SECTION 80P OF THE INCOME-TAX ACT, 1961 – DEDUCTION – INCOME OF CO-OPERATIVE SOCIETIES – INTEREST FROM NON-SLR SECURITIES OF BANKS

CIRCULAR NO.18/2015 [F.NO.279/MISC./140/2015/ITJ], DATED 2-11-2015

It has been brought to the notice of the Board that in the case of Banks, field officers are taking a view that, “‘expenses relatable to investment in non-SLR securities need to be disallowed u/s 57(i) of the Act as interest on non-SLR securities is income from other sources.”

2. Clause (id) of sub-section (1) of Section 56 of the Act provides that income by way of interest on securities shall be chargeable to income-tax under the head “Income from Other Sources”, if the income is not chargeable to income-tax under the head “Profits and Gains of Business and Profession”.

3. The matter has been examined’ in light of the judicial decisions on this issue. In the case of CIT v. Nawanshahar Central Cooperative Bank Ltd. [2007] 160 Taxman 48(SC), the Apex Court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head “Profits and Gains of Business and Profession”.

3.2 Even though the abovementioned decision was in the context of co-operative societies/Banks claiming deduction under section 80P(2)(a)(i)of the Act, the principle is equally applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies.

4. In the light of the Supreme Court’s decision in the matter, the issue is well settled. Accordingly, the Board has decided that no appeals may henceforth be filed on this ground by the officers of the Department and appeals already filed, if any, on this ground before Courts/Tribunals may be withdrawn/not pressed upon. This may be brought to the notice of all concerned.