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TMI Blog2009 (9) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Bihar Act specifically govern banking companies and we shall have the occasion to refer to them in due course. Section 3 of the Banking Regulation Act, 1949 (10 of 1949) (hereinafter referred to as "the Central Act"), applies to co-operative societies in certain cases, and shall be discussed at the appropriate stage. The appellant submitted its returns for the period in question and was assessed to tax, vide order dated September 14, 2000, passed by the learned Joint Commissioner of Income-tax, Special Range-I, Patna, whereby he rejected the two claims for exemption, namely, the interest earned by it on its compulsory investment should be exempted from payment of income-tax, and the income received from lease of its immovable properties should also be exempted from payment of income-tax. 3. Aggrieved by the order of the learned Assessing Officer, the appellant preferred an appeal which has been rejected by the learned Commissioner of Income-tax (Appeals-II), Patna, by order dated July 12, 2001, passed in I.T.A. No. 141/P/A-II/2000-2001, whereby he has rejected the claims of exemption made by the appellant and upheld the order of the learned Assessing Officer. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is compulsory investment in terms of section 19 of the Bihar Act and is, therefore, a business activity of a banking co-operative society. In view of the relevant provisions of the two enactments, interest earned on such compulsory investment by a banking co-operative society is entitled to exemption. He relies on the judgment of the Supreme Court in CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194. He has also submitted that the learned Commissioner of Income-tax (Appeals) as well as the learned Tribunal have relied on the judgment of the Supreme Court in Madhya Pradesh Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 (SC), which has been overruled by the Supreme Court in CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194. He, lastly, submits that the appellant has leased out certain portions of its immovable property which earn certain income. In view of the provision of section 6(l) and 6(n), read with section 6(2) of the Central Act, such income qualifies for exemption from payment of income-tax. He has also relied on the following judgments : (i) Judgment of the Supreme Court in Gujarat State Co-operative Bank Ltd. v. CIT [2001] 251 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney or mortgage of immovable property by registered society or class of registered societies. (3) Where the Registrar has accorded sanction to a financing bank under the provisions of sub-section (1), a registered society which is a member of such financing bank may, subject to the terms of the sanction and such other terms and conditions as may be prescribed by the Registrar, act as agent for the financing bank and as such agent carry out, with or without any commission, all or any transactions connected with loans or advances made or to be made by the financing bank." "18. Reserve fund.-(1) At least thirty-five per cent. of the net pro-fits of a registered society shall each year be deposited to the reserve fund provided that the State Government may by rule increase or decrease this proportion for work of any society or class of societies. (2) The reserve fund shall not be used in the business of the society except to such extent and in such manner as may be prescribed by the rules. (3) At least ten per cent. of the net profit shall be transferred to 'Co-operative Education and Development Fund' by all the registered societies. (4) In such registered societies where ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities' means- (i) securities in which a trustee may invest money under clause (a), clause (b), clause (bb), clause (c) or clause (d) of section 20 of the Indian Trusts Act, 1882 (2 of 1882) ; (ii) such of the securities authorised by the Central Government under clause (f) of section 20 of the Indian Trusts Act, 1882 (2 of 1882), as may be prescribed." 12. Section 5(b) defines "banking". Section 6 is headed "Forms of business in which banking companies may engage", the relevant portion of which is reproduced hereinbelow : "6. Forms of business in which banking companies may engage.- (1) In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely : -. . . (l) selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company : . . . (n) doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company ; (2) No banking company shall engage in any form of business other than those referred to in sub-section (l). (em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e derived therefrom would be income from the assessee's business. We are unable to take the view that found favour with the Bench that decided the case of Madhya Pradesh Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 (SC) that only income derived from circulating or working capital would fall within section 80P(2)(a)(i). There is nothing in the phraseology of that provision which makes it applicable only to income derived from working or circulating capital. In the premises, we take the view that the decision of this court in the case of Madhya Pradesh Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 (SC) does not set down the correct law and that the law is as we have put it above. The question, accordingly, is answered in the affirmative and in favour of the assessee." 16. We must state that the order of the learned Commissioner of Income-tax was rendered on July 12, 2001, whereas the judgment of the Supreme Court in CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 (SC), was rendered on August 22, 2001, and, therefore, could not have been noticed. However, the order of the Tribunal was rendered on January 18, 2002. It appears that the later judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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