TMI Blog1984 (2) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are to be treated as investments, cannot be treated as income from banking business and that it has to be treated as income from other sources. In respect of subsidies also, the ITO held that they cannot be treated as business income of the assessee. On appeal, the AAC agreed with the view of the ITO and rejected the claim of the assessee for deduction. The assessee thereafter took the matter to the Income-tax Appellate Tribunal. The Tribunal, following the rulings of the Supreme Court in Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114 and CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306, has taken the view that the claim of the assessee that the interest on securities is exempt under s. 80P for all the three years sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st received from securities. Section 80P, so far as it is relevant for the purpose of the present discussion, is extracted below : " Section 80P. (1) Where, in the case of an assessee being a co-operative society the gross total income includes any income referred to in subsection (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section. (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely : (a) in the case of a co-operative society engaged in (i) carrying on the business of banking or providing credit facilities to its members, or ...... the whole of the amount of profits and gains of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banks are to maintain cannot be taken as investments. Therefore, the interest from such securities should normally be taken as income from banking business and it cannot be taken as income from other sources. Even assuming that the interest from such securities cannot be taken as income from banking business, still it will come within the scope of s. 80P for the reason that the provisions in s. 80P(2)(a)(i) refer to profits and gains attributable to the banking business of the assessee. The interest received from securities in the present case is clearly attributable to the banking business carried on by the assessee. The expression " attributable to " occurring in s. 80P(2)(a)(i) has to be understood in a broad sense and it cannot be equa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2 Act of 1967), items of unabsorbed depreciation and unabsorbed development rebate carried forward from earlier years will have to be deducted before arriving at the figure from which the 8% contemplated by s. 80E is to be deducted. The meaning given to the expression, " attributable to " by the Supreme Court in that case is to govern the same expression occurring in s. 80P(2)(a)(i). We are upholding the view of the Tribunal that the interest income from securities should be treated as income from its banking business, for liquid assets like securities should be maintained at a particular percentage under the Banking Regulation Act and also as per the directions of the Reserve Bank of India and the interest income from such securities sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on banking business, proceeded to hold that it is only its income from the banking business that is exempt and not the income arising from any other activity of the society and that if circulating capital or stock-in-trade of a co-operative bank is invested in securities, the interest earned on the securities would be a part of the income from banking business and would be exempt under s. 81(i)(a) of the Act. But the learned judges in that case held that the investments in securities were neither circulating capital nor stock-in-trade, but, on the other hand, they were reserve funds which were not intended to meet the withdrawal by depositors or other transactions, as was the case with the circulating capital or stock-in-trade, that such r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madhya Pradesh High Court in M. P. Slate Co-operative Bank Ltd. v. Addl. CIT [1979] 119 ITR 327, to the facts of this case. Hence, we answer the first question in the affirmative and against the Revenue. Coming to the second question, we find that subsidies have been given by the Government to the assessee as inducement for opening branches and for compensating it in the matter of grant of loans to the poorer sections of the people, at a lower rate of interest. Though the learned counsel for the Revenue contends that the receipt of such subsidies cannot be taken to be income from banking business, we are of the view that it will clearly be income from banking business. This has been so held by the Allahabad High Court in H. R. Sugar Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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