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TMI Blog2008 (8) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... . JUDGMENT The judgment of the court was delivered by DEEPAK GUPTA J. - This appeal has been admitted on the following question of law: "Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the interest income earned by the assessee on deposits made with H. P. State Co-operative Bank in the shape of F. D. Rs. is income derived from banking business and, therefore, eligible for deduction under section 80P(2) (a) (i) of the Income-tax Act?" 2. The brief facts necessary for decision of the case are that the assessee is a co-operative Bank created under the H. P. Co-operative Societies Act, 1968. Section 57 of the Act reads as follows: "57. Reserve fund. - ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invested the amount available in the reserve fund in the H. P. State Co-operative Bank which is also a co-operative society. 5. The Assessing Officer relying upon the judgment of the apex court in Madhya Pradesh Co-operative Bank Ltd. v. CIT [1996] 218 ITR 438, came to the conclusion that the income derived from the investment of statutory reserve could not be regarded as income from banking activities and as such the interest amount earned by the assessee from such securities did not qualify for exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961 (for short "the Act"), which reads as follows: "80P. Deduction in respect of income of co-operative societies.- (1) Where, in the case of an assessee being a co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case [1996] 218 ITR 438 stands overruled by a larger Bench in Karnataka State Co-operative Apex Bank's case [2001] 251 ITR 194. The pertinent finding of the apex court read as follows (page 196): "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hahar Central Co-operative Bank Ltd.'s case [2007] 289 ITR 6, it is apparent that any interest on such investments is required to be deducted under section 80P(2)(a)(i) of the Act. 12. Faced with this situation, Ms. Vandana Kuthiala raised a plea that there is nothing on record to show that the Registrar has given approval for deposit of this amount in the H. P. State Co-operative Bank. To say the least, this is an argument of desperation. This stand was not raised at any stage before the income-tax authorities. Such a plea cannot be permitted to be raised at this stage. Even otherwise, there is sufficient material on record to show that the Registrar has been approving the balance-sheets of the assessee-bank which itself will imply t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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