TMI Blog2006 (2) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... been dismissed as not pressed. Therefore, the additional ground raised by the assessee becomes infructuous and, therefore, same is dismissed. 3. Remaining ground Nos. 2, 3 and 6 raised by the assessee are as under: 'Ground No. 2 that under the facts and circumstances of the case, the learned CIT(A) has erred in confirming the addition of interest on Government securities received by the bank as income from other sources Rs. 5,53,125. Ground No. 3 that under the facts and circumstances of the case, the learned CIT(A) has erred in confirming that a sum, to the tune of Rs. 8,36,748 of interest received by the bank from other banks is liable to tax treating as income from other sources. Ground No. 6 that the learned CIT(A) has erred in not directing the learned AO to allow deduction under s. 80P as claimed by the assessee. 4. The facts of this case are that the assessment in this case was originally completed vide order dt. 23rd Nov., 1995 against which the assessee filed an appeal and learned CIT(A), Ajmer, set aside the assessment with the direction to re-examine the issues involved afresh. The assessee is a co-operative society and derives income from banking business. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act). In the case of the assessee, the interest received from Government securities during the period 31st March, 1993 amounted to Rs. 5,53,125 and the reserve fund as per the balance sheet as on 31st March, 1993 amounted to Rs. 2,11,15,335. The investment as on 31st March, 1993 in the Government securities amounted to Rs. 65,00,000. It is, therefore, presumed that the investment in Government securities was made out of the amount lying in the reserve fund. As held by the Hon'ble Supreme Court in the case referred to above, the reserve fund amount does not have part of the stock-in-trade or working/circulating capital. Obviously interest received from Government securities will not qualify for exemption under s. 80P. The interest income of Rs. 5,53,125 is accordingly held to be income from other sources and taxed accordingly under s. 56 of the Act. So far as interest from other banks and bankers is concerned, the interest received amounted to Rs. 1,44,76,605. As mentioned earlier the assessee has firstly objected to the taxing of this interest, in the alternative he has submitted for allowing deduction for interest payment on deposits taken for deposits with bank for earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market which in turn were deposited with banks and other bankers or in Government securities, no interest can be earned and therefore the deduction for interest payment and incidental expenses has to be allowed. Such interest income from bank and Government securities is income from banking business. The AO did not accept the explanation of the assessee. The AO relied upon the decision of Hon'ble apex Court in the case of Madhya Pradesh Co-op. Bank Ltd. vs. Asstt. CIT (1996) 134 CTR (SC) 92 : (1996) 218 ITR 438 (SC) wherein it was held as under: "Held, dismissing the appeal, that it was clearly understood in banking parlance that circulating capital was that which was put into circulation or turned over to earn profits. Government securities coming out of the reserve fund which could not be easily encashed and which could be utilized only when certain contingencies arose could not be considered to be circulating capital or stock-in-trade. The income derived from the investment in Government securities placed with the SBI or the RBI could not be regarded as an essential part of the assessee's banking activity inasmuch as the same did not form part of its stock-in-trade or working/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g business, the income derived therefrom would be income from the assessee's business. We are unable to take the view that found favour with the Bench that decided the case of Madhya Pradesh Co-operative Bank Ltd. that only income derived from circulating or working capital would fall within s. 80P(2)(a)(i). There is nothing in the phraseology of that provision which makes it applicable only to income derived from working or circulating capital. In the premises, we take the view that the decision of this Court in the case of Madhya Pradesh Co-operative Bank Ltd. does not set down the correct law and that the law is as we have put it above. The question, accordingly, is answered in the affirmative and in favour of the assessee." 8. The said decision was also approved in the case of CIT vs. Ramanathapuram Distt. Co-op. Central Bank Ltd. (2002) 175 CTR (SC) 297 : (2002) 255 ITR 423 (SC). The counsel for the assessee further referred to the decision in the case of Mehsana Distt. Central Co-operative Bank Ltd. vs. ITO (2001) 170 CTR (SC) 169 : (2001) 251 ITR 522 (SC), Surat Distt. Co-operative Bank Ltd. Ors. vs. ITO Ors. (2003) 78 TTJ (Ahd)(SB) 1, Railway Employees Co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X
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