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Issues Involved:
1. Exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961. 2. Whether the entire income of the co-operative bank is from banking business. 3. Whether investments in various securities require the sanction of the Registrar under section 63 of the Co-operative Societies Act, 1912. 4. Whether income from such investments can be considered as income from banking business and exempt under section 80P(2)(a)(i). Issue-wise Detailed Analysis: 1. Exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961: The primary issue in these appeals is whether the entire income of a co-operative bank, which is recognized as a scheduled bank by the RBI, is exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961. The assessee-bank claimed that its entire income is from banking business, while the Income Tax Officer (ITO) argued that only the income directly related to lending/borrowing activities should be exempt. The Commissioner (Appeals) upheld the assessee's claim, stating that investment in government and other securities is part of the bank's activities, and therefore, the entire income is exempt. 2. Whether the entire income of the co-operative bank is from banking business: The Tribunal examined the definition of 'banking business' under the Banking Regulation Act, which includes activities such as accepting deposits, lending, and investing. The Tribunal concluded that the term 'banking business' as defined under the Banking Regulation Act should apply to the assessee-bank, and any income derived from activities specified under this Act should be considered as income from banking business. The Tribunal noted that the investment in government securities is an integral part of banking business and thus, the income from such investments is attributable to banking business and is exempt under section 80P(2)(a)(i). 3. Whether investments in various securities require the sanction of the Registrar under section 63 of the Co-operative Societies Act, 1912: The revenue argued that the investments made by the assessee-bank in various securities required the sanction of the Registrar under section 63 of the Co-operative Societies Act, 1912. The Tribunal, however, concluded that the Banking Regulation Act overrides the Co-operative Societies Act in matters related to banking business. Therefore, the investments made in government securities, which are considered approved securities under the Indian Trusts Act, do not require the sanction of the Registrar. The Tribunal emphasized that the co-operative bank is governed by the Banking Regulation Act and the Reserve Bank of India Act, and not by the Co-operative Societies Act for its banking activities. 4. Whether income from such investments can be considered as income from banking business and exempt under section 80P(2)(a)(i): The Tribunal referred to various provisions of the Banking Regulation Act and the Reserve Bank of India Act, which mandate banks to maintain a certain percentage of their liabilities in government securities. The Tribunal concluded that the investment in government securities is a part of the banking business, and the income derived from such investments is attributable to banking business. Consequently, the income from these investments is exempt under section 80P(2)(a)(i) of the Income-tax Act. Conclusion: The Tribunal held that the entire income of the co-operative bank, including income from investments in government securities, is attributable to banking business and is exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961. The departmental appeals were dismissed. Separate Judgment: One member, while agreeing with the ultimate conclusion, expressed a personal opinion that a contrary view might be more appropriate, suggesting that the exemption should be limited to the part of the banking business that provides credit facilities to members of the society. However, this member did not pursue this view further, acknowledging that the matter would ultimately be decided by the High Court.
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