TMI Blog2012 (10) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... eposits cannot be said to be beyond the legitimate business activities of the bank - in favour of assessee. - ITA No. 555 of 2008 - - - Dated:- 16-10-2012 - Sunil Ambwani, And Aditya Nath Mittal, JJ. 1. Heard Sri Dhananjai Awasthi, for the appellant. 2. This Income Tax Appeal under Section 260-A of the Income Tax Act, 1961 (in short the Act) arises out the judgment dated 21.07.2008 passed by the Income Tax Appellate Tribunal, Lucknow Bench B , Lucknow in ITA No. 502/LUC/2008, relating to the assessment year 2005-06. 3. The income tax department, preferred the Appeal on the following substantial questions of law:- (1). Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that interest earned by the assessee, which is a Cooperative Bank on the deposits of its non-SLR funds is income from Banking Business and consequently exempt u/s 80-P (2) (a) (i) of the I.T. Act, 1961? (2). Whether on the facts and in the circumstances of the case, the Tribunal is erred in law in holding that interest earned on deposits of its non-SLR funds are also covered within the meaning of Section 80-P (2) (a) (i) of the Act? (3). Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal relied on the decision of ITAT Lucknow B Bench in assessee s own case in ITA No. 674/LUC/2007 in the appeal filed by the department for the assessment year 2004-05, in which the Tribunal decided the issue in favour of the assessee relying on the order dated 25.11.2005 of the third member of the Tribunal (Agra Bench) in the case of Farrukhabad Kshetriya Gramin Bank Vs. ITO in ITA No. 190/Agra/2004. The third member relying on Sections 18 (1) and (2) of the Regional Rural Banking Act, and Sections 5 (b) and 6 (1) the Banking Regulation Act, held that activity of making investments in SLR or non-SLR investments should be considered as part of the banking business of the assessee. 8. Sub section (1) of Section 18 of the Regional Rural Banking Act provides that every Regional Rural Bank shall carry on and transact the business of banking, as defined in Section 5 (b) of the Banking Regulation Act 1949 (in short the BR Act). It further provides that Regional Rural Banks may engage one or more forms of business specified in Section 6 (1) of the Act. Section 5(b) of the Act provides that the banking means the accepting for the purpose of lending or investment of deposits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as with a view to strengthen the liquidity position of the bank in which the public reposes confidence; non-SLR investment would not make a different category as of SLR investment; Section 5 (b) of the Act defines the word banking and not the words business of banking ; Section 80 P (2) (a) (i) of the IT Act uses wider expression business of banking; and the activity of making investments in SLR or non-SLR investments should be considered as part of the business of banking , and affirmed the order of the CIT (Appeals) in deleting the addition of Rs. 20,01,240/- made by AO. 11. This Court considered the same question, with regard to interest earned from non-SLR investment by a cooperative society in Income Tax Appeal No. 537 of 2008 (CIT Muzaffarnagar Vs. M/s. Muzaffarnagar District Cooperative Bank Ltd decided on 31.08.2012] and held as follows:- 7. In our view the ratio of the judgments, which are applicable to SLR funds would also be equally applied to non-SLR funds as it cannot be said on the basis of the judgment of the Supreme Court in Bihar State Cooperative Bank Ltd. v. CIT (Supra) and the judgments rendered by the Gujarat High Court, Andhra Pradesh High Court and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to meet demands which may be made on it. It was however argued that in the instant case the moneys had been deposited with the Imperial Bank on long term deposits inasmuch as they were deposited for one year and were renewed from time to time also for a year; but as is shown by the accounts these deposits fell due at short intervals and would have been available to the appellant had any need arisen. 13. Stress was laid on the use of the word I surplus' both by the tribunal as well as by the High Court and it was also contended before us that in the byelaws under the heading I business of the bank' it was provided that the bank could I invest surplus funds when not required for the business of the bank in one or more ways specified in s. 19 of the Bihar Act (Cl. 4 111(i) of the Bye-Laws). Whether funds invested as provided in s. 19 of the Bihar Act would be surplus or not does not arise for decision in this case, but it has not been shown that the moneys which were in deposit with other banks were I surplus' within that bye-law so as to take it out of banking business. As we have pointed out above, it is a normal mode of carrying on banking business to invest moneys in a manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve Bank Ltd. v. Additional CIT MANU/SC/1085/1996 : 218 ITR 438 only if it was income from the banking business. These amount had been invested in approved securities by the Assessee Bank i.e. the Central Bank and other trust securities. Noticing that the object of Section 80P(2)(a)(i) was to encourage co-operative movement in the country and any income of the society from the investment which does not form part of the circulating capital or working capital or stock-in trade of the banking business cannot be said to be the profits and gains attributable to the business of banking and entitled to deduction under Section 80P(2)(a)(i), on these reasonings, the Commissioner declined to interfere in the appeal. The Income Tax Appellate Tribunal while upholding both these orders whilst referring to the Judgment of the Gujarat High Court in the case of Commissioner of Income Tax v. Baroda Peoples Cooperative Bank Ltd. MANU/GJ/0493/2005 : (2006) 280 ITR 282 followed the principle while referring to the Special Bench Judgment of the Ahmedabad High Court in the case of Surat District Co-operative Bank Ltd. case MANU/IB/5017/2002 : (2003) 262 ITR (AT) 1 and held as under: "In this case, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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