2015 (7) TMI 10 - HC - Income Tax

Entitlement to benefit under Section 80P(2)(a)(i) - whether a voluntary investment made by the assessee and the interest earned from such investment is amenable for the benefit under Section 80P(2)(a)(i) - Held that - As at presently advised, we are of the opinion that the deposit of non-statutory fund made by the assessee amounts to an investment which is one of the activities of a banking company contemplated under Section 5(b) of the Banking Regulation Act, 1949 quoted above. We find therefore, no reason why the income should not be treated as a business income. It was not disputed by Mr.Bhowmik that if it is the business income then it is amenable to benefit under Section 80P(2)(a)(i). - Decided in favour of assessee.

Summary

Issues: Interpretation of Section 80P(2)(a)(i) for a primary cooperative bank regarding deduction of interest earned from non-statutory funds as business income.

Analysis:
The judgment under scrutiny pertains to an appeal challenging the order passed by the Income Tax Appellate Tribunal for the assessment year 2006-2007. The Assessing Officer had disallowed the deduction of interest earned by the assessee from non-statutory funds under Section 80P(2)(a)(i), resulting in the income being taxed in the ordinary manner. The assessee, a primary cooperative bank engaged in banking activities, contended that the interest income should be considered as business income eligible for the aforementioned deduction. The Tribunal, following an earlier judgment, ruled in favor of the assessee, which was upheld in the subsequent appeal by the revenue. The crux of the matter revolved around whether the interest income from non-statutory funds qualifies as business income for the purpose of Section 80P(2)(a)(i).

The revenue argued that while the business income of the assessee could benefit from Section 80P(2)(a)(i), the interest income from non-statutory funds did not fall under the same category. On the other hand, the assessee contended that as a primary cooperative bank involved in banking activities, the interest income should be considered part of its business income. Reference was made to relevant provisions of the Banking Regulation Act, 1949, to support this argument. The key contention was whether the voluntary investment and interest earned therefrom by the assessee could be treated as business income eligible for the deduction.

Upon examination, the Court found merit in the assessee's argument, noting that the deposit of non-statutory funds constituted an investment activity within the scope of banking operations as defined by the Banking Regulation Act, 1949. It was established that the interest income in question should be classified as business income, making it eligible for the benefit under Section 80P(2)(a)(i). The Court emphasized that since the assessee was engaged in banking activities and the interest income arose from investments inherent to such operations, there was no reason to exclude it from the purview of business income deserving of the deduction.

In conclusion, the Court dismissed the appeal, affirming that the interest income from non-statutory funds should be treated as business income eligible for the deduction under Section 80P(2)(a)(i) for a primary cooperative bank engaged in banking activities. The judgment clarified the interpretation of the relevant provisions and upheld the assessee's position regarding the treatment of such income for tax purposes.