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TMI Blog1978 (10) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... nk's stock-in-trade or business assets and the interest therefrom was exigible to tax ? " The relevant assessment year is 1963-64. The corresponding previous year ended on 30th June, 1962. The assessee is the M. P. State Co-operative Bank Ltd., Jabalpur, which is the apex body of the district co-operative banks in the State of Madhya Pradesh. The bank in the present shape came to be formed under the M. P. Co-operative Societies (Amalgamation) Act, 1957. The bank is registered under the Co-operative Societies Act, 1912. At the relevant time, the bank was governed by the M. P. Co-operative Societies Act, 1960. Under s. 43(2) of this Act, a society is required to transfer, unless exempted by a general or special order of the Registrar, at l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the relevant period in terms of face value as evidenced from the balance-sheet is as under : Rs. (i) Securities pledged with the State Bank of India and shown under " investment" 44.92 lakhs (ii) Securities pledged with the Reserve Bank of India and shown under " investment" 55.59 lakhs (iii) Other unpledged securities shown under " investment " 11.30 lakhs (iv) Securities earmarked to reserve fund 19.55 lakhs (v) Securities earmarked to provident fund 0.50 lakhs -------------------- Total 131.86 lakhs Section 81(i) of the I. T. Act, 1961, as it stood on the relevant date, reads as follows : " 81. Income of co-operative societies.--Income-tax shall not be payable by a co-operative society-- (i) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee from the business of banking and was exempt under s. 81 (i)(a) of the Act. In the case of a bank, the business normally consists, in its essence, of dealing with money and credit. Depositors place their money with the bank and receive a small rate of interest. Borrowers from the bank receive loans of a large part of the deposits at somewhat higher rates of interest. The banker has always to keep enough cash or easily realisable securities to meet any probable demand by the depositors. Investments in easily realisable securities to meet withdrawals by depositors is a normal step in carrying on banking business. [Punjab Co-operative Batik Ltd. v. CIT[1940] 8 ITR 635 (PC).]. In Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losses or when the society is to be wound up. The investment of the reserve fund in securities is obviously not to meet withdrawals by depositors or other transactions as is the case with the circulating capital or stock-in-trade. Having regard to the aforesaid features, the reserve fund cannot be taken to be circulating capital or stock-in-trade of the assessee. The entire capital of a bank cannot always be said to be employed in banking business. Income arising from investment of that part of the capital which is not needed for banking business cannot be said to be income arising from banking business. In Bihar State Co-operative Batik Ltd.'s case [1960] 39 ITR 114 (SC), the bye-law provided that the bank would invest surplus funds whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are not. For example, where the funds of a bank are lying idle and are not being utilised by it for its banking purposes as was the case in CIT v. Canara Bank Ltd. [1967] 63 ITR 328 (SC), such funds will not be part of its trading assets. In other words, any investment by a banking concern would not necessarily represent its trading assets. There may well be cases where certain funds are idle or not utilised by the bank, in which case such funds will not be trading assets." We respectfully agree with these observations. The learned counsel for the assessee referred to us U. P. Co-operative Bank Ltd. v. CIT [1966] 61 ITR 563 (All), CIT v. Orissa Co-operative Housing Corporation Ltd. [1976] 104 ITR 157 (Orissa), Malabar Co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss account of the assessee. The point that interest from investment of provident fund was not income of the assessee was not raised before the ITO or the AAC. The Tribunal held that as interest earned from investment of provident fund was included in the gross interest, it had to be held that the income was income of the assessee. The question referred to us does not cover the question whether interest from investment of provident fund is the assessee's income or not. We are, therefore, not entitled to go into this question. We have to proceed on the assumption that this income was income of the assessee. This income, however, cannot be a part of the income from banking business as the provident fund cannot be utilised in the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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