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TMI Blog1986 (6) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... m such securities which had to be so kept to meet the time and demand liabilities and would not apply to such income on securities invested out of the reserve funds for the reason that compliance of sections 54, 55 and 63 of the Co-operative Societies Act have not been made. 3. The Commissioner (Appeals) followed the earlier year's order of the Tribunal in the assessee's case and held that investment in the Government and other securities are part of the activity of the bank and, therefore, the entire income is exempt. 4. The revenue has come up in second appeal before us, as the view taken by the Commissioner (Appeals), is not acceptable to it. It has raised the following common questions in both the years : "Whether the investment of the reserve and other funds in various securities did not require the sanction of the Registrar of the Co-operative Societies under section 63 of the Co-operative Societies Act, 1912? Whether such investment can be said to be of banking nature? Whether the income from such investment could be said to be from banking business and exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961?" 5. The assessee is a co-operative society formed unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; Assessment year Assessment year (Rs. in lakhs) (Rs. in lakhs) Reserve and other funds 1978-79 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.16 Building fund (Subsidy from Government) 1.00 1.00 Dividend equalisation fund --- 3.70 Reserve for bad and doubtful debts &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------------- ---------------- 311.82 756.30 &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; --- ----------------- ---------------- 503.79 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as of non-banking nature. 9. According to the learned departmental representative, registration of bye-laws cannot be equated to a general section by the Registrar at all, as even in the certification, it has only been mentioned that it is a certified true copy. However, she conceded that since the assessee is a bank, and as per banking law 20 per cent of its time and demand liabilities have to be invested in the Government securities, the assessee can be allowed the relief to the extent investment represented 20 per cent of the time and demand liabilities. She placed reliance on United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 (SC) and CIT v. Narandas & Sons [1978] 115 ITR 587 (Bom.). 10. Mr. B. Khosla, the learned counsel for the assessee, submitted that though the assessee had been formed under the Rajasthan Co-operative Societies Act, it would have to be governed only by the Banking Regulation Act, as it is formed with the sole purpose of carrying on the business of banking and this Act specifically provides that a co-operative bank would have to strictly conform with this Act and any provision which governed or was applicable under any other law would no long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thstanding anything to the contrary contained in the bye-laws of a co-operative society or in any agreement executed by it, or in any resolution passed by it in general meeting, or by its board of directors or other body entrusted with the management of its affairs. Whether the same be registered, executed or passed, as the case may be,... (2) Any provision contained in the bye-laws, agreement or resolution aforesaid shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be." Thus, it becomes clear that the said Act overrides any other law or it can be said that a co-operative bank shall be governed by that Act only. Therefore, the co-operative bank has to necessarily conform to the provisions of the said Act, if it has to carry on the business of banking. The meaning of the term 'banking' and the business of banking is given in that Act has to be applied to the assessee-bank and only if it is found to carry on activities not specified to be a banking business, that activity can be said to be as not relatable to or attributable to the banking business. 13. 'Banking has been defined in section 5(b) of the Banking Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies which is a security within the meaning of section 20 is, therefore, an activity or business of the assessee-bank and income earned therefrom or derived therefrom is attributable to banking business only. 15. On the issue of investment of reserve funds which according to the revenue is governed by section 55(2) and has to invest in the four modes specified in section 63 and for the purpose of utilization in its own business, sanction of the Registrar is necessary, can be answered squarely by referring to the Co-operative Societies Act only as that Act as already observed in the earlier paras, overrides any contrary provision contained in any bye-laws and that the assessee being a bank, has only to be governed by that Act insofar as it relates to banking business. The rule is a general rule which shall govern all co-operative societies excepting the one which has been formed to carry on the banking business, as only on that basis it has been allowed to be a bank and also recognised as a scheduled bank. 16. This gets further clarified when section 24 of the Banking Regulation Act, and section 42 and Second Schedule of the Reserve Bank of India Act, 1934, is reviewed. Section 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688, income from interest on securities falls under section 8 and is not business income falling under section 10, even though the securities are held by a dealer as his stock-in-trade." Their Lordships made a reference to the Privy Council's ruling in Punjab Co-operative Bank Ltd. v. CIT [1940] 8 ITR 635 and observed that "in Punjab Co-operative Bank's case a finding had been given that the purchases and sale of securities was as much the assessee's business as receiving deposits from clients and withdrawals by them". No opinion as to whether the sale and purchase of securities and the interest derived therefrom formed part of the same business or not was given as there was no such finding by the courts below. In the case of Punjab Co-operative Bank Ltd., their Lordships of the Privy Council were of the view of the purchases/sale of securities are integral part of the banking business. 19. Thus, the case laws relied on by the department also goes to establish that making investment in the Government securities is an integral part of the business, which is also evidenced by section 6 of the Banking Regulation Act which defin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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