CIT, PANCHKULA vs. M/S HARYANA STATE COOP. APEX BANK LTD.

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ITA/62/2010HC Punjab & HaryanaPHHC01093573201015 February 2010Author: MR. JUSTICE JITENDRA CHAUHAN2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the interest received by the assessee-respondent on the refund of excess income tax paid is attributable to the business of banking and is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Court reasoned that once the income tax paid was derived from the business income, the interest income would partake of the character of the principal amount, as it serves as compensation for the deprivation of the use of money. The Tribunal's reliance on the Madras High Court judgment in CIT Vs. Madhurai District Cooperative Bank Ltd. (1999) 239 ITR 700 was implicitly endorsed. The Court found no legal infirmity in the Tribunal's order and dismissed the appeal. The operative direction was the dismissal of the Revenue's appeal.

What were the facts?

The Revenue, Commissioner of Income-Tax, Panchkula, filed an appeal under Section 260A of the Income Tax Act, 1961, challenging an order dated 26.06.2009 passed by the Income Tax Appellate Tribunal (Tribunal), Chandigarh Bench. The appeal pertains to the assessment year 2006-2007. The Tribunal had upheld the order of the Commissioner of Income Tax (Appeals). The core issue was whether the assessee-respondent, M/s Haryana State Co-op Apex Bank Ltd., a cooperative apex bank, could be subjected to income tax on interest received by it on the refund of excess income tax paid. The Tribunal had concluded that the assessee was entitled to a deduction under Section 80P(2)(a)(i) of the Act in respect of this interest.

What were the issues?

1. Whether the interest received by the assessee-respondent on the refund of excess income tax paid is income derived from the business of banking within the meaning of Section 80P(2)(a)(i) of the Income Tax Act, 1961, and thus eligible for deduction. Assessee's Contention: The judgment does not explicitly record the assessee's arguments. However, it implies that the assessee argued for the eligibility of the interest income for deduction under Section 80P(2)(a)(i). Revenue's Contention: The Revenue argued that the interest on the refund of excess income tax paid was not attributable to the income derived from the business of banking within the meaning of Section 80P(2)(a)(i) of the Act.

Which sections of the Income-tax Act were involved?

Section 260A,Section 80P(2)(a)(i)

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of decision: 15th February, 2010 The Commissioner of Income-Tax, Panchkula ........Appellant Versus M/s Haryana State Co-op Apex Bank Ltd., Sector-17 B, Chandigarh .........Respondent Coram: HON'BLE MR. JUSTICE M.M.KUMAR

HON'BLE MR. JUSTICE JITENDRA CHAUHAN Present: Mr. Yogesh Putney, Senior Standing Counsel for Income Tax Department, for the appellant.

1.

To be referred to the Reporters or not?

2.

Whether the judgment should be reported in the Digest? M.M.Kumar, J. This instant appeal by the Revenue has been preferred under Section 260(A) of the Income Tax Act, 1961(for brevity 'the Act') challenging order dated 26.06.2009, passed by the Income Tax Appellate Tribunal, Chandigarh(for brevity “the Tribunal”) Bench in ITA No. 555/CHD/2009 for the assessment year 2006-2007. The Tribunal while upholding the order of the Commission of Income Tax(appeal) has reached the conclusion that the assessee-respondent, which is a cooperative apex bank, cannot be subjected to income tax in respect of the interest -2- received by it on the refund of excess income tax paid. It has further been found that the assessee-respondent would be entitled to deduction under Section 80P(2)(a)(i) of the Act. The Tribunal has also placed reliance on a judgment of the Madras High Court in the case of “CIT Vs. Madhurai District Cooperative Bank Ltd.” (1999)239, ITR 700. It has come on record that the respondent bank has been carrying on business of banking and also provide credit facility to its members. We are not impressed with the argument that the interest on refund of income tax paid in excess was not attributable to the income derived from the business of banking within the meaning of Section 80P(2)(a)(i) of the Act. Once the income tax paid was derived from the business income then interest income would part-ake the character of the principal amount because the interest paid to the assessee-respondent is compensation on account of deprivation of the use of money. In view of the above, we do not find any merit in the appeal. The order passed by the Tribunal does not suffer from any legal infirmity, warranting interference of this Court. The appeal is accordingly dismissed. [M.M.KUMAR] Judge [JITENDRA CHAUHAN] 15th February, 2010 Judge Shivani Kaushik

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