TMI Blog2013 (1) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... s of qualifying the interest earned by the cooperative bank under Section 80P(2)(a)(i) as the deposits of surplus idle money available from working capital, including reserves, excess collection of interest tax and other incomes are all attributable to the business of banking. The interest from such deposits cannot be said to be beyond the legitimate business activities of the bank - thus ITAT committed no error in arriving at findings that the interest are not deposits of non-SLR funds and the cooperative bank will qualify for exemption under Section 80P(2)(a)(i) - in favour of the assessee. - IT Appeal No. 429 of 2009 - - - Dated:- 7-11-2012 - R.K. Agrawal and Ram Surat Ram (Maurya), JJ. A.N. Mahajan and Dhananjay Awasthi for the Petitioner. Ashok Trivedi for the Respondent. ORDER 1. We have heard Shri Dhananjay Awasthi for the Income Tax Department. Shri Ashok Trivedi appears for the respondent assessee. 2. In this income tax appeal under Section 260-A of the Income Tax Act, 1961 (in short the Act) the Commissioner of Income Tax, Muzaffar Nagar has raised the following questions of law to be considered by the Court:- "(1) Whether on the facts and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee Ss not eligible for deduction under Section 80P in respect of interest income oh its total reserve, and in holding so, ignoring its own decision as also the judgments of the Rajasthan High Court and the Supreme Court ?" Insofar as the interest income upon statutory reserves is concerned, the question must be answered in favour of the assessee, in the light of the judgment delivered by us in CIT v. Karntilaka Stain Co-operative Apex Bank [2001] 251 ITR 194 (Civil Appeals Nos. 46464648 of 2000) As far as the interest income on non-statutory reserves is concerned, the matter is remanded to the Commissioner (Appeals) for being decided afresh in the light of the decision that we have just rendered in Civil Appeals Nos. 292-298 of 2001. Accordingly, the civil appeals are allowed and the judgment under appeal is set aside. No order as to costs." 4. Shri Dhananjaya Awasthi submits that this Court considered the question regarding the interest earned by the cooperative bank on deposits of its non-SLR funds, qualifying for deduction under Section 80P(2)(a)(i) of the Act [Income Tax Appeal No.83 of 2007, CIT v. District Cooperative Bank Ltd. decided on 6.1.2010]. All th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gujarat High Court, Andhra Pradesh High Court and Bombay High Court in the cases cited as above, that the interest earned out of deposits of non-SLR funds, cannot be treated as profits and gains of business attributable to the activity of carrying on business of banking, or providing credit facilities to its members under Section 80P(2)(a)(i). 8. The Supreme Court in Bihar State Co-operative Bank Ltd. (Supra) explained in para 12 and 13 that the interest earned out of deposits of surplus fund has to be treated as interest earned in the banking business. Paras 11, 12 and 13 of the judgment are quoted as below:- "11. In the Surat Peoples' Co-operative Bank Ltd. v. The Commissioner of Income-tax, Ahmedabad (2) the profit arose during the course of banking business out of the sale of Government securities which formed part of the stock-in-trade and as it was a co- operative bank the profits made from such sales were held to be exempt from taxation under the Notification. 12. In the instant case the co-operative society (the appellant) is a Bank. One of its objects is to carry on the general business of banking. Like other banks money is its stock-in-trade or circulating capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng business to invest moneys in a manner that they are readily available and that is just as much a part of the mode of conducting a Bank's business as receiving deposits or lending moneys or discounting hundies or issuing demand drafts. That is how the circulating capital is employed and that is the normal course of business of a bank. The moneys laid out in the form of deposits as in the instant case would not cease to be a part of the circulating capital of the appellant nor would they cease to form part of its banking business. The returns flowing from them would form part of its profits from its business. In a commercial sense the directors of the company owe it to the bank to make investments which earn them interest instead of letting moneys lie idle. It cannot be said that the funds of the Bank which were not lent to borrowers but were laid out in the form of deposits in another bank to add to the profit instead of lying idle necessarily ceased to be a part of the stock-in-trade of the bank, or that the interest arising therefrom did not form part of its business profits. Under the bye-laws 68 one of the objects of the appellant bank is to carry on the general business of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held by the Special Bench of the Tribunal that the interest income on investment in government securities, fixed deposits, KVPs and IVPs, investments with the Unit Trust of India, etc., out of surplus/idle money available from working capital including voluntary reserves, excess collection of interest-tax and locker rent are all income attributable to business of banking and are eligible for grant of deduction Under Section 80P(2)(a)(i) of the Act. Respectfully following the decision of the Special Bench of the Tribunal, we allow the appeal of the assessee. In the result, the appeal filed by the assessee is allowed." 3. The learned Counsel appearing for the Department has relied upon the Judgment of the Division Bench of the Bombay High Court in the case of C.I.T. v. Ratnagiri District Central Co-operative Bank Ltd. (2002) Vol.254 Income Tax Reports page 697 to contend that this deduction was not permissible. We are not inclined to accept this submission primarily in view of what is held in the case of C.I.T. v. Ratnagiri District Central Cooperative Bank Ltd. (supra) as the issues are no way different. In fact in that case while referring to the Judgment of the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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