income under various heads. The Assessing Officer disallowed the set-off of business loss. The appellant appealed to the Commissioner of Income Tax (Appeals) citing the disallowance and non-allowance of deduction under section 80P(2)(d) of the Act for interest income. The CIT(A) allowed the appeal, granting deduction under section 80P(2)(d) for interest income. The appellant further appealed to the Tribunal, which allowed the appeal. The present appeal challenges the Tribunal's decision.

Issue 2: Non-allowance of deduction under section 80P(2)(d) of the Act for interest income

The key question under consideration was whether the Tribunal was correct in law in allowing deduction under Section 80P(2)(a)(i) of the Income Tax Act on interest income attributable to the business of banking. The decision in Tax Appeal No. 178 of 2003, concerning a similar issue, was referenced. The judgment in Tax Appeal No. 178 of 2003 affirmed the Tribunal's decision to allow deductions under section 80P(2)(a)(i) on interest income related to the business of banking. The Court, based on the precedent, held that the Tribunal's decision to allow deductions on interest income was appropriate, leading to the dismissal of the present appeal.

Issue 3: Interpretation of Section 80P(2)(a)(i) of the Income Tax Act

The Court analyzed the provisions of Section 80P(2)(a)(i) of the Act in light of the previous judgment in Tax Appeal No. 178 of 2003. The judgment emphasized the distinction between various activities, such as banking and providing credit facilities to members, under Section 80P. It highlighted that income arising from investments in permissible modes, as specified in relevant Acts, would be attributable to the business of banking and eligible for deduction under Section 80P(2)(a)(i). The Court's decision aligned with the interpretation that investments made by an assessee, including interest income, were integral to the business of banking and thus qualified for deduction under the said provision.

This comprehensive analysis of the judgment from the Gujarat High Court delves into the issues of disallowance of business loss set-off, non-allowance of deduction for interest income, and the interpretation of Section 80P(2)(a)(i) of the Income Tax Act. The Court's decision, based on legal precedents and statutory provisions, upheld the Tribunal's decision to allow deductions on interest income related to the business of banking, dismissing the appellant's appeal.