TMI Blog2005 (8) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) in respect of income from trading in securities amounting to Rs. 11.49,53,236 in the asst. yr. 2001-02 and Rs. 6.42,31,550 in the asst. yr. 2000-01. 4. Rival contentions were heard and records perused. The assessee is a cooperative bank engaged in the business of banking activities. During the course of assessment under s. 143(3), the AO declined assessee's claim for deduction in respect of profit earned on trading on securities, on the plea that the income is otherwise than banking business income and it is liable to taxed in the hands of the assessee. The AO held that the income earned from trading on securities are not deductible under s. 80P(2)(a)(i). By the impugned order, the CIT(A) confirmed the action of the AO. 5. It was ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of banking and is duly recognized scheduled bank. Its main source of income is interest on the loans and advances made to its members and also from trading in securities made in accordance with statutory norm laid down by the RBI and on commercial evolution of the economic and financial position of the banks at the relevant point of time. As per provisions of s. 6(1)(a) of the Banking Regulation Act, dealing in stocks, funds, shares, debentures, bonds, securities and investment of all kinds, purchasing and selling of bonds, scrips and other forms of securities, come under the purview of ordinary banking business of a bank. Any income derived out of such banking operation is deductible under s. 80P(2)(a)(i) of IT Act, 1961. Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds, the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and advances, the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise, the providing of safe deposit vaults the collecting and transmitting of money and securities." Investments in Government securities, deposits are specified activities regarded as part of the ordinary business activities of a bank in view of the clear language used in s. 6(1)(a) of the Banking Regulation Act. As per the fisca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia securities and/or bonds issued by Government institutions. Banks are not permitted to invest in anything other than these approved securities. Then again, the entire market mechanism is distinctly defined as the wholesale debt market operated through the National Stock Exchange. The RBI also follows up this investment activity by all banks from time-to-time. The investment activity is subject to an inspection by the HBI on an ongoing basis. 8. In the case of Punjab Co-operative Bank Ltd. Vs. CIT (1940) 8 ITR 635 (PC), the Hon'ble Privy Council has clearly held that "the purchase and sale of shares and securities are so much linked with the deposits and withdrawals of clients that with the existing articles of association the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he apex Court has based this observation on the fact that operating of safe deposit lockers was one of the permitted forms of business in which banking companies may engage as so defined in s. 6(1)(a) of the Banking Regulation Act. By implication it necessarily follows that all activities as so stated in s. 6(1)(a) of the Banking Regulation Act would be banking activities, the income wherefrom would qualify for deduction under s. 80P(2)(a)(i). 11. In the case of State Bank of Saurashtra vs. Dy. CIT, ITA No. 5/Rjt/2000 the Hon'ble Tribunal, Ahmedabad Bench, has allowed the loss in the trading of securities as a business loss to the assessee-bank. By implication the Hon'ble Tribunal, Ahmedabad, has upheld the fact that trading in securities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's appeals in both the years is allowed. 15. Other grounds raised by the assessee in its both the appeals were not pressed during the course of hearing. The same are, therefore, dismissed in limine. 16. In the result, the appeals of the assessee for both the years are allowed in part as indicated above. 17. The common grievance of the Revenue in its appeals for both the years relate to CIT(A)'s action in directing to allow deduction under s. 80P(2)(a)(i) in respect of interest income received from investments of its non-statutory reserve in various mutual funds to the extent of Rs. 5,37,78.418 in the asst. yr. 2001-02 and Rs. 5,22,00,870 in the asst. yr. 2000-01. 18. During the course of hearing, the learned Departmental Represent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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