TMI Blog2013 (12) TMI 1372X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 the circumstances of the case, the Tribunal is justified in law in holding that interest earned by the assessee which is a Co-operative 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 justified 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 on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that interest on Non-SLR investment is exempt u/s 80-P (2) (a) (i) ignoring that the definition of financing Bank or Central Bank in U.P. Co-operative Society Act does not refer to Section 5 or 6 of Banking Regulation Act and restrict banking business to only members of the co-operative soci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Bharat Ji Agrawal 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 in Income Tax Appeal No.83 of 2007, CIT v. District Cooperative Bank Ltd. decided on 6.1.2000. All these judgments relate to SLR funds. So far as non-SLR funds are concerned, the question may be decided by this Court. He submits that the Court may refer the judgment in CIT v. District Cooperative Bank Ltd., Income Tax Appeal No.83 of 2007 decided on 6.1.2010 to Larger Bench. 5. Shri Ashish Bansal appearing for the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat 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 Cooperative 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 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and held as under: "In this case, it was 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. MANU/MH/0578/2001 : (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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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