2011 (11) TMI 666 - HC - Income Tax

Summary

Issues involved:
The issues involved in the judgment are related to the deduction u/s 80P of the Income Tax Act, specifically concerning the investment of surplus funds by a cooperative society engaged in banking business.

Judgment Summary:

Issue 1: Deduction u/s 80P - Investment of Surplus Funds
The appellant challenged the Income Tax Appellate Tribunal's decision to allow a deduction u/s 80P amounting to Rs. 61,94,383, arguing that the investment of surplus funds by the assessee was not made in the course of ordinary banking business. The Supreme Court in Totgar's Cooperative Sale Society Ltd. v. Income-Tax Officer held that special deduction u/s 80P (2) (a) (i) must relate to operational income, and interest on surplus funds not immediately required for short-term deposits is considered income from other sources.

Issue 2: Interpretation of Supreme Court Decisions
The appellant contended that the Tribunal failed to appreciate the Supreme Court's decision in Mahsana District Cooperative Bank Ltd. v. ITO, which allowed deduction u/s 80P only in respect of SLR investments. However, the respondent argued that in Commissioner of Income Tax v. Karnataka State Cooperative Apex Bank, the Supreme Court held that interest arising from investments made to enable a cooperative society to carry on banking business is exempt under Section 80P(2) (a) (i).

In the case of CIT v. M/s United Mercantile Cooperative Bank Ltd., it was established that interest on securities earned by a bank is considered business income, especially when required by the Reserve Bank of India guidelines. The Supreme Court emphasized that the source of income is irrelevant for interpreting Section 80P provisions.

The judgment dismissed the appeal, emphasizing that the respondent, engaged in banking business, is required by RBI guidelines to place surplus funds in fixed deposits, making the interest income from such deposits business income. The Division Bench's decision against the appellant was upheld, and the appeal was dismissed.

Separate Judgment:
No separate judgment was delivered by the judges in this case.

This summary provides a detailed overview of the issues involved in the judgment, including the arguments presented by both parties and the key legal interpretations made by the court based on relevant precedents and statutory provisions.