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TMI Blog2001 (9) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... n the relevant assessment years, mentioned in the respective impugned orders, claimed deductions under section 80P(2)(a)(i) of the Act, on the income earned by way of interest on Government securities. The Assessing Officer, in all the respective cases, held that the income from Indira Vikas Patra, not being income earned from banking business, was not exempted under the above section. On appeal, the appellate authority in some cases, allowed the appeals holding that the income earned was not out of non-banking business. But in some cases he confirmed the order of the Assessing Officer. The Income-tax Appellate Tribunal ("the Tribunal" for short) dismissed all the appeals preferred by the Revenue and allowed the appeals preferred by the assessees. Consequently, the Tribunal accepted the contention of the assessees in all the cases that interest income was attributable to the assessees' business income. The aggrieved Revenue has preferred these appeals. Rival submissions: Learned counsel for the Revenue contended that it was necessary that the income should have been earned from the actual conduct of the business of banking. What is required under section 80P of the Act is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue also contended that investment of surplus fund of the co-operative bank in excess of banking reserves, in long-term deposits with other banks could not be considered as banking activities and, therefore, interest earned on such deposits is not entitled to deduction under section 80P(2)(a)(i) of the Act. In sum and substance, the submission is that the investment in the security like Indira Vikas Patra is not easily encashable, consequently, such investment is taken out of banking business. The income earned from such investment cannot be said to be income earned from the banking business. Per contra, learned counsel for the assessee contended that it was obligatory on the part of the Assessing Officer to first determine as to whether the investments made in Indira Vikas Patra were from surplus funds, not needed for banking activities. Since, no facts in this behalf were investigated by any of the authorities below, this court should not dwell upon this aspect of the matter for want of adequate material and categorical finding in this behalf. He further tried to point out that the funds received by way of various deposits from the customers were used for acquiring Indira Vikas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on record letter dated October 10, 1990, written by the State Bank of India to the said assessee. Placing strong reliance on this piece of evidence, learned counsel for the assessee argued that securities like Indira Vikas Patras can easily be transformed into liquid cash and the liquidity generated therefrom could easily be utilised to meet the requirement of the banking business. Such liquidity can always be used as circulating capital meant for banking business. Therefore, he submitted that these securities could be treated as stock-in-trade and/or circulating capital. In his submission, the interest earned thereon and shown as forming part of the income of the bank can qualify for exemption. He, therefore, prayed for dismissal of the appeal with costs. Statutory provisions: Before examining the arguments in support of the contention, it is necessary to have a look at the scheme of the Income-tax Act and the law on the subject. Section 80P of the Act deals with deduction in respect of income of cooperative societies: "80P. Deduction in respect of income of co-operative societies.-... (2) The sums referred to in sub-section (1) shall be the following, namely,- (a) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r necessary sanctions, etc. (4) The Commissioner for Co-operation and Registrar of Co-operative Societies for every quarter should submit the progress report regarding the total investments in Indira Vikas Patra by various co-operatives." The Deputy Governor of the Reserve Bank of India, vide his letter dated October 5, 1989, addressed to the Principal Secretary, Finance Department, Government of Maharashtra, has extended no objection to the co-operative banks and/or such other institutions in the State of Maharashtra for making investment in Indira Vikas Patras. The co-operative banks are also required to follow the mandate of the Banking Regulation Act, 1949. Therefore, it is also necessary to take survey of the relevant provisions of the said legislation. Section 5(b) thereof defines the word "banking" as under: "5. Interpretation.--In this Act, unless there is anything repugnant in the subject or context,-... (b) 'banking' means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or other wise, and withdrawable, by cheque, draft, order or otherwise;..." Section 6 of the said legislation defines business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat which was put into circulation or turned over to earn profits and the Government securities coming out of the reserve fund which could not be easily encashed and could be utilised only when the contingendes mentioned could not be considered to be circulating capital or stock-in-trade. It was, therefore, ruled by the apex court while interpreting section 81, that the interest on Government securities placed with the State Bank of India and the Reserve Bank of India could not qualify for exemption under section 81 (now section 80P) of the Act. The Revenue also placed reliance on the judgment of the Gujarat High Court in the case of Gujarat State Co-op. Bank Ltd. v. CIT [2001] 250 ITR 229, wherein it was held that the investment of the surplus funds of the co-operative bank including those permitted by section 67(2), read with section 71 of the Gujarat Co-operative Societies Act, 1961, in excess of banking reserves or S.L.R. funds, in short-term deposits with other banks could not be considered to be "banking activity" and, therefore, interest earned on such deposits was not entitled for deduction under section 80P(2)(a)(i). Learned counsel for the, Revenue and the assessees b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee was the decision in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC). In this case while construing the expression "profits and gains attributable to the business" in section 80E which provides for deduction in respect of profits and gains from specified industries in case of certain companies, the apex court was pleased to accept the submission that since the assessee, as a licensee, was required to appropriate certain amounts in contingency reserve and to invest the same as securities authozised under the Indian Trusts Act, 188Z the income by way of such investments as securities had to be treated as profits and gains attributable to the business of the assessee which was to generate electricity as licensee under the Electricity (Supply) Act. In the said case, the apex court further observed: "In our view, since the expression of wider import, namely, 'attributable to', has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity." The other decision of the apex court relied upon by learned counsel for the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue. No enquiry in this behalf was made by any of the authorities below. It was obligatory on the part of the fact-finding authorities below to make enquiry and record findings of fact in this behalf. No such attempt was made by either of the authorities below in this regard. We are, therefore, left with no other alternative but to decide these matters on the facts found and available on record. The facts found and available on record do suggest that the interest income was attributable to the assessees' business income and the investment made in Indira Vikas Patras are investments made from the fund generated from the banking business. It has a direct and proximate connection with or nexus with the earning from banking business in order to attract the provisions of section 80P(2)(a)(i) of the Act. It was expected of the authorities below to go into factual aspect of the matter and to find out as to whether the investments made were from surplus funds or from the funds which were temporarily surplus in the hands of the bank. It was further expected of the authorities below to find out whether the investments made in Indira Vikas Patras ceased to be circulating capital or that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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