Law:

Section:

Section 80P of the Income-tax Act, 1961 - Deductions - Income of co-operative societies - Assessment year 1995-96 - Whether income from investments made by Co-operative Society Bank in securities which are permissible mode of investments either under Banking Regulation Act, 1949 or Gujarat Co-operative Societies Act, 1961, read with Indian Trusts Act, 1882, would be attributable to business of banking eligible for deduction in terms of section 80P(2)(a)(i) - Held, yes FACTS The assessee-bank was a co-operative society duly registered under the Gujarat Co-operative Societies Act, 1961. The assessee had earned interest income (both accrued and received) from investments, made out of the reserve funds, in (i) IDBI Bonds, (ii) SBI Bonds, (iii) Sardar Sarovar Narmada Bonds, and (iv) Kisan Vikas Patra made out of the reserve funds. The assessee filed return for the assessment year 1995-96, declaring total income at Rs. Nil and claimed that said income was regularly treated as income from banking business eligible for deduction under section 80P(2)(a)(i ). The Assessing Officer treated all investments as fixed capital and held that investments were not available for normal banking business. Thus, the entire income was taxable. On appeal, the Commissioner (Appeals) dismissed the appeal. On second appeal, a Special Bench of three Members allowed the appeals filed by the assessee. On appeal, the revenue contended that the Tribunal had failed to abide by a binding decision of the Supreme Court in the case of Mehsana District Central Co-operative Bank Ltd. v. ITO [2001] 255 ITR 522/ 119 Taxman 785 wherein the Apex Court having restored the issue relatable to interest income from utilization of voluntary reserves to Commissioner (Appeals), a presumption would arise that it had not reversed the decision of the High Court in the case of Gujarat State Co-operative Bank Ltd. v. ITO [2001] 250 ITR 229/ 119 Taxman 160. The revenue therefore, contended that order of the Tribunal being a nullity was required to be quashed and set aside. The basis of the revenue's entire case was that section 80P(2)(a)( i) talks of business of banking and banking is defined by section 5(b) of the…

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