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TMI Blog2012 (10) TMI 478X X X X Extracts X X X X X X X X Extracts X X X X ..... ical questions of law are involved in all these cases:- 1. Whether on the facts and in the circumstances of the case the Hon'ble ITAT was right in law in holding that the assessee bank was entitled to deduction under Section 80P(2)(a)(i) in respect of interest earned on deposits made even out of the non-SLR funds whereas the income so earned cannot be said to be earned from the normal banking business/activities. 2. Whether the ITAT was correct in law in holding that the issue regarding allowability of deduction u/s 80P(2)(a)(i) of the IT Act in respect of such income had been settled by the Hon'ble Supreme court in the case of Nawanshaher Central Co-op Bank, whereas that judgement related to income from investment of statutory reserves o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds not on the basis of any statutory directions but as investment per-se. These are termed as non SLR investments. The question that arises is whether the interest earned on deposits made out of non SLR funds can be said to be attributable to normal banking business/activities and therefore eligible for deduction under Section 80P(2)(a)(i) referred to above. 4. The Apex Court in Cambay Electric Supply Industrial Co. Ltd. vs. Commissioner of Income-tax, Gujarat-II, (1978) 113 ITR 84, dealt with the import of the word attributable. In the case before the Apex Court the assessee was carrying on the business of generation and distribution of electricity. It sold out some of its machinery and building. The question which arose was whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the revenue has placed reliance on the judgement of the Apex Court in Commissioner of Income-tax vs. Karnataka State Co-operative Apex Bank, (2001) Vol.251 ITR 194, wherein the Apex Court after dealing with conflicting judgements delivered by two learned Judges in Madhya Pradesh Cooperative Bank Ltd, vs. Addl. CIT (1996) 218 ITR 438 (SC) and CIT vs. Bangalore District Co-operative Central Bank Ltd. (1998) 233 ITR 282 SC, held as follows:- "There is no doubt and it is not disputed that the assessee-co-operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in Bihar State Cooperative Bank Limited vs. CIT (1960) 39 ITR 114. To be able to answer the question, it is necessary to ascertain, as a fact, whether the income derived by the assessee from the investment of its voluntary reserves has been utilized by it in the course of its ordinary banking business. Though the assessee placed before the assessing authority its books of account and balance sheets, the fact aforesated was not considered at any stage, for one or other reason on which it is not necessary for us to dilate. We think that it is in the interest of justice that the assessee should have the opportunity to lead evidence before the Commissioner (Appeals) to establish as a fact what is stated above. So far as the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or more of such activities". 9. The words used by the legislature are very important. The first word used is attributable, which is much wider in scope than the word derived. The second phrase used is any one or more of such activities. Any banking business providing credit facilities to its members and investing the sums deposited by the members of the society is part of banking business. 10. We are, therefore, of the considered view that the investment of the funds by the banks including the non reserves were part of the banking activities since no bank would like its reserve funds to remain idle and not earn any interest. This is not only prudent business management but is also a part of the activity of banking. Therefore, the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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