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TMI Blog2012 (12) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... i for the Income Tax Department. Shri Ashok Trivedi appears for the respondent assessee. 2. In this income tax appeal under Section 260-A of the Income Tax Act, 1961 (in short the Act) the Commissioner of Income Tax, Muzaffar Nagar has raised the following questions of law to be considered by the Court:- "(1) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that interest earned by the assessee which is a Co-operative Bank on the deposits of its non-SLR funds is income from Banking Business and consequently exempt u/s 80-P (2) (a) (i) of the I.T. Act, 1961? (2) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that interest earned on deposits of its non-SLR funds are also covered within the meaning of Section 80-P (2) (a) (i) of the Act? (3) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that interest on Non-SLR investment is exempt u/s 80-P (2) (a) (i) ignoring that the definition of financing Bank or Central Bank in U.P. Co-operative Society Act does not refer to Section 5 or 6 of Banking Regulation Act and restrict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder as to costs." 4. Shri Dhananjaya Awasthi submits that this Court considered the question regarding the interest earned by the cooperative bank on deposits of its non-SLR funds, qualifying for deduction under Section 80P (2) (a) (i) of the Act CIT v. District Co-operative Bank Ltd. [Income Tax Appeal No.83 of 2007] decided dated 6.1.2000. All these judgments relate to SLR funds. So far as non-SLR funds are concerned, the question may be decided by this Court. He submits that the Court may refer the judgment in District Co-operative Bank Ltd.'s case (supra) to Larger Bench. 5. Shri Ashok Trivedi appearing for the respondent-assessee bank submits that the question relating to non-SLR funds is also covered by the same ratio and reasoning as in the case of Karnataka State Co-operative Apex Bank (Supra); Mehsana District Central Co-operative Bank Ltd. (Supra) and Nawanshahar Central Co-operative Bank Ltd. (Supra). He submits that the Supreme Court in Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114 (SC) considered the question of the applicability of the notification exempting the income of cooperative bank from interest received from deposits and held that the placemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich formed part of the stock-in-trade and as it was a co- operative bank the profits made from such sales were held to be exempt from taxation under the Notification. 12. In the instant case the co-operative society (the appellant) is a Bank. One of its objects is to carry on the general business of banking. Like other banks money is its stock-in-trade or circulating capital and its normal business is to deal in money and credit. It cannot be said that the business of such a Bank consists only in receiving deposits and lending money to its members or such other societies as are mentioned in the objects and that when it lays out its moneys so that they may be readily available to meet the demand of its depositors if and when they arise, it is not a legitimate mode of carrying on of its banking business. The Privy Council in The Punjab Cooperative Bank Ltd. v. The Commissioner of Income-tax, Lahore [1940] 8 I.T.R. 635 where the profits arose from the sale of Government securities pointed out at p. 645 that in the ordinary cases the business of a Bank essentially consists of dealing with money and credit. Depositors put their money in the Bank at a small rate of interest and in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not lent to borrowers but were laid out in the form of deposits in another bank to add to the profit instead of lying idle necessarily ceased to be a part of the stock-in-trade of the bank, or that the interest arising therefrom did not form part of its business profits. Under the bye-laws 68 one of the objects of the appellant bank is to carry on the general business of banking and therefore subject to the Co- operative Societies Act, it has to carry on its business in the manner that ordinary banks do. It may be added that the various heads under s. 6 of the Income Tax Act 'and the provisions of that Act applicable to these various heads are mutually exclusive. Section 12 is a residuary section and does not come into operation until the preceding heads are excluded. Commissioner of Income-tax v. Basant Rai Takhat Singh [1933] 1 I.T.R. 197." 9. The Bombay High Court in The Goa Urban Co-operative Bank Ltd.'s case (Supra) has held in paras 2 and 3 as follows:- "2. The facts are hardly in controversy. The investment by the assessee Bank is in excess of statutory liquidity ratio i.e. 25% of demand and liabilities in terms of Section 24 of the Banking Regulation Act. However, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ratnagiri District Central Co-operative Bank Ltd. MANU/MH/0578/2001 : (2002) Vol.254 Income Tax Reports page 697 to contend that this deduction was not permissible. We are not inclined to accept this submission primarily in view of what is held in the case of C.I.T. v. Ratnagiri District Central Cooperative Bank Ltd. (supra) as the issues are no way different. In fact in that case while referring to the Judgment of the Supreme Court in the case of Bihar State Co-operative Bank Ltd. v. CIT MANU/SC/0139/1960 : (1960) 39 ITR 114 where the Apex Court clearly held that short-term deposits by the Bank was income from normal banking business and was, therefore, exempt from the liability to pay Income Tax. It was further specifically held in that case that since the society in that case was engaged in banking activity, its normal business was to deal in money and credit and, therefore, the money laid out in the form of short-term deposit did not cease to be a circulating capital and interest earned thereon, could not be other than income generated from the business of banking, and, was therefore exempt from tax. In the present case, the investments have been made by the Bank in government ..... X X X X Extracts X X X X X X X X Extracts X X X X
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