TMI Blog2000 (11) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the assessee for rectification of the aforesaid judgment of the Tribunal. In view of the fact that the questions referred to this court and the questions raised in the tax appeals are interconnected and involve interpretation of the same statutory provision, viz., section 80P(2)(a)(i) of the Act, with the consent of learned counsel for the parties, the tax references and the appeals were heard together and are being disposed of by this common judgment. In Tax Reference No. 48 of 1999, the following questions have been referred by the Tribunal: "(i) Whether the Tribunal was right in law in holding that interest income earned from short term deposits with nationalised banks out of its reserve funds was not entitled to exemption under section 80P(2)(a)(i), in view of the decision of the Supreme Court in M. P. Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438? (ii) Whether the Tribunal was right in law in holding that the provision of the Madhya Pradesh Co-operative Societies Act was substantially in pari materia with the Gujarat Co-operative Societies Act with regard to utilisation of reserve funds and, therefore, income from investment of such reserve funds did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s before this court, although none of the assessees on whose behalf they sought to intervene have any proceedings pending before this court. Having heard learned counsel for the assessee and learned counsel for the Revenue at whose instance the present tax references and the tax appeals are filed, we have permitted the above named learned counsel to intervene at the hearing of these proceedings. All learned counsel have been heard at length on all the questions being answered by this judgment. The facts leading to filing of the tax references and the tax appeals, briefly stated, are as under: The Gujarat State Co-operative Bank Ltd. (hereinafter referred to as "the bank"), an apex co-operative bank is carrying on the business of banking. It is rendering services in the nature of a bankers' bank. In the course of its activities- (i) the bank having surplus funds including funds in the various reserves invests the same in short term deposits with various scheduled banks and earns interest from such investments. (ii) the bank also has lockers in the bank premises for the benefit of its customers who come to the bank for banking purposes and the locker rent is earned by the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of reserve funds with banks other than co-operative banks is not deductible under section 80P(2)(a)(i). The Tribunal, however, upheld the alternative contentions of the assessee that if the said income is taxable, then proportionate expenses incidental to the said investment would be allowable and the Assessing Officer was directed to decide this aspect after hearing the assessee. (ii) The income by way of locker rent was held as not falling within income from banking business, following the judgment of the Madhya Pradesh High Court in Bhopal Co-operative Central Bank v. CIT [1988] 169 ITR 573. (iii) The issue whether income by way of commission was deductible as income from banking business was remanded to the Assessing Officer to examine the facts and decide the point. (iv) The remand by the Commissioner of Income-tax (Appeals) on the issue of dividend income was confirmed. Thereafter, an application for rectification for the assessment year 1991-92 (No. 26/A of 1998) was preferred by the assessee-bank as it was not clarified nor decided whether the order of the Tribunal applied only with respect to statutory reserves required to be created under the Gujarat Cooperativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as income from banking business was remanded to the Assessing Officer to examine the facts and decide the point. (iv) The remand by the Commissioner of Income-tax (Appeals) on the issue of dividend income was confirmed. Thereafter, an application for rectification for the assessment year 1991-92 (No. 26/A of 1998) was preferred by the assessee-bank as it was not clarified nor decided whether the order of the Tribunal applied only with respect to statutory reserves required to be created under the Gujarat Co-operative Societies Act or it applied to all other reserves as well which were voluntary and which could be brought back in the profit and loss account. The Tribunal allowed the application for rectification, and by judgment dated September 24, 1998, held that it had not decided this aspect and hence the rectification application was maintainable and consequently held that the judgment of the Tribunal was only in relation to statutory reserves. The clarification was given on the ground that the Supreme Court decision in M. P. Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 pertained to only statutory reserves. Similar rectification applications filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax appeals. Hence, out of the questions raised in the tax appeals, only question No. (3) is required to be decided by this court. Tax deductibility of interest on deposits/investments of reserves: Questions Nos. (i) and (ii) in Tax Reference No. 48 of 1999, the question referred in Tax Reference No. 49 of 1999, and question No. (3) in the tax appeals are all interconnected and are, therefore, being discussed jointly and not separately. Before narrating the contentions raised and the submissions made on behalf of various assessees and the Revenue, looking to the nature of the controversy, we have perused the relevant provisions of the Madhya Pradesh Co-operative Societies Act (the M. P. Act), Rajasthan Co-operative Societies Act, Maharashtra Co-operative Societies Act and the Karnataka Co-operative Societies Act and the Gujarat Co-operative Societies Act (the Gujarat Act). However, the provisions of only the M. P. Act and the Gujarat Act and Rules are set out. Statutory provisions of the Co-operative Societies Act-Madhya Pradesh Act and the Gujarat Act. Madhya Pradesh Co-operative Societies Act: "43. Funds and projects.--(1) No part of the funds of a society other tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co-operative Societies Act, 1961: "2. (24) 'working capital' means funds at the disposal of a society inclusive of paid-up share capital, funds built out of profits, and money raised by borrowing and by other means. 67. Reserve fund.--(1) Every society which does, or can, derive a profit from its transactions, shall maintain a reserve fund. (2) At least one-fourth of the net profits of the society each year, shall be carried to the reserve fund; and such reserve fund may be used in the business of the society or may, subject to the provisions of section 71, be invested, as the State Government, may by general or special order direct, or may, with the previous sanction of the State Government, be used in part for some public purpose likely to promote the objects of this Act, or for some such purpose of the State, or of local interest: Provided that if the Registrar is satisfied that financial condition of the society is such that it is unable to carry to its reserve fund an amount upto the aforesaid limit of one-fourth of its net profits, he may by order in writing for such period as he may specify in the order, fix for the society a limit lower than the aforesaid limit but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1956, as may be approved by the Registrar. 30. Restrictions on investment.--(1) The investment under rule 29 shall not at any time exceed 5 per cent. of the deposit liabilities or 15 per cent. of the surplus fund of the bank whichever is less. (2) The investment in shares or debentures under rule 29 shall not exceed- (a) in the case of preference shares 10 per cent. (b) in case of ordinary shares 5 per cent. (c) in the case of debentures 15 per cent. of the total surplus funds : Provided that no investment shall be made under this sub-rule if it is likely to affect the ordinary business of the bank. Explanation.--For the purpose of this sub-rule 'fund' shall mean such portion of the funds as are available for advancing loans to members but not so advanced." Reference to certain notifications under section 71(2) of the Gujarat Act is made at an appropriate place as there is some controversy about their applicability. Summary: ----------------------------------------------------------------------------------------------- State law Where can the funds be invested Ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no part of the reserve fund should be utilised as its working capital. The subsequent paragraphs of the notification state that such reserve fund invested in deposits shall not be withdrawn without the previous sanction of the Registrar which can be given when the amount is required to meet losses or when the society is to be wound up. In other words, under the M, P. Act, the statutory reserve was taken out of the banking business or working capital of the bank and it could only be used for twin objectives mentioned in the notification. Contrasted with this, the Gujarat Act under section 67 unequivocally permits the use of statutory reserve in the business of the society or investment. There is, therefore, fundamental difference between the M. P. Act and the Gujarat Act regarding treatment of statutory reserve funds. It may be further noted that the restrictions under the M. P. Act by virtue of the notification of the Registrar apply only to apex banks and not to other co-operative banks. The Supreme Court judgment in the case of M. P. Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 is clearly based on the prohibitions and restrictions contained in the M. P. Act w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in the notification issued under section 60 of the Indian Income-tax Act, 1922. The judgment goes on to say that such short term deposits are the normal activities of the bank as part of its banking operations as surplus moneys cannot be kept idle or unremunerative and as prudent managers, they would be entitled to earn income by Way of interest on short term deposits or Government securities which are easily realizable securities at a minimum notice if funds are required. This judgment was reaffirmed by the Supreme Court in the judgment reported in CIT v. Bombay State Co-operative Bank Ltd. [1968] 70 ITR 86. In Addl. CIT v. Ahmedabad District Co-operative Bank Ltd. [1975] 101 ITR 733, the Gujarat High Court unequivocally has come to the conclusion that investment of surplus funds of the bank in Government securities and even in municipal debentures were in the course of banking business. The laying out by a bank of its surplus and idle funds in easily realizable securities or deposits may be with twin objectives, viz., to encash them readily in case of need and not to lose interest by keeping them idle. Merely because they are securities or deposits payable at a certain sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive Bank Ltd.'s case [1996] 218 ITR 438 because similar restrictions and prohibitions existed under the Rajasthan Act with regard to Utilisation of the statutory reserves. There is a demarcating line between investments from reserves on utilization of which there are prohibitions and restrictions, e.g., by the M. P. Act and the Rajasthan Act on the one hand and investments of free reserves which continue to be part of the business funds of the bank and are without any restrictions or prohibitions as is shown in the case of the Maharashtra Act, Gujarat Act and the Karnataka Act on the other hand. The definition of banking in section 5(b) of the Banking Regulation Act, 1949, includes "acceptance for the purpose of lending or investment of deposits". Thus, at least, investment of the nature envisaged by way of short term deposits is also part of the banking business and the funds so invested continue to be circulating capital. The aforesaid submissions gain considerable support because of the wide language used in section 80P as contrasted with restrictive language used in the notifications under the 1922 Act or section 14 of the 1922 Act or section 81 of 1961 Act. It is enough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r repayment. II. The investments are made as authorised under bye-laws which permit investment only of surplus funds as understood under the Co-operative Act to mean funds not required for banking business. III. Admittedly, the investments are attributable to reserve funds specifically earmarked as such and appropriated from the profits earned and shown as investments in the assessee's balance-sheet clearly underlining the intention to exclude the same from its circulating capital. A harmonious interpretation of the statutory scheme of section 80P clearly establishes that the entire income of a co-operative society engaged in the business of banking is not exempt exemption is only in respect of banking activity (a narrower term as compared to the wider expression "the business of banking"). If the assessee's contention-that investment of funds is part of the banking business as defined under section 5(b) of the Banking Regulation Act and, therefore, all income from all such investments is exempt under section 80P of the Act-were to be accepted, it could be simply-stretched to submit that money is the stock-in-trade of banks and, therefore, utilization of money in any ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal not having decided this issue, this court cannot permit the Revenue to raise such a question in these proceedings. In support of the said contention, learned counsel for the assessees have placed strong reliance on the decisions of the apex court in New Jehangir Vakil Mills Ltd. v. CIT [1959] 37 ITR I 1 ; CIT v. Scindia Steam Navigation Co. Ltd. [ 1961] 42 ITR 589 ; CIT v, Kirkend Coal Co. [1969] 74 ITR 67 ; Pullangode Rubber and Produce Co. Ltd. v. CAIT [1970] 76 ITR 7 ; Kusumben D. Mahadevia v. CIT [1960] 39 ITR 540 and on the following parameters laid down by the apex court in CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 : "(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order. (2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order. (3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order. (4) When a question of law is neither raised before the Tribunal nor con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties have misdirected themselves, which is certainly not the role approved by the Supreme Court in Salem Co-operative Central Bank Ltd. v. CIT [1993] 201 ITR 697. Having heard learned counsel for the parties, we find considerable substance in the argument of Mr. Joshi for the Revenue that this court is not precluded from considering all the relevant aspects of a question merely because the Tribunal had chosen to frame the question in a particular manner highlighting only one particular aspect of a question, when the question was very much before the Tribunal. If three different judgments were cited on behalf of the parties on one particular, question, it would be an inelegant way of drafting the question to state "whether the case on hand is covered by the decision at X ITR, Y ITR or Z ITR". The following extracts from the assessment order dated March 30, 1994, x for the assessment year 1991-92 vindicate the Revenue's contention that it was their stand right from the beginning that the investments in question were made from funds which did not constitute stock-in-trade of the bank in the course of its banking business "The assessee-co-operative bank has filed its retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 900 3. Bank of India, Ahmedabad 1,900 4. State Bank of Saurashtra, Ahmedabad 1,500 5. Indian Bank, Bhadra 1,500 6. Discount and Finance House of India 500 ------ 10,681 ------ It is also certified by the bank authority that 'we do not have any deposits with any other co-operative banks'. The total interest earned from these fixed deposits during the year was Rs. 16.42 crores. Please note that these deposits are kept from the surplus reserves after meeting all the obligations of maintaining SLR + CRR as per RBI guidelines and on minimum involvement fixed by NABARD." It is pertinent to note that the above information was supplied by the bank in response to the Assessing Officer's letter dated March 11, 1994, which after referring to the Madhya Pradesh High Court judgment in M. P. State Co-operative Bank Ltd.'s case [1979] 119 ITR 327, called upon the bank to expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. Now a question of law might be a simple one, having its impact at one point, or it may be a complex one, trenching over an area with approaches leading to different points therein. Such a question might involve more than one aspect, requiring to be tackled from different stand points. All that section 66(1) requires is that the question of law which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act." In view of the aforesaid material on record and the above principles enunciated by the apex court, we overrule the preliminary contention raised on behalf of the co-operative banks and reframe the questions refer red to us and those raised in the tax appeals as under : (1) Whether the Tribunal was right in law in disallowing the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le accurate, we would refer to only banking reserves as "SLR funds", and treat advances separately). Strictly speaking these "banking reserves" are not reserves in terms of commercial accounting because reserves are appropriations of profits, the assets by which they' are represented being retained to form part of the capital employed in the business (Spicer and Pegler's Book, Keeping and Accounts as quoted in Metal Box Co. of India Ltd. [1969] 73 ITR 53 (SC)). 11. Statutory reserves under Co-operative Societies Act : Under section 67 of the Gujarat Co-operative Societies Act, a co-operative society is required to maintain a reserve fund and is also required to carry into its reserve fund at least one-fourth of the net profits of the society each year, subject to two exceptions with which we are not concerned. These reserves may be used for the business of the society or invested as per section 71. Under section 71 of the Act, a co-operative society may invest or deposit its funds in a Central Bank or the State Co-operative Bank, in State Bank of India, Postal Savings Banks and in various approved securities or any other mode permitted by the rules or by general or special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per the law laid down by the apex court in Bihar State Co-operative Bank Ltd. [1960] 39 ITR 114, whenever the bank has surplus funds, i.e., the excess of deposits over advances made by the bank, the bank like a prudent businessman is bound to invest such amounts in deposits with other banks like nationalised banks and in other securities so as to earn interest and not to keep surplus money idle and also at the same time to provide for any run on the money so that when depositors want their money back, the bank can encash such deposits or securities and repay the depositors. The Madhya Pradesh case does not make any departure from the said principle, but it was on account of the prohibitions and restrictions contained in the provisions of the Madhya Pradesh Co-operative Societies Act, and the circular issued thereunder, that the apex court held that the statutory reserves which were in cold storage and which were beyond the domain of the co-operative bank went out of the stock-in-trade or circulating capital of the bank. On the other hand, the definition of working capital in section 2(24) of the Gujarat Co-operative Societies Act reads as under : "2. (24) 'working capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... co-operative bank. The relevant portion of the said notification reads as under : "21. [Notification No. GHKH-37/82/CSB-1081-M-11081-S-2, dated 12-2-1982 : Published in Gujarat Government Gaz., Ext., Pt-IV(b), dated 17-2-1982, page 40-1].-In exercise of the powers conferred by clause (g) of sub-section (1) of section 71 of the Gujarat Co-operative Societies Act, 1961 (Guj. 10 of 1962), the Government of Gujarat, hereby accords permission to the co-operative banks specified below for investment of their funds not exc eeding 10 per cent. of the annual average surplus resources in deposit with the Housing Development Finance Corporation Limited, Bombay (1) The Gujarat State Co-operative Bank Limited, Ahmedabad. (2) All District Central Co-operative Banks in the State of Gujarat. (3) All Urban Co-operative Banks in the State of Gujarat. 2. The surplus resources of the cooperative banks would mean funds funds which are not required by the bank for their business operations and for maintaining liquidity of resources. 3. The above banks shall make appropriate provision in their byelaws for such investment. 4. Whenever an investment of surplus funds is sought to be made by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of banking. Hence, even while holding that in so far as the provisions pertain to use of the reserve funds by a co-operative society for its business purpose, the restrictions and prohibitions applicable to the co-operative societies under the Madhya Pradesh Act and the circular issued thereunder are not applicable to the co-operative societies under the Gujarat Act, the provisions of section 67(2) of the Gujarat Act, rule 30 of the Gujarat Co-operative Societies Rules and the notifications dated October 12, 1992, themselves proceed on the basis that the activity of parking its "surplus funds" by a cooperative bank is outside its "business operations". The absence of prohibitions and restrictions under the Gujarat Act, unlike the Madhya Pradesh Act, does not, therefore, obliterate the distinction between the banking activity and the non-banking activities of a co-operative bank. So also the definition of "working capital" in the Gujarat Act for the co-operative societies in general as including "funds built out of profits" does not and cannot do away with the difference in the nature of different activities of a co-operative bank which together constitute the business of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation.-In this clause, 'consumers' co-operative society' means a society for the benefit of the consumers. (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income (e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income ; (f) in the case of a co-operative society, not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22." It is strenuously urged on behalf of the co-operative banks that the language of section 80P(2)(a)(i) the aforesaid provisions is wider than the language of section 81 which came to be interpreted by the Supreme Court in M. P. Co-operative Bank's case [1996] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nks have heavily relied on the definition of "banking" under section 5(b) of the Act which reads as under : " 'banking' means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise." It is submitted that even if the deposits of surplus funds with nationalised banks are treated as investments, they would form part of the banking business and even banking activity. However, on a closer analysis it appears that the definition is much narrower than even what the Revenue contends. As per this definition-banking means (i) acceptance (by bank) of deposits of money from the public ; and (ii) withdrawal (by depositors) by cheque, draft, order or otherwise. The extreme narrowness of this definition becomes apparent from the provisions of section 6 which enumerates the forms of business in which a banking company may engage "in addition to the business of banking". The relevant portion of section 6 reads as under: "6. Forms of business in which banking companies may engage.-(1) In addition to the business of a banking, a banking company may engage in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rates income for the banks." In the above decision, the banking business has been held to be a much wider term whereas banking activity has been held to be a narrower term. This is clear from the following paragraph (page 447) : "Before we part, we must take note of Shri Salve's contention that the proviso to section 81 would apply in the case of that co-operative society alone which is engaged in an-activity other than those mentioned in clauses (a) to (f) which not being so as regards the appellants, the proviso has no application ; and so, no part of its profit or gain can attract income-tax. We do not think this to be the correct reading of the proviso, notwithstanding the use of the word 'also'. According to us, what the proviso seeks to convey is that even if a co-operative society is engaged only in the business of banking, but part of its activity is not attributable to engagement in such activity, income derived from that part of activity would become taxable." It is thus clear from the above decision that the apex court has drawn a distinction between the business of banking (which is the only business of a co-operative bank) and banking activity which is one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th edition, vol. 2 pages 588 and 620), bear out our conclusion : "As credit institutions dealing primarily with depositors' monies, banks have to make certain special provisions against emergencies or unforeseen contingencies as a matter of financial prudence.... This clause (section 24) is an attempt to prescribe by law what has already been recognised as sound banking practice, namely, that a bank should keep a reserve of cash and liquid assets to meet its demand liabilities. One of the worst defects of Indian banking is the propensity of the smaller banks to over trade at the expense of liquidity and it seems best to insist on all banks maintaining a reasonably large proportion of their cover in the form of cash or trustee securities as defined in the Indian Trusts Act, excluding immovable property. The proportion of 20 per cent. is in accordance with the actual practice followed by smaller banks." Now this kind of short term deposits from surplus funds for the purpose of meeting emergencies may be attributable to the banking activity properly go called and that would also be covered by the relevant provisions of the Banking Regulation Act providing for the Cash Reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notifications quoted in para. 23.5 above permit co-operative banks to invest their statutory reserves under section 67 of the Act after stipulating that "the surplus reserves of the co-operative banks would mean funds which are not required by the bank for their business operations or for maintaining liquidity of resources". Maintaining liquidity of resources would obviously refer to banking reserves as discussed in para. 21 hereinabove. Section 67 of the Gujarat Act thus permits the co-operative bank to use the reserve funds in the business of the society (i.e., banking business in the narrower sense) or may subject to the provisions of section 71 be invested. Similarly, the State Government while permitting investment of funds as per rule 29, imposes certain ceiling on such investments and then provides that no investment shall be made if it is likely to affect the "ordinary business of the bank". A perusal of the statutory provisions of section 67 of the Gujarat Co-operative Societies Act and rule 30 of the Gujarat Cooperative Societies Rules clearly recognise the distinction between the banking activity of a co-operative society and non-banking activity of a cooperativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject from the beginning. A Special Bench of three learned judges of the Madras High Court made the following observations in CIT v. Madras Central Urban Bank Ltd. [1929] ILR 52 Mad 640 ; AIR 1929 Mad 387 (page 389) : "It seems to me impossible, at least without a groat deal more information than has been presented to us to say that these investments of more or less amounts for a longer or shorter time on the part of the bank in order to prevent their fluid assets from lying absolutely idle in their coffers, formed part of the business of the bank. It seems to me that they are in the same position as any private person who with a large credit balance in his private account desires to put it into a remunerative form which shall at the same time be readily realisable and therefore invests for shorter or longer periods in Government paper It, therefore, seems to me from the best consideration that I can give to the matter that this investment of these fluid assets of the bank cannot be held to be part of the business of the bank in accordance with the decisions quoted from the Scottish and English cases which seem to me to be all distinguishable and to be clearly assignable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its total liabilities in a fluid form did not make it a part of their business as a bank. It is in this context that we have to read the subsequent decisions. In Bihar State Co-operative Bank Ltd.'s case [1960] 39 ITR 114, the Supreme Court observed that the decisions in Madras Central Urban Bank Ltd's case [1929] ILR 52 Mad. 640 [FBI and Madras Provincial Co-operative Bank Ltd.'s case [1933] 1 ITR 158 (Mad), were before the amendment of the notification. Before the amendment, the income which was exempted was profit from business and not income from sources which fell under sections 8 and 9 of the 1922 Act. CIT v. Madras Provincial Co-operative Bank Ltd. [1942] 10 ITR 490 (Mad), was held to be a case where moneys had been invested in debentures and the interest derived therefrom was not profits from the business. The apex court then made the following observations : "In the instant case the co-operative society (th 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 its normal business is to deal in money and credit. It cannot be said that the business of such a bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Co-operative Bank [1960] 39 ITR 114 (SC), has been explained by the apex court in M. P. Co-operative Bank Ltd.'s case [1996] 218 ITR 438, in the following terms : "The banks may have to maintain, certain reserves to meet with emer gencies, e.g., a spurt in withdrawals by depositors for diverse reasons. Investments which permit withdrawals at short notice would, there fore, be a part of the requirement of banking business and interest accruing on such investments would be outside the tax net. That is why this court in Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114, while dealing with income derived by way of interest on short-term deposits by the bank, held that it was income from normal banking business and was, therefore, exempt from the liability to pay income-tax." We are of the view that while all the aforesaid decisions cited on behalf of the co-operative banks had accepted the claim of the co-operative banks for deduction of income arising from deposit of surplus funds, that claim was accepted on the ground that the banks are required to keep certain funds readily available to meet emergencies like a run on the money. But there is nothing in the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the factual conclusion of the Tribunal. The decision in M. P. Co-operative Bank Ltd.'s case [1996] 218 ITR 438 (SC) was distinguished on the ground that (page 284 of 233 ITR) "the (said) decision was rendered on the facts of that case and it is not applicable in the present case in view of the finding of the Tribunal that the income in question is attributable to the business of the assessee." When learned counsel for the assessee invited the attention of the court to the provisions of the Karnataka Co-operative Societies Act and the Rules and the decisions in Bihar State Co-operative Bank Ltd. [1960] 39 ITR 114 (SC) and Cambay Electric Supply Industrial Co. Ltd.'s case [1978] 113 ITR 84 (SC), the apex court observed that it was unnecessary in that case to consider the same in detail. As per the settled legal position, a decision is an authority for what it actually decides and not necessarily for what logically follows from it. Equally well settled is the principle that a decision to be law under article 141 must not be a mere conclusion by which the case is disposed of. Because, a conclusion, a mere conclusion, may be on facts, it may not and does not necessarily involve co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gandevi Taluka Khedut Sahakari Sangh Ltd. v. CIT [1994] 207 ITR 175 will have to be applied. The following principle, though enunciated in the context of the provisions of section 80P(2)(a)(iv), is also applicable while considering the provisions of section 80P(2)(a)(i): "While granting deduction under section 80P(2)(a)(iv), only the net income attributable to the activities under section 80P(2)(a)(iv) of the Act for the purchase of agricultural implement's, livestock, etc., intended for supplying to agriculturists which was included in the gross total income could be deducted and not the gross total income from such activities." In other words, when the profits and gains of a business include income from taxable activities as well as income from non-taxable activities, separation of these two components which have entered into the total income can only be done by finding out the proportionate net income, that is, after deducting from the amount of gross profits both for taxable activities as well as for non-taxable activities all expenditure attributable to these two different categories of activities. Hence, the income in respect of non-taxable activities, which is to get the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng business. We prefer to follow the view of the M. P. High Court in Bhopal Co-operative Central Bank v. CIT [1988] 169 ITR 573 and in CIT v. Jila Sahakari Kendriya Bank Maryadit [1997] 225 ITR 421. The rent on lockers cannot be treated as profits and gains attributable to banking activity. In view of the above discussion, we answer the questions as reframed and set out in para. 20 of this judgment as under :Question No. 1 is answered in the affirmative, i.e., in favour of the Revenue and against the assessee. Question No. 2 is answered in the negative, i.e., in favour of the Revenue and against the assessee. Question No. 3 is answered in the affirmative, i.e., in favour of the Revenue and against the assessee. Tax references as well as tax appeals stand disposed of accordingly with no order as to costs. November 29, 2000 : At this stage, Mr. K. H. Kaji, learned counsel for the assessee, prays for certificate under section 261 of the Act for appeal to the Supreme Court. Since this case involves important questions of law of general importance for all the co-operative banks in India, we certify under section 261 of the Act that this is a fit case for appeal to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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