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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 ..... a co-operative bank from lease of immovable property would be entitled to special deduction u/s 80P. X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Appellate Tribunal is justified in holding that the interest income of Rs. 14,23,316 earned on investment of reserve fund is not derived from regular banking business of the appellant and does not qualify deduction under section 80P of the Income-tax Act ?" 5. While assailing the validity of the impugned order, learned counsel for the appellant submits that, in view of the provisions of section 80P(2)(a)(i) of the Act, the interest earned on the reserve funds in various Government securities qualify for exemption from payment of taxes. He has also relied on the provisions of sections 18 and 19 of the Bihar Act, and section 56 read with sections 5 and 6 of the Central Act. He next submits that the learned Tribunal has failed to notice the distinction between an ordinary co-operative society and banking co-operative society which in addition is governed by the Central Act. He next submits that in view of the provisions of sections 6 and 56 of the Central Act, the investment made by the appellant in Government securities 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 rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the materials on record and considered the submissions of learned counsel for the parties. The admitted position is that the appellant is registered under the Bihar Act and is, therefore, governed by this Act as well as the Central Act. 8. We should first of all notice the relevant provisions of the Bihar Act. Section 16 of the Bihar Act is headed "Restrictions on lending", section 18 is headed "Reserve fund", section 19 is headed "Investment of fund", and are reproduced hereinbelow for the facility of quick reference : "16. Restrictions on lending.-(1) Except with the general or special sanction of the Registrar and subject to such restrictions as he may impose, a registered society shall not- (a) make a loan to any person other than a member, or (b) lend money on the security of movable property : Provided if any reference is received, the Registrar shall dispose of the reference within three months of its receipt. (2) The State Government may, by general or special order, prohibit or restrict the lending of money or mortgage of immovable property by registered society or class of registered societies. (3) Where the Registrar has accorded sanction to a financing bank und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its reserve fund in various Government securities, as the law then stood. To that extent the funds of the appellant are locked up, and are not in immediate circulation for its lending business, and are indeed by way of security to its investors. 10. We should now notice the relevant provisions of the Central Act. Section 3 of the Central Act is headed "Act to apply to co-operative societies in certain cases", and is reproduced hereinbelow : "3. Act to apply to co-operative societies in certain cases.-Nothing in this Act shall apply to- (a) a primary agricultural credit society ; (b) a co-operative land mortgage bank ; and (c) any other co-operative society, except in the manner and to the extent specified in Part V." 11. The admitted position is that the appellant is governed by the provisions of section 3 of the Central Act. Section 5 of the Central Act provides the definition of the expression used in the enactment. Section 5(a) defines "approved securities" and is reproduced hereinbelow : "5. (a) 'approved 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative Apex Bank [2001] 251 ITR 194, which did not agree with the aforesaid judgment of the Supreme Court in Madhya Pradesh Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 (SC), and overruled the same in clear terms. 15. The following portion of the later judgment, which holds the field today, is reproduced hereinbelow for the facility of quick reference (page 196) : "The question is whether we agree with the reasoning in Madhya Pradesh Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 (SC). There is no doubt, and it is not disputed, that the assessee-co-operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)(i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, the income 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-opera ..... X X X X Extracts X X X X X X X X Extracts X X X X
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