9911796707
TMI Blog1986 (6) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... e from such securities which had to be so kept to meet the time and demand liabilities and would not apply to such income on securities invested out of the reserve funds for the reason that compliance of sections 54, 55 and 63 of the Co-operative Societies Act have not been made. 3. The Commissioner (Appeals) followed the earlier year's order of the Tribunal in the assessee's case and held that investment in the Government and other securities are part of the activity of the bank and, therefore, the entire income is exempt. 4. The revenue has come up in second appeal before us, as the view taken by the Commissioner (Appeals), is not acceptable to it. It has raised the following common questions in both the years : "Whether the investment of the reserve and other funds in various securities did not require the sanction of the Registrar of the Co-operative Societies under section 63 of the Co-operative Societies Act, 1912? Whether such investment can be said to be of banking nature? Whether the income from such investment could be said to be from banking business and exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961?" 5. The assessee is a co-operative society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in lakhs) (Rs. in lakhs) Reserve and other funds 1978-79 1981-82 Statutory reserve 51.69 83.39 Agricultural (Stablisation Fund own) 33.11 106.04 -do- (Loan from Government) 47.62 127.80 -do- (Grant in aid) 159.61 390.10 Building fund 3.44 6.16 Building fund (Subsidy from Government) 1.00 1.00 Dividend equalisation fund --- 3.70 Reserve for bad and doubtful debts 9.33 27.21 Investment depreciation fund 3.41 6.25 Staff gratuity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted by rules or by general or special order of the Government. 8. The Government securities do not fall in the above modes and, therefore, is out of the purview of section 63, the consequential effect being they cannot be treated as bank's stock-in-trade. Further, the assessee could not even bring out the specific manner of investment of the reserve funds. The general or special order can only be given by the Registrar under section 55(2), which was never sought for by the assessee. Similarly the assessee-bank should have sought the permission under section 54 for investment of building fund and other funds, which was never carried out. (sic) Since the Rajasthan Co-operative Societies Act governed the assessee, which has been not so complied with the investment had to be treated as of non-banking nature. 9. According to the learned departmental representative, registration of bye-laws cannot be equated to a general section by the Registrar at all, as even in the certification, it has only been mentioned that it is a certified true copy. However, she conceded that since the assessee is a bank, and as per banking law 20 per cent of its time and demand liabilities have to be inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain cases---nothing in this Act shall apply to---(c) any other co-operative society, except in the manner and to the extent specified in part V'. In section 56, of the Banking Regulation Act as would be applicable to co-operative banks have been specified and contains modifications of the various sections for that purpose. Section 56(d) reads as under : "56. Act to apply to co-operative societies subject to modifications.---(1) The provisions of this Act, as in force for the time being, shall apply to, or in relation to, co-operative societies as they apply to, or in relation to, banking companies subject to the following modifications, namely : (d) for section 5A, the following section shall be substituted, namely; The provisions of this Act shall have effect, notwithstanding anything to the contrary contained in the bye-laws of a co-operative society or in any agreement executed by it, or in any resolution passed by it in general meeting, or by its board of directors or other body entrusted with the management of its affairs. Whether the same be registered, executed or passed, as the case may be,... (2) Any provision contained in the bye-laws, agreement or resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther loans or of shares, stocks, debentures, or debenture stock of any company, corporation or association and the lending of money for the purpose of any such issue;" 14. The reading of the above indicates that one of the activities or business of a bank is to acquire, hold and deal in securities and investments of all kinds. Approved securities have been defined in section 5(a) to mean-securities in which a trustee may invest money under clause (a), (b), (bb), (c) or (d) of section 20 of the Indian Trusts Act, 1882. Clause 3 (h) of the bye-laws provide for investment of its funds in the securities specified in clauses (a), (b), (c) and (d) of section 20 of the Indian Trusts Act. Putting all the above together, it can very well be seen that the investment made in the Government securities which is a security within the meaning of section 20 is, therefore, an activity or business of the assessee-bank and income earned therefrom or derived therefrom is attributable to banking business only. 15. On the issue of investment of reserve funds which according to the revenue is governed by section 55(2) and has to invest in the four modes specified in section 63 and for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Registrar of the Co-operative Societies is not at all called for as his powers are taken over by the Reserve Bank of India Act. 18. In the case of United Commercial Bank Ltd., their Lordships were considering an issue of taxing of income from securities as to whether it constitutes profits and gains in relation to the heads of income under the Indian Income-tax Act, 1922. Their Lordships were of the view that the Act having provided specific head of income for taxing purposes, the income from securities has to be treated separately and not as part of its profits from business. In the case of Narandas Sons the Bombay High Court was again faced with the situation of securities held as stock-in-trade and taxability of its income. It was held : "In view of the decision of the Supreme Court in United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688, income from interest on securities falls under section 8 and is not business income falling under section 10, even though the securities are held by a dealer as his stock-in-trade." Their Lordships made a reference to the Privy Council's ruling in Punjab Co-operative Bank Ltd. v. CIT [1940] 8 ITR 635 and observed that "in Punjab Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
