2005 (11) TMI 164

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..... operative Bank are not applicable to the Regional Rural Bank. 4. That the authorities below have erred on facts and in law in stating that the investments mentioned in the assessment order are not in accordance with the provisions of Regional Rural Bank Act, 1961. 5. That the authorities below have erred on facts and in law in taxing the income from SLR investments and Non-SLR investments ignoring the various decisions of Hon'ble Supreme Court, High Courts and Income-tax Appellate Tribunal. 6. Your appellant submits that in view of the definition of the banking business as contained in the Banking Business as contained in the Banking Regulation Act, 1949, which defines that 'banking means the accepting, for the purpose of lending or investments, of deposits of money from public', the income of the appellant bank from its investment is its income from the banking business and hence, eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. 7. That the orders passed by both the lower authorities below are without appreciating the facts, various submissions, explanation and information submitted by the appellant from time to time which ought to have been consi .....

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..... ;                            subscribed ----------------------------------------------------- 1.      50%       Govt. of India       5,000 2.      35%       Bank of India        3,500 3.      15%       Govt. of Uttar                   Pradesh              1,500 ----------------------------------------------------- However, for the purpose of Income-tax Act, 1961 and Interest tax Act, 1974, the status of Co-operative Society has been assigned under RRB Act, 1976. 3.1 The working area of the assessee Bank has been notified in terms of section 3(1) of the Regional Rural Banks Act, 1976 (hereinafter called as 'RRB Act, 1976'), as the districts of Farrukhabad and Kannauj. I .....

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..... p;                       ---------------- 3.4 After taking into consideration the decisions mentioned at pages 2 and 3 of the assessment order, namely CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 (SC), MP Co-operative Bank Ltd v. Addl. CIT [1996] 218 ITR 438 (SC), Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114 (SC), CIT v. Ratnagiri Distt. Central Co-operative Bank Ltd. [2002] 174 CTR (Bom.) 116 and a decision of Special Bench of ITAT, Ahmedabad in the case of Surat District Co-operative Bank Ltd. v. ITO [2003] 78 TTJ (Ahd.) (SB) 1, he was of the view that these case laws would establish that under section 80P(2)(a)(i) deduction is largely dependent upon facts of the case and more particularly:- 1. Investments were out of surplus funds. 2. In approved securities and easily reliable in case of need. 3. Placement of such funds being imperative to the carrying of business of banking. 4. That funds were to be part of circulating capital and could not be permanently deprived of banking business. 5. That the very definitions of banking vide .....

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..... ks. 3.8 Accordingly, on account of the fact that the banks neither have discretion nor any control over this funds and which are designed to fulfil objectives not of the Regional Rural Bank and thus would not be an essential part of Banking activity of Regional Rural Bank inasmuch as there is no provision for their withdrawals, they are effectively out of the purview of the Bank business of Regional Rural Bank. 3.9 Thus on account of this reasoning, he was of the view that such "Investments" being outside the pale of Banking activity and not available to the Bank, as per its discretion accordingly the Income thereon would not qualify for deduction under section 80P(2)(a). 4. With regard to the non-SLR investments, which were calculated as under:- (i)    HPSFCL Bonds.                  Rs.  1,00,00,000   (ii)   IDBI Bonds                     Rs.  1,00,00,000 (iii)  IDBI Bonds             .....

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..... come-tax Act, 1961, which included the interest income earned on Non-SLR investment which amounted to Rs. 4,02,30,000. He was of the view that since this income was earned on the investments which were not in accordance with the scheme of Regional Rural Banks Act, 1976 since under the provisions of RRB Act, 1976, the bank has to conduct banking business in the notified area. The Non-SLR investments on the 'other hand according to him were made outside the notified area even though under the guidelines of Reserve Bank of India and NABARO, yet they were held to be not entitled for deduction under section 80P of the Income-tax Act, 1961 because the business of assessee bank was beyond the purview of RRB Act, 1976. Being of the view that these investments are not in accordance with the objects as specified in the RRB Act, 1976. Therefore, income earned on Non-SLR investment was also held not entitled for deduction under section 80P of the Income-tax Act, 1961. 4.2 In the circumstances, he required the bank to give reasons as to why the income, on Non-SLR investment should also not be added in the total income vide order sheet notice dated 24-11-2003. 4.3 From a perusal of the assessm .....

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..... verned by: (a) State Co-operative Banks' Acts; and (b) Banking Regulation Act, 1949. The business of Regional Rural Banks, on the other hand, is governed by; (c) Regional Rural Banks Act, 1976; and (d) Banking Regulation Act, 1949. 4.7 On account of this fact he was of the view that the issue whether making investments by Regional Rural Banks is "ordinary course of banking business" or not, it was necessary to consider the provisions of RRB Act, 1976. 4.8 In this context referring to the objects for which the Regional Rural Banks were established, he referred to the preambles which read as under:- "An act to provide the incorporation, regulation and winding up of Regional Rural Banks with a view to developing the rural economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs and for matters connected therewith and incidental thereto." 4.9 He observed that these objects which have been enshrined in section 18 of the RRB Act, 1976 and section 3 of the sai .....

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..... Before the CIT(A) the Assessing Officer also placed written submissions which have been reproduced in para 3.2 onwards from page 3 of the CIT(A)'s order. 5.3 The sum and substance of these submissions which can briefly be culled out is that Co-operative bank and Regional Rural Banks are governed by different statutes as such the decisions in the case of Co-operative Bank will not apply. Another distinction namely the objects for which the Regional Rural Banks were formed namely developing the Rural Economy on Regional basis was also considered to be a marked distinction whereas the Co-operative banks have to develop the co-operative sector of the country, as such this distinction was submitted to be important. On facts, it was further submitted that in the year under consideration the assessee has shown the following sources of income: "(i) Interest income from loans and advances granted by the banks. (ii) Interest income from investment known as SLR investment. (iii) Interest income from investment known as Non-SLR investment. (iv) Income or grant from Government sponsored scheme. (v) Income from other banking activities like locker rent etc." 5.4 The Assessing Officer fur .....

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..... 94 (SC) (iii) MP Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 (SC) (iv) Malprabha Gramin Bank, Dharwad v. Jt. CIT, Hubli ITAT Order. (v) Surat Distt. Co-operative Bank Ltd. v. ITO [2003] 78 TTJ (Ahd.) (SB) 1 (vi) Farrukhabad Gramin Bank v. ITO, Ward-I, Farrukhabad, ITAT, Agra Bench, Agra [IT Appeal No. 54 (Farrukhabad) of 1999-2000, dated 29-2-2000] (Vii) Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) (viii) Union of India v. Satish Panalal Shah [2001] 249 ITR 221 (SC) (ix) CIT v. A.R.J. Security Printers [2003] 264 ITR 276 (Delhi) 5.8 With regard to disallowance of deduction under section 80P on the income earned from SLRs, the Assessing Officer by way of the written submission, contended as under:- "In respect of the assessee's claim for section 80P(2)(a)(ii) deduction on 'Interest from Government Securities subscribed under SLR requirements', please find enclosed a news paper clipping from the Economic-Times, in particular, para 1 of column 2, of the said article; 'Financial repression in India used to take many forms'. The Government got financial repression revenues, through a high statutory Liquidity Ratio, forcing banks to buy Government bonds and in ef .....

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..... written submissions, it was also pointed out before the CIT(A) that the ITAT Bombay Bench distinguished the judgment of Supreme Court in MP Co-operative Bank Ltd.'s case by referring to the fact that the Government securities subscribed under SLR can be traded. It was his submission that this impression is erroneous for it is only such securities subscribed in excess of SLR/CRR requirements that can be traded, and not those that conform to the limits laid down by the SLR/CRR requirements. 5.13 The submission was also made that CRR is not a sine qua non of the business of banking, for this reliance was placed on the practice in England wherein the Bank of England does not prescribe any CRR (i.e., effective CRR rate is Zero) for the banks whose operatives it is requires to super-use. 5.14 On the basis of the above facts and submissions, it was contended that the basis on which the judgment of Hon'ble Supreme Court in MP Co-operative Bank Ltd.'s case was overruled was:- (a) absence of Circular from the Registrar; (b) trading of SLR securities; (c) sine qua non nature of CRR/SLR requirements; and (d) that these SLR/CRR are an integrate part of banking operation. This, it was sub .....

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..... nce, the deduction admissible to the income derived from the co-operative bank will be admissible to the appellant bank only to the extent it qualifies for such deduction within the meaning of Board's Circular No. 319, dated 11-1-1982 read with section 22 of the Regional Rural Banks Act, 1976. Moreover even in case of Co-operative Banks, there are a number of judicial pronouncements including those of Hon'ble Apex Court of the Country in which it has clearly been laid out that the entire income of a Co-operative Society carrying on banking business is not exempt. It has been held by the Honourable Apex Court in MP Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 that "every income of Co-operative Society carrying on banking business is not exempt. If a co-operative Society engages itself in any other activity and earns profit therefrom, the income so derived becomes liable to tax". In the case of Mehsana District Central Co-operative Banks Ltd. v. ITO [2001] 251 ITR 522 the Hon'ble Apex Court held regarding Voluntary Reserve that "the question whether income derived by the assessee cooperative Bank from investment of its voluntary reserves other than statutory reserves is exe .....

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.....   31,55,49,000 earned Misc.               -          -        43,23,000     43,23,000 Income Total Income(A)  20,63,02,000  4,02,30,000   7,33,40,000 31,98,72,000 Expendi-   16,61,91,162  3,24,08,171   5,90,80,667 25,76,80,000 ture (B) Net Profit  4,01,10,838    78,21,829   1,42,59,333  6,21,92,000'" during the year (A-B) ------------------------------------------------------------------ 5.18 Thus, he was of the view that as per the break up of profits given by the assessee himself, the assessee has admittedly earned income from three distinct sources as under:- (1) Interest on SLRs (ii) Interest on non-SLRs (iii) Interest and Miscellaneous income earned from banking activities. 5.19 He observed that admittedly income from banking activities after deducing expenditure, which has been shown by the assessee at Rs. 1,42,59,333 as against total net income of Rs. 6,21,92,000. He further observed that the case law relied .....

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..... 96] 218 ITR 438, which had been overruled by the Apex Court in the case of CIT v. Karnataka State Cooperative Apex Bank [2001] 251 ITR 194, he was of the view that in the said judgment the Apex Court has laid down as under:- "... There is no doubt, it is not disputed, that the assessee cooperative 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-operative Bank Ltd. [1996] 218 ITR 438 (SC) that only income derived from circulating or working capital would fall within section 80P(2)(a)(i) there is nothing in the phraseology of that provision which makes it applicable only to income derived from working or circulating capital." 5.23 T .....

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..... ion or the manner of its utilization. It has to be seen whether at the point of accrual, the amount is of revenue nature. If so, the amount will have to be taxed. In the present case Assessing Officer has considered the income taxable by denying the exemption under section 80P. 5.27 The judgment of Mehsana District Co-operative Bank Ltd. v. ITO [2001] 251 ITR 522 (SC) was also held to be distinguishable since it pertained to a co-operative society engaged in the banking business. In that context interest earned on the funds utilized from the statutory reserves and from the income of hiring of safe deposits, was held to be qualifying for deduction under section 80P(2)(a)(i) as the funds were utilized in accordance with the ordinary banking business. 5.28 The case of CIT v. Ramnathapuram Distt. Co-operative Central Bank Ltd [2002] 255 ITR 423 (SC) was again distinguished on account of the fact that this too pertained to a cooperative society carrying the banking business. The reason, it was stated, for dismissing the civil appeal filed by the Revenue was that it was held that it is not open to the Revenue to urge through different counsel, the same thing again and again. 5.29 Reli .....

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..... om the fund generated from the banking business. It has a direct and proximate connection with or nexus to the earning from banking business in order to attract provisions of section 80P(2)(a)(i). In the facts and circumstances, findings recorded in favour of the assessees and against the Revenue are upheld." 5.30 Referring to the said judgment wherein the Court observed that each investment is to be examined, considered and decided on its own merit in order to apply the principles and for this purpose investigation of facts and definite findings are necessary. Accordingly, in this context the CIT(A) was of the view the court observed that in the absence of detailed inquiry in the nature of available surplus and investment thereof by the Revenue in that case, it was difficult to go along with the submissions made by the Revenue, since no inquiry in this regard had been made by the authorities. In the circumstances, the CIT(A) was of the view that the court in the case of Ratnagiri District Central Co-operative Bank Ltd. had to decide the matter on the facts found and available on record and the position was that the facts and circumstances available on record suggested that the in .....

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..... the assessee that it is the income-itself in the business venture as per the provisions of Banking Regulation Act, does not hold good as the issue under consideration according to him is whether or not the income earned from such activities is qualified for deduction under section SOP of the Act. 5.34 He was further of the view that in fact Their Lordships of Bombay High Court itself in para 28 of the said judgment have stated that the judgment was confined only to the facts of these cases in which the judgment was given and the fact remains that in the facts, as placed earlier, Their Lordship of Bombay High Court held that no facts were investigated by any authority and the judgment was as such rendered on the facts available on record. 5.35 On the basis of these facts, he was of the view that:- "Considering the above proposition of law with reference to the facts of the appellant's case, it is clear that the income derived by the assessee from various investments in SLRs and Non-SLRs cannot be regarded as an essential part of its activity and the objectives with which the deduction under section SOP of the Income-tax Act is extended to a Regional Rural Bank. Therefore, the inc .....

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..... was argued that the issue of exemption is fully settled and covered in favour of the assessee and as such it deserves to be allowed. 7.5 The ld. A.R. inviting attention to section 22 of the Regional Rural Bank Act and sections 3 and 18 of the same along with section 24 of the Banking Regulation Act contended that the issue is covered in favour of the assessee. 7.6 The ld. A.R. was required to address the Bench on the aspect of its SLR and Non-SLR investments as to how the amount has been invested by the assessee on which the deduction is sought to be claimed. 7.7 The learned A.R. sought time to ascertain the exact facts. As such, the case was adjourned to the next day. On the next date, the attention was invited to page 264, which was filed on behalf of the assessee in the course of hearing. According to this, it was stated, the total SLR investment in the year under consideration was Rs. 62,64,22,951. In support of the said submissions, reliance was placed upon the letter of the Chairman of the Bank dated 22-7-2004 placed at page 261 of the paper book. 7.8 On the aspect of investment of SLR, attention was invited to page 262 which, it was stated, was the RBI Directives/Guide L .....

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..... at all. As such, it is not correct on behalf of the assessee to submit that the entire income earned by the assessee has been brought to tax. It was his contention that CIT(A) is fully correct on the aspect that how can the assessee on its own allocate proportionate expenditure on SLR or Non-SLR and as such they should not be allowed. 7.12 In this background, the ld. A.R. was required to specifically address the Bench on the aspect as to what is the exact SLR income on which exemption is sought to be claimed and what is the exact non-SLR income, on which deduction is also claimed. Since the relevant facts were not available with the learned A.R. he sought time to verify and place a correct picture before the Bench. Accordingly, the case was adjourned to 12-7-2004. 7.13 On the said date, it was argued on behalf of the assessee that the total income is exempt under section 80P of the Income-tax Act and the assessee has, on the net profit, as per Profit and Loss account worked out the claim for exemption. With respect to the query from the Bench as to whether any income of the assessee has been exempted or not, it was his contention that no exemption has been allowed. However, while .....

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..... stead of addressing the Bench orally as to the total SLR and Non-SLR investment and income thereon. The assessee was directed to file copies of the same before the Bench and give one to the learned D.R. The Revenue was also given an opportunity to make necessary verification on this aspect. The objections if any, of the Revenue, were also invited on whether the assessee should be allowed to get the correct figure regarding the SLR and Non-SLR investment substituted at this juncture. Accordingly vide order sheet entry dated 12-7-2004 observing as under, the appeal was adjourned to the next date of hearing: "In the course of hearing, it was pointed out by the learned A.R. Mr. Dayal Saran that the assessee vide letter dated 7-7-2004, filed in the Registry in response to the Written submissions dated 5-7-2004 of the learned D.R. Mr. Waseem Arshad it was pointed out that the net profit for the assessment year 2001-02 was at Rs. 6,21,91,455 and not Rs. 6,22,92,000 as mentioned in the submissions made by the Addl. CIT, Circle 2(1), Farrukhabad. In the course of hearing it was further submitted before the Bench that there are certain errors apparent on the face of the record in the assess .....

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..... at looking at the peculiar nature of the issues, which arise for determination, it would be appropriate first of all to direct the learned A.R. to place in writing the errors sought to be pointed out in the assessment order, put in writing as to how and why the said facts were not brought to the notice of Assessing Authority under section 154 or before the CIT(A) when the assessee went in first appeal. The learned A.R. will give this reply in writing on or before 19-7-2004 and also give one copy of the same to the learned D.R. who on the receipt of the said reply of the assessee will give in writing the stand of the Revenue addressing the issue of correctness of assessee's version and anything else which the Revenue would like to address on this aspect on or before 26-7-2004. Thereafter any further replies/rejoinder, which either side may deem it necessary to bring to the notice of the Bench should be filed on or before 29-7-2004 after giving a copy to the other side. The appeal to be listed for hearing on 3-8-2004. Notice for the same to be issued to either side." 7.17 On the next date of hearing i.e., 3-8-2004, the ld. D.R. filed written submissions addressing the issue i.e., er .....

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..... with Bank        20,39,25,000 Other SLR Securities    23,77,000                      ------------                      20,63,02,000                      ------------ Please see details of Rupee Earned, as in the Annual Report, (Pie-chart), --------------------------------------------- On                              Rs. --------------------------------------------- A   Deposit with Banks 63%      20,39,25,000 B   Other income 1%                43,23,000 C   Interest on advances     (69017) 22%        & .....

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..... djudicated thus by the Assessing Officer. At best, he can take the 'plea' of the assessment being remanded to Assessing Officer for considering of allow ability of expenditure, he cannot suo motu allocate and adjucate the apportionment of 'expenses' himself. That will be foreclosing the issue, especially when the issue of (a) whether expenditure is to be allowed at all, is still open to question and (b) if it is to be apportioned, then on what basis. Accordingly, the reason for this exercise seems to be a suo motu adjudication of apportionment of expenses. Thus, the 'correct figures' are not to be treated as either correct, genuine or reliable but are a doctored version. Besides it is still maintained, that in the absence of a finding to that effect, it cannot be presumed that entire 80P has been disallowed. If however, the assessee still feels otherwise, he can still file a rectification petition under section 154 which shall be sincerely disposed off at the earliest.                              Sd/-        .....

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..... bsp;    Rs. 168,66,81,522.64                                   -------------------- 2.  That the income of Rs. 20,39,25,000.00 on SLR     investments has been mentioned at page No. (5)     of assessment order dated 26-12-2003, the     correct income on SLR investment is as under:-     Income on approved     investments for the     purpose of SLR (i.e.,     NABARD & IRBI Bonds of     Rs. 3,50,00,000.00)           Rs.  48,75,000.00     Income on SLR Deposit     with Sponsor Bank             Rs. 512,04,000.00     Total income on SLR           -----------------     investment              .....

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.....         For Farrukhabad Gramin Bank                                  Sd/-                (A.R. Shiwalkar) Chairman Dated: 15-7-2004                             Countersigned                                     Sd/-                     (Dayal Saran) Counsel" 7.22 On 3-8-2004, on behalf of the ld. D.R., a letter dated nil clarifying the position numbering 4 pages along with Annexure A was placed before the Bench. With regard to the figures presented by the assessee before the Assessing Officer on 3-12-2003, it was his s .....

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..... sp;                  -------------------      Total SLR Investment         Rs. 62,64,22,951.00                                   -------------------      Total Non-SLR Investment 1.   HPSFCL Bonds                 Rs.  1,00,00,000.00 2.   HBI Bonds                    Rs.  1,00,00,000.00 3.   IDBI Bonds                   Rs.  2,25,00,000.00 4.   SBI Bonds                    Rs.  1,00,00,000.00 5.   TFCI Bonds   &nbs .....

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..... LR investment. Stage-III:- However, the assessee, made an error in classification of its FDR/TDR's with other Banks, which up to a certain limit are termed SLR but beyond that are termed Non-SLR.So, out of a total TDR deposit of 2,11,45,44,043 as per Schedule 7, (a) Money at 'Call and     Short-notice' (TDR     with Sponsor Bank)        =     59,14,23,000 (SLR) (b) TDR's with other Banks    = 146,73,82,000 (This                                 is non-SLR) (c) Current accounts-cash     =   5,57,39,569 (Non-SLR)     although eligible as SLR,              but since it exceeds SLR     limits, is to be treated     as Non-SLR (d) Further, investments in   =   3,50,00,000 (SLR)     NABARD and IRBI Bonds (e) Other investment as given     .....

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..... ;    ------------ Thus, out of the figure of 4,02,30,000 adopted by Assessing Officer as 'Income on Non-SLR Investments' a sum of 48,75,000 would be income from 'SLR Investments' and 3,53,55,000 would be 'income from Non-SLR Investments'. Stage-V:- Income on Bank Deposits The Assessing Officer relying on Schedule-13 of the Annual report presumed Income on TDR's were made, in excess of SLR requirements and this excess would qualify as Non SLR. Accordingly, reconciliation, is, (a) The Assessing Officer failed to include 23,77,000 being interest on Current Deposits to the Income be considered as SLR i.e., 20,39,25,000. However, out of the 20,39,25,000 Income on TDR eligible as SLR   = 5,12,04,000 Income on Non-SLR (20,39,25,000 - 5,12,04,000) Investments                     = 15,27,21,000 Income on Current Deposits to be added And considered as Income on Non-SLR Investments                     =    23,77,000 Thus, Stage-VI:- Income .....

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..... but the disallowance has been restricted to the 'amount claimed as deduction' which corresponds to the Net-Profit viz., 6,21,45,444. 'Further, conclusion-II' However, it must be pointed out, that non-inclusion of other TDR's in other Banks, although Non-SLR investment, but not included in the details filed before the Assessing Officer on 3-12-2003 is a 'material-omission'. To recapitulate, Assessee, under the signature of its Chairman had furnished Total Non-SLR Investments as 1.  HPSFCL Bonds                Rs. 1,00,00,000.00 2.  HBI Bonds                   Rs. 1,00,00,000.00 3.  IDBI Bonds                  Rs. 2,25,00,000.00 4.  SBI Bonds                   Rs. 1,00,00,000.00 5.  TFCI Bonds                  Rs.   80,00, .....

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..... 'areas' for beyond 'approved area' under RRB Act. Hence, this is a significant omission. Besides, the Bench would observe that once funds are placed from an RRB into a Commercial Bank albeit at the same place, then there is no restriction or limits to its deployments and these funds may not necessarily be deployed within the 'limits' assigned but are in fad being deployed outside the area. Hence, once the funds shifts to the 'Sponsor-Bank' their deployment also undergoes a change from a 'restricted area' to a 'global operation' and from 'specific purposes' to 'Commercial Ones'." 7.23 However, with respect to the aspect whether figures can be corrected at this stage or not, he had no objection though it was submitted that it was the duty of the assessee to point out the same either before the Assessing Officer or CIT(A). In this background, the case was adjourned to the next date of hearing so as to afford the assessee also an opportunity to appreciate the arguments advanced by the ld. D.R. since he has challenged the classification of FDR/TDRs and then SLR and Non-SLR classification itself and thus calculations and other issues addressed. 7.24 On the next date of hearing the l .....

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..... of the Tribunal copy of which is placed at pages 34 to 37, ITA No. 844/Bangalore/2000 and stay petition No. 64/ Bangalore/2001. 7.30 Reliance was also placed upon the order of Ahmedabad Special Bench of the Tribunal in the case of Surat District Co-operative Bank Ltd v. ITO [2003] 78 TTJ (Ahd.) (SB) 1 and order of Hyderabad Bench of Tribunal in the case of Rayalaseema Grameen Bank v. Jt. CIT [IT Appeal No. 10 (Vizag) of 2000, dated 6-3-2000] copy of which is placed at pages 84 to 89 and the judgment of the A.P. High Court which has confirmed the order of Hyderabad Bench of Tribunal, copy of which is placed at page 90 of the paper book. 7.31 Accordingly, the submission was that the order of the Tribunal relied upon by the assessee should have been followed for which proposition; reliance was placed upon Agrawal Warehousing & Leasing Ltd v. CIT [2002] 257 ITR 235 (MP) and Bank of Baroda v. H.C. Shrivastava [2002] 122 Taxman 330 (Bom.) copy of which is placed at pages 98 to 103 and 104 to 110 respectively in the paper book filed before us. Reliance was also placed upon the judgment of the Karnataka High Court in the case of CIT v. Grain Merchants Co-operative Bank Ltd [2004] 134 Tax .....

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..... eserves guided by RBI directions in the lead Bank of the assessee, which is constituted within the notified area and as such when under the specific Acts, by which the assessee bank is functioning. If the assessee failed to maintain the requisite investments in the manner directed to the extent, then the assessee bank would be debarred from the activities of banking. As such, the income derived from these investments of the assessee bank, was on account of the fact the funds were necessarily required to be maintained in the manner prescribed by the Banking Regulation Act. It was submitted that the income of the assessee bank is derived from the business of banking and by virtue of section 22 of the RRB Act, the assessee bank is deemed Co-operative Society and, as such, on the basis of various judgments and orders, the income earned has to be exempted under section 80P(2)(a)(i) of the Income-tax Act. 7.35 It was also submitted by him that the CIT(A) has further sought to distinguish the fact that the judgments are not applicable on account of the fact that the cases relied upon are in the context of Co-operative Societies/Banks. It was his contention that the fact that the reliance .....

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..... n SLR income. As such, the submissions of the assessee on this aspect are not correct. 8.2 It was further submitted by him that even in the case of income from Non-SLR investment, even then the finding of the Special Bench of the Tribunal are context specific and has no bearing on the present case. 8.3 It was argued that this order pertains to a Co-operative Bank and not Regional Rural Banks and as such being guided by parent Co-operative Bank Act, the terms and provisions of which are not identical to the RRB Act, the finding has been given in the context of those provisions. Thus, the findings given even in the context of Non-SLR investment therein are not relevant. 8.4 Elaborating this aspect, the attention was invited to page 39 of the paper book, i.e., Surat District Co-operative Bank Ltd.'s case Ahmedabad Special Bench wherein, it was submitted the fact appreciated are relevant to the case of a Co-operative Bank deriving income from interest on investments made by Co-operative Banks in Government securities attributable to utilization of its funds from statutory reserves under section 67(2) of Gujarat Co-operative Society Act, 1961. 8.5 The other aspect, it was submitted .....

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..... 8.10 It was submitted that exemption is available only to the income which is from activities consonant to the aims and objectives of the assessee-Banks. The interpretation of different Acts would not necessarily be applicable to the business of banking to which the deduction is allowable under the RRB Act. 8.11 It was further submitted that all these orders, on which reliance has been placed, have all placed reliance upon the judgment of Hon'ble Supreme Court in the case of Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114, which pertains to a Co-operative Bank and not to the Regional Rural Banks. As such all these judgments on account of this material and specific distinction are not applicable either to SLR or non-SLR income. 8.12 It was further submitted by him that the facts as appreciated in different orders of the Tribunal and also the Special Bench of Ahmedabad order are all in the context of Co-operative Societies Act and in this background, on appreciation of facts, they found that the deployment of reserves is in consonance to the requirement of Co-operative Societies Act. It was argued that these findings are not relevant in the context of Regional Rural Ba .....

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..... ank, the main activity is the business of banking. It was emphasized that whereas in the case of Regional Rural Banks, the main object is not only banking but that the business of banking carried out in the specified area promoting the aims and objectives of the RRB Act. It was reiterated that it is not only the activity, which is relevant, but it is also necessary to see that it is from the area which is notified area of the particular Regional Rural Bank and this too for that banking activity which is seeing the aims and objectives of the RRB Act. Referring to the said order it was reiterated and emphasized that the specific facts and Acts were considered by the Tribunal and on account of these facts the Tribunal in the said order came to the conclusion:- "... all these investments fully satisfy the test easily realisable in the case of need. As such investment in approved securities and approved modes of investment are considered to be extremely safe and secured. It protects the interest of large number of depositors. The Bank has derived substantial interest income from such investments made in approved securities by investing surplus funds/idle moneys lying at the disposal of .....

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..... nking business is eligible for deduction under section 80P(2)(a)(i) by virtue of Banking Regulation Act and State Co-operative Society Acts. However, in the present case, it is not only the Banking Regulation Act, which is relevant, but it is also the RRB Act, which has to be taken into consideration and in case of the assessee, the area is specifically demarcated and notified and thus the income of banking activities from funds deployed towards the aims and objectives of the RRB Act only is eligible for deduction. It was submitted that on the other hand, the income from the banking activities generated by the Regional Rural Banks, i.e., the assessee which though as per the Guidelines of RBI but not in consonance with the ethos of the RRB Act is not eligible for deduction. 8.21 In the context of the above arguments, it was again reiterated that the Special Bench of the Tribunal In the case of Surat District Co-operative Bank Ltd. proceeded on the interpretation of the provisions of the Banking Regulation Act and section 71 of the Gujarat Co-operative Society Act, 1961 and various circulars, notifications etc. issued by RBI from time to time and in the light of these specific Acts .....

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..... nce, the exemption is given either to a particular activity or to a particular activity, which is area specific. In the present context, it was argued that it is not only the income from the business of bank, it is also the requirement that the banking activities should take place in a certain area aimed at a certain target group. Thus, the investment of these funds even if they meet the regulatory requirement, i.e., guidelines of the RBI, does not entitle the said bank to claim exemption for any activities, which is not arising from area of its notification or in consonance with aims and objectives of the RRB Act. 8.23 Attention was also invited to CIT v. Bangalore District Central Co-operative Bank Ltd. [1998] 233 ITR 282 (SC) referring to paper book page 23, which contains the said judgment from pages 20 to 33 as in [1998] 99 Taxman 404 (SC) wherein at page 407 of the said judgment. It was submitted that this judgment again was in the context of sections 24 and 56 of the Banking Regulation Act, 1949 as well as section 57(2) of the Karnataka Co-operative Society Act, 1959 and rule 23(3) of the Karnataka Co-operative Societies Rules, 1960 and in the context of these specific Acts .....

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..... RBI for Government Securities and thus the argument was that all that Regional Rural Bank had been created to cater to the specific area, but actually the income has resulted from investing as per the RBI guidelines and has resulted in the movement of the money from the development etc. of an area for which purpose it was created to cater instead to the commercial requirement of the sponsor bank. It was this action to which the Revenue, it was stated was opposed and the exemption for this specific reason was denied to the assessee. Referring to the SLR investments of the RRB Act, it was contended that there is no provision for withdrawal of these SLR investment, for meeting the demands of the depositors of the Regional Rural Bank. Those funds, it was contended, conceptually for a regional area are instead always parked with the sponsor bank. It was further contended that the bank under the provisions of RRB Act has no control over this and anyway is not seeing the aims and objectives of RRB Act. Emphasizing this aspect, it was submitted that there is no instance in the history where the Regional Rural Bank has dipped into these reserves. Thus, these activities would not entitle the .....

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..... different. 8.30 The attention was also invited to an unpublished order of the Tribunal i.e., ITA Nos. 7109 to 7119 (Born.) of 1997 in the case of Maharashtra State Co-operative Bank v. Asstt. CIT dated 12-8-1998 wherein at page 29 para 25, the alternative plea of the assessee was considered, which was that even if the main plea that the entire interest is exempt is not acceptable then the Assessing Officer may be directed to examine the working sheet and arrive at the proportionate interest that is taxable. It was submitted that the alternative plea was that only to the extent of 25 per cent of the net profits, which was to be compulsorily carried to reserve fund under section 66(2) of the Mumbai Cooperative Societies Act, it can be considered that the investments representing such statutory reserves are locked up without the assessee bank having any right over the same to deal with as it pleased. Thus, the ratio of the Supreme Court in the case of MP Co-operative Bank Ltd. are said to be applicable only to those proportionate interest. It was submitted that the alternative plea was not considered although the Assessing Officer was advised to examine the alternative plea so as to .....

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..... vestments were advanced and no distinction between Co-operative Societies Act or RRB Act were advanced and as such had not been considered as the question was materially distinct. 8.32 It was further emphasized by the ld. D.R. that on behalf of the assessee it was pointed out before the Hyderabad Bench that the judgment of the Apex Court in the case of MP Co-operative Bank Ltd v. Addl. CIT [1996] 218 ITR 438 was held to be distinguishable on account of the fact that in the case of Cooperative Societies Act, which was further subjected to certain restrictions and conditions on the utilization of deployment of statutory reserve funds by M.P. Government for which purpose, certain circular putting restriction on M.P. Co-operative Bank were issued by the Revenue and thus in this context, the bank deployed the funds in violation of those rules and directions and for this specific reason, the Supreme Court held that the income arises out of such deployment fund in violation of these rules could not be treated as income earned out of banking business: 8.33 It was submitted that the arguments advanced on behalf of the Revenue were as under: "The learned Departmental Representative, Shri .....

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..... ional Rural Bank. The attention was invited to the judgment of Supreme Court in the case of South Malabar Gramin Bank v. Co-ord. Committee of S.M.G.B. Emp. Union. This judgment of the Supreme Court though considering a different aspect, i.e., salary as announced to the employees of Regional Rural Banks in accordance with pay and allowance and benefits implemented in respect of the employees. It was submitted that in the said judgment, the objectives for which the Grameen Banks were created was highlighted. A certified copy of the said judgment in CA No. 2218 of 1989 (transfer petition No. 403/1989) was referred to and the importance of objectives which were considered by the Tribunal headed by Justice Abdul Ready were referred to. "Repelling the plea of the employer that financial viability should be the criterion in deciding the wage structure of the RRB employees, the learned Tribunal held: The RRBs have brought about socio-economic revolution in the hitherto-unbanked under-developed priority sector by ameliorating the poverty conditions of the under-privileged, SC/STs and other weaker sections of the society. That is the paramount objective of the Act. It should not be lost si .....

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..... t corrected by the CIT(A) and with respect to which now certain figures have been given by both the sides. It was his contention that on the admissibility of the exemption, the arguments remained the same since these are investments which are found over and above the SLR investments at a particular point of time. It was submitted that the arguments referring to different facts and circumstances in the order of the Tribunal and judgment of Courts in the context of Co-operative Societies Act remain the same are the arguments that these funds are not available for developmental activities in the under-privileged and underdevelopment areas for which Regional Rural Banks are created also remain the same. The arguments that these funds invested in commercial bank or lead banks and even if in Farrukhabad Branch also remain the same as once it is invested there over and above the statutory requirement, then as far as developmental banking activities of RRB is concerned these funds are not available. 8.37 It was vehemently contended that this criteria could not be judged from the commercial aspect only and the primary object for which the Regional Rural Bank was created has to be seen and .....

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..... of facts as presented there and considering the Special Bench order which it was submitted has been successfully distinguished, and the Supreme Court judgment in CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 which had also been distinguished and there are amongst other reasons revolving on the pursuing of their respective Co-operative Societies Acts and distinction vis-a-vis Regional Rural Banks Act was not brought to the notice of the Bench, thus facts and circumstances of the two assessment orders are entirely distinguishable. Various judgments were relied in support of the proposition that res judicata does not apply as facts and circumstances of the two assessment years are different and each judgment lays down the ratio which is not to be blindly applied in each and every case since the ratio would apply only to identical facts and circumstances and not to different facts and circumstances. Thus, the fact in the case at hand pertains to Regional Rural Bank Act, it was reiterated has not been considered by any order or judgment with regard to SLR and non-SLR and the order of the Tribunal is assessee's own cost it was submitted was not a bar since admittedly .....

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..... consideration. It was further stated on behalf of the assessee that no income from sale or purchase or trading activities has been shown by the assessee. 9.3 It was further interjected by the ld. D.R. that the funds in the SLR and non-SLR are not out of banking in the case of Regional Rural Banks and the arguments advanced have not been considered or made before the ITAT, Agra in the case of the assessee and this decision as such accordingly is not binding. The fact that these non-SLR investments are guided by the Commercial principle, has not been considered by the Agra Bench of the Tribunal and the specific fact of the aims and objectives and the purpose of creating Regional Rural Banks Acts was not considered. 9.4 The ld. A.R. continuing his reply stated that whatever has been done by the assessee is in the pale of banking activities and as such is entitled for exemption. On this point, it was put to the ld. A.R. that on taking note of the objections of the ld. D.R., it is noted that the Department has not objected to the fact that the assessee bank is not a bank engaged in the banking activities the Departments objection is founded on the fact that banking activity on which e .....

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..... penditure and relates to a company in respect of investment in shares in Co-operative Society. Whereas in assessee's case it was submitted the issue pertains to exemption under section 80P and on an investment on the direction of RBI. 11. We have heard the rival submissions and perused the material available on record. 11.1 Before we address the issue which arose in the present appeal, we would briefly, at this juncture, like to observe that the reluctance to look into facts and merely address the legal principles is not to be encouraged. In a case which started on the footing that it is fully covered in favour of the assessee, as has been seen, it transpired that only the Non-SLR issue was considered by the Tribunal in the earlier year and that too on different facts and circumstances. We were pained to observe that on an examination of facts, it emerged that the amounts mentioned in respect of incomes from SLR investments and Non-SLR investments in the Assessment Order are not correctly mentioned which is a fact admitted by both the parties before us. It is seen that before the Commissioner this aspect was argued only on the principles of law and facts were completely ignored. .....

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..... same time being conscious of the fact that the Tribunal is the final fact finding body which is required to apply the principles of law and the provisions of the relevant Acts to those facts, we are of the view that these factual mistakes need to be corrected. Certain figures were given in writing by either side with respect to the actual income from SLR investment and non-SLR investments and the parties were allowed time to address the Bench on this aspect. However, we are of the view that instead of substituting any figure as an income from SLR investment and Non-SLR investment in a hurried manner based upon the submissions made in the course of the argument wherein the focus on either side as can be seen from the perusal of the detailed arguments advanced before the Bench and recorded in the earlier part of the order again on legal principles, we are of the view whether deduction is allowed to the assessee or not and whether it is allowed to SLR investment or non-SLR investment or not. It is necessary to have the actual figures verified. Thus in the circumstances it would be appropriate to restore this issue to the file of the Assessing Officer with the direction to verify the .....

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..... nvestments in the manner and up to the percentage of its time demand liabilities as per the directions of the RBI issued from time to time are mandatory in nature and in the eventuality there is a violation of these directions then the Reserve Bank of India can take action under the law and ensure that the particular bank does not continue to do its business as a banking business. This aspect it may be observed is also an accepted and admitted position over which there is no debate. 11.5 It may also be mentioned that any investment found made over and above the SLR investments on the directions of the RBI are termed as Non-SLR investments since the exact amount of required SLR investments may vary from week to week. 11.6 It has been vehemently contended on behalf of the assessee that the order in the case of Surat District Co-operative Bank Ltd. rendered by the Special Bench, Ahmedabad fully covers the case as far as the issue pertaining to SLR investment is concerned. The equally vehement and elaborate argument of the learned D.R., on the other hand, on behalf of the Revenue have been that firstly this is an order which is rendered in the context of the provisions of Gujarat Co- .....

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..... g in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of sale deposit vaults; the collecting and transmitting of money and securities; (b) acting as agents for any Government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers, but excluding the business of a [managing agent or secretary and treasurer] of a company; (c) contracting for public and private loans and negotiating and issuing the same; (d) the effecting, insuring, guaranteeing, underwriting, participating in managing and carrying out of any issue, public or private, of State, municipal or other loans or of shares, stock, debentures, or debenture stock of any company, corporation or association and the len .....

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..... anking Regulation Act which deals with maintenance of percentage of assets. It has been noted that and section 56 of the Act under Chapter V which is titled as 'application of the Act to Co-operative Bank' is not required to be considered so as to decide the issues in the present appeal as the assessee bank is not a Co-operative Bank. 11.12 The relevant provisions which need consideration of the Regional Rural Bank Act, 1976 are the preamble to the Act which is set out as under:- "An Act to provide for the incorporation, regulation and winding up of Regional Rural Banks with a view to developing the rural economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs, and for matters connected therewith and incidental thereto." 11.13 Section 2(d) of the same defines the term 'notified area' as under:- "'notified area' means the local limits, specified under subsection (1) section 3, within which a Regional Rural Bank shall operate." The notified area under sectio .....

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..... advances., particularly to a small and marginal farmers and agricultural labourers, these loans could be either to the small and marginal farmers or agricultural labourers either individually or in groups and or to co-operative societies which may include agricultural marketing societies, agricultural processing societies, co-operative farming societies, primary agricultural credit societies or farmers' service societies for agricultural purposes or agricultural operations or for other purposes connected therewith. These Regional Rural Banks engaged in the business of banking could also grant loans and advances (a) particularly to artisans, (b) small entrepreneurs, and (c) persons of small means engaged in trade, commerce, industry or other productive activities within the notified area in relation to the Regional Rural Bank. It is seen that in the course of the arguments and hearings no evidence has been lead so as to suggest that the income on which deduction is being sought is from the activities of banking business conducted with this target group of socio-economic people within the notified area. The deduction under the Act is given specifically to encourage and promote the .....

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..... re of the view that it would be most appropriate first of all to discuss the grounds which were raised in these collection of appeals by different Co-operative Banks. A perusal of the order shows that the Surat District Co-operative Bank Limited challenged the action of the Tax Authorities vide ground Nos. 1 and 4 on the action of the Assessing Officer disallowing deduction under 80P relying upon the decision of the Apex Court in the case of M.P. Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438. Vide ground No.2, the challenge was posed to the fact that the alternative contention of the assessee which had not been disposed by the CIT(A). The said ground read as under:- "Both the lower authorities have failed to adjudicate upon the alternate contention raised by the appellant of allowing deduction under section 80P(2)(d) of the Income-tax Act as the impugned income is from the investment of the reserve fund and almost the entire reserve fund was invested in other cooperative banks/societies." It is seen that an alternate prayer was also made vide ground No.3 which reads as under:- "Alternatively and without prejudice to whatever is stated above the learned CIT(A) has erred .....

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..... nclude accepting deposits or monies from the public for the purpose of lending or investment. The CIT(A) in para 22 of his order observed that as per section 67 of the Gujarat State Co-operative Societies Act, every Society is required to provide at least 1/4th of the net profits of the Society of each year, which shall be carried to the reserve fund, and such reserve fund may be used in the business of the Society or the Society shall have the option to make investment subject to the provisions of section 71 of the Gujarat State Co-operative Societies Act. It is worth noting that the CIT(A) appreciated the fact that unlike the Madhya Pradesh law, there is no restriction in Gujarat regarding utilization of funds carried to the reserve fund. The Gujarat law, it is appreciated, permits Society to use reserve fund in the business of the Society. Thus, the investments made in Central Bank, State Co-operative Bank, Postal Savings Bank in securities and shares were found to be as per provisions of section 71 of the Gujarat State Co-operative Societies Act and as such entitled for deduction under section 80P since these investments were made in Government securities in compliance to the p .....

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..... milarly, para 23 of the Special Bench Order which considers provisions of section 24 as modified by section 56 of the Banking Regulation Act and section 24(2) and section 24(2A) as modified by section 56 as applicable to Co-operative Societies. The most important fact which needs to be mentioned here is that section 2(24) of the Gujarat Co-operative Societies Act, 1961 which lays down the definition of working capital was necessarily required to be considered by the Special Bench which fact is borne out from para 25 of the said order. Apart from this section 67 again of the Gujarat Co-operative Societies Act, 1961 which considers Reserve funds also need to be considered along with section 71 of the Gujarat Co-operative Societies Act, 1961 which takes into consideration investments of funds. A further reading of this order shows that in para 26 of the said order which takes into consideration the fact that the Assessing Officer denied deduction under section 80P(2)(a)(i) on account of the judgment of the Apex Court in the case of MP Co-operative Bank Ltd. The income which was being considered by the Special Bench was from the investment in Government securities placed by the banks w .....

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..... n under section 80P(2)(a)(i) by the Assessing Officer, and the learned CIT(A). The investments in Government securities, fixed deposits and other trustee securities are permissible modes of investments as per provisions contained in the BR Act and/or section 71 of the Gujarat Co-operative Societies Act, 1961 ....," 11.25 A reading of the order further shows that the Special Bench appreciated the fact that the judgment of the Apex Court rendered in the case of M.P. Co-operative Societies Act was in the context of specific restriction which was placed by the M.P. Government on the utilization which fact is borne out from para 8.3 of the order of the Special Bench and the facts that the Apex Court in the case of CIT v. Bangalore District Co-operative Bank [1998] 233 ITR 282 appreciated the difference in the case of M.P. Law and Karnataka Law and similarly 1 ITR 735 (Guj.) (sic.) in the context of Gujarat District Co-operative Societies Act is also worth noting. 11.26 Accordingly, after a careful perusal of the said order, it is seen that in the case of the Special Bench, the Tribunal was not called upon to consider the provisions of Regional Rural Bank Act, 1976 and moreover, the Tr .....

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..... al taking into consideration various judgments rightly came to the conclusion that this income was from banking activity as such entitled for deduction. The case of the Revenue is that income on which deduction is being claimed is not from banking activity as narrowed down by the Regional Rural Bank Act requirements and the assessee has made no attempt to show that the income on which deduction is being claimed is covered with the narrowed definition of the Banking Regulation Act. Only mandatory requirement of the investments on the directions of RBI have been addressed which we propose to deal within the following areas:- 11.28 From a careful perusal of these provisions which have been brought out in the earlier part of this order, namely paras 11.12 to 11.14, it is seen that each Regional Rural Bank is necessarily required to confine its operation to the notified area as per section 12(d)(a) and carryon the activities as laid down in section 18 of the Act. The case of the Revenue has been that the income is not in consonance with the provisions of the Regional Rural Banks Act, 1976 and the arguments of the assessee, on the other hand, is that the issue is well-settled by the jud .....

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..... nd provisions and also the fact that therein the Assessing Officer had not made out a case that the provisions of the Regional Rural Banks were being violated. Simply because the assessee had to fulfil certain mandatory requirements in order to ensure being a player in the field does not by itself merit a deduction. In order to claim deduction the income has to come within the ambit of banking business as per the Banking Regulation Act as well as Regional Rural Banks Act in the case of a Regional Rural Bank. 11.30 We are of the view that if for a moment, we come to the conclusion that because in the case of judgments rendered in the context of a Co-operative Societies Act and the relevant provisions thereof even in the case of Regional Rural Bank the income from Government securities etc. should be entitled for deduction then instead of interpreting the law as it stands, we would be intruding in the dangerous arena of rewriting the law which is entirely the domain of the Legislature. The Legislature in its wisdom has sought to allow deduction to a Regional Rural Bank for transactions as laid down in section 18 and unless and until the assessee can show that the income earned is fr .....

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..... of Regional Rural Bank, unless the law laid by the Act was that any and every normal banking activity is the nature of banking business in the case of a Regional Rural Bank which is not so. As far as Banking Regulation Act as it exists the definition by virtue of the provisions of the Regional Rural Bank is not so wide and is much narrow not only in terms of the area of focus i.e., notified area but also in terms of the activities as laid down in section 18 for the purposes laid down in the preamble of the Act which has been brought out in para 11.12 of this order. It may be appropriate at this juncture to draw attention to the following observations of their Lordships of the Apex Court in Padmasundara Rao's case quoted:- "Courts should not place reliance on decisions without discussing how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they were words in a legislative enactment. Judicial utterances are made in the setting of the facts of particular cases. Circumstantial flexibility, one additional or different fact may make a world of difference betwe .....

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..... ovisions of Karnataka Co-operative Societies Act and the rules thereunder since the present bank has to establish the claim of deduction in the light of the provisions of the Banking Regulation Act further qualified by the provisions of the Regional Rural Banks Act, 1976. We are of the view that it is not any and every banking activity which is allowed deduction by the Legislature but only that banking activity which is in consonance with the Banking Regulation Act as well as the relevant State Co-operative Societies Act or the provisions of the Regional Rural Banks Act. The fact that the Banks who are not entitle for deduction and as such do not claim also render laudable socio economic services, but for deduction only specific types of banking activities undertaken by Co-operative Societies of Regional Rural Banks have been considered. Before us no judgment, order or provision of law has been cited so as to contend that banking activities of all banks have been exempted by the Legislature from taxation. A consideration of the judgment of the Apex Court in the case of MP Co-operative Banks Ltd. v. Addl. CIT [1996] 218 ITR 438 which has been relied upon by the Assessing Officer and .....

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..... nds of the Regional Rural Bank. Whereas in the appeal under consideration we are only concerned with the income from SLR or non-SLR investment. This fact is borne out from the finding given by the Tribunal at its internal page 4 para 6:- "We heard both sides in detail. As per the Banking Regulation Act, there are no restrictions on the assessee-bank on the utilization of reserve funds. As a matter of fact, the assessee bank has not earmarked any funds or investments corresponding to the statutory reserve created by it. As far as this bank is concerned, reserve is only a statutory adjustment mandatorily to be carried out by it in its accounts, by debiting in the Profit & Loss Account. In this view of the matter, we set aside the orders of the lower authorities, and direct the Assessing Officer to allow assessee's claim for proportionate interest income, alleged to be pertaining to the investments made out of reserve funds, under section 80P(2)(a)(i) of the Act." 11.33 It is further necessary to mention that therein the arguments advanced were pertaining to the earmarking of funds and the availability thereof from reserves etc. 11.34 In this background, the fact that this order ha .....

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..... 2 Taxman 330 (Bom.), for the proposition that it is necessary for judicial unity and discipline that all authorities below Tribunal must obey the judgment of Tribunal. This judgment too does not advance the case of the assessee since after a detailed perusal of all judgments and orders cited before us, we have come to the conclusion that no order or judgment has taken into consideration the income from SLR investments in the case of Regional Rural Bank taking into consideration the specific provisions of this Act and distinguishing it from the provisions of the State Co-operative Societies Act. 11.40 Accordingly, on account of the detailed reasons; findings and conclusions given in the earlier part of this order, we are of the view that as far as the inadmissibility of the income from SLR investments for exemption under section 80P(2)(a)(i) is concerned, no interference is called for in the ground raised by the assessee with respect to the SLR investments claiming deduction under the said provision as such are rejected. Before parting we would like to observe that all the judgments/orders referred to us have been considered even if specific mention thereof has not been given. 11. .....

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..... tances where SLR investments were allowed by the Assessing Officer himself and Non-SLR investments are those investments which are found to be in excess of the prescribed percentage since the time deposit liabilities varies from time to time. However, here there is a specific finding in the assessment order and the impugned order which has not been rebutted by the assessee. Since no arguments or facts were placed before us to address the aspect that the investments either SLR or Non-SLR made are in consonance with the narrowed definition of Regional Rural Banks Act provisions and as we have observed earlier the thrust has only been on the principles laid down by the orders and judgments of the Tribunal and the Courts respectively in an entirely different context and on appreciating entirely different Acts. It is evident that apart from this material distinction, no arguments were advanced or canvassed and as such were not considered by the Tribunal, addressing the aspect of this specific provisions of Regional Rural Banks Act or considering the judgments in the light of the arguments that they were rendered in the context of the specific provisions of different State Co-operative S .....

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..... 12-2003, wherein it was clarified that the said amount was not subsidy but was in the form of equity. In support of this contention, the assessee-bank filed photocopies of the letters issued by the Government of India, Ministry of Finance, Department of Economic Affairs, Banking Division, New Delhi. The letter has been reproduced at pages 7 and 8 of the assessment order and reads as under:- Letter F. No. 3-10/95-RRB(14), dated 31-3-1995 "By this letter Government of India provided Rs. 2,29,38,000 vide cheque No. 553272 dated 31-3-1995. This letter specifies that Government took a decision to restructure 49 RRBs in the country and to cleanse their balance sheets and provide for un-provided bad debts and liquidity support. The total amount required to be provided towards cleansing of balance sheet of assessee bank and liquidity support is Rs. 4,58,76,000. According to this letter 50 per cent amount to be provided by Government of India and balance amount to be provided by the sponsor Bank and V.P. Government. The amount received by the assessee bank is to be credited in 'Share Deposit Account' till further orders of Central Government." Letter F.No. 3-10/95-RRB(8), dated 26-6-1995 .....

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..... icable as the decision was seen to be having been given to improve the business of the assessee bank. Accordingly, it was further concluded that the amount received on restructuring as a trading receipt. Relying upon CIT v. Bazpur Co-operative Sugar Factory Ltd [1988] 172 ITR 321 (SC), he was of the view that the manner in which the fund was recorded in the books does not alter the nature of receipt. In this manner, the amount was treated to be liable for tax. However, taking note of the fact that the funds were received in the previous year relevant to the assessment year 1996-97 and that the assessee bank had got stay order from Hon'ble Allahabad High Court against the assessment proceedings, the addition of Rs. 4,58,76,000 was made in the year under consideration on a protective basis with the observation that substantive assessment order shall he made for the year 1996-97 as and when the stay order is vacated. 13. The arguments with respect to these grounds before the CIT(A) were that this amount was a share capital relevant to the assessment year 1996-97, which had been added in the income of the assessee on protective measure. The Assessing Officer on observing that the rese .....

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..... by the Government of India and the observation of the Assessing Officer at page 7 that it is a subsidy is not correct. Attention was invited to the letter. Attention was invited to the letter of the Government of India, which has been reproduced by the Assessing Officer in the assessment order itself. On the basis of this, it was submitted that this is a capital contribution by the Government and as such addition could not have been made. Relying upon the submissions made, it was reiterated that this year old balance receipt in the year ending and as per specific guidelines of the Government of India and the discussion in the Parliament that these funds were advanced by the RBI to cleanse the balance sheet. Inviting attention to pages 7 and 8 of the assessment order, it is contended that the share deposit amount is also a capital contributed by the promoters of the bank and cannot be termed as an income by any stretch of imagination. The attention was also invited to the impugned order at page 24 para 5, wherein at para 5.2, the submissions of the assessee have been rejected. As such, the arguments were that the addition was not warranted. 15. The arguments of the learned D.R. tha .....

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..... sessing Officer was right in not treating it as capital since it is evident that unless the assessee demonstrates that the procedure prescribed for the same has been followed, the claim has rightly been rejected. The assertion of the assessee itself, the funds have been infused to cleanse the balance sheet, it was argued, decides the issue against the assessee and as such it clearly comes under the principle laid down by the Apex Court in the case of Sahney Steel & Press Works Ltd. since this is evidently additional support given to the assessee. Thus, these infused funds have rightly on applying the principle of Sahney Steel have been brought to tax. Reliance was also placed upon the case of CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344 (SC). 16. In reply, it was stated on behalf of the assessee, referring to the arguments of the ld. D.R., attention was invited to section 67 of the RRB Act. It was stated that the Board meeting relates to the capital for which purpose resolution of board is necessary, which the D.R. has stated, has not been furnished to the department or argued here. The ld. D.R. clarified that he was referring to the provisions of the Regional Rural .....

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..... y these course of action open to the Assessing Officer. Simply because the funds given are also in the same ratio as is borne out by the letter of the Ministry of Finance reproduced in the Assessment Order is not a good enough reason to treat the funds received as non-taxable as the purpose for which they were given itself decides the issue against the assessee. The losses which the Bank incurred while operating were to be written off by these receipts so as to wipe off, these losses. Thus if the funds are treated as capital then the very purpose for which the funds were advanced is defeated. Accordingly, being satisfied by the reasoning and finding of the Tax Authorities and the detailed reasons given above, ground Nos. 11 and 12 are rejected. 18. With respect to ground No. 13, the arguments advanced before the CIT(A) that the Assessing Officer was not justified in charging the interest under sections 234B and 234D and further in withdrawing the interest under section 234A without passing speaking order. The said submission of the assessee was also rejected by the CIT(A) vide para 7.2 after the perusal of the position of the relevant provisions of the Act and relying upon the jud .....

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..... nment Central and State and Sponsored Bank - received in financial year 1995-96, added on the protective basis by authorities below in the year under appeal with the direction by authorities below to be considered on substantive basis in financial year 1995-96 cannot be added to the year under appeal in view of decision of Allahabad High Court dated 23-11-2004 in assessee's own case in Writ Civil Miscellaneous Petition No. 32 of 2002." 25. The Bench at this juncture took strong exception to the inappropriate stand taken by the assessee. The ld. AR. was required to address the Bench in explaining as to the appropriateness and the correctness of moving additional grounds at this stage after the hearing had been concluded and the draft order had already been placed on the main file before the learned A.M. right from 7-10-2004. It was put to the ld. AR. that the Bench had exercised its discretion to afford the assessee to address on the aspect of the applicability of the judgment of the jurisdictional High Court and thus the action of the assessee in abusing the trust placed by the Bench in the bona fide exercise of its discretion was strongly deprecated. It was put to the ld. A.R. th .....

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..... to the said D.R. arguing the case. Shri P.L. Kelkar sought to place before the Bench certain documents to support the right of the D.R. Shri Wasim Arshad to argue. My ld. brother was required to state his stand as to whether Shri Wasim Arshad should be allowed to argue on behalf of the Department or not. In view of the fact that there was no opposition on behalf of the assessee to Shri Wasim Arshad arguing on behalf of the Department, my ld. brother stated that he has no objection. 28. Thereafter, the proceedings began on the aspect of the appropriateness of raising the additional grounds before the Tribunal, at this juncture. 29. The ld. A.R. referring to the additional grounds raised, submitted that they deserve to be admitted. It was further stated by him that the judgment of the jurisdictional High Court relied upon by him was published in Farrukhabad Gramin Bank v. ITO [2005] 273 ITR 113 (All.). He was specifically required to bring to the notice of the Bench, judgment of any Court in support of the admission of the additional grounds. The learned A.R. in response to this specific and pointed query stated that he was not relying upon any judgment. It was specifically put to .....

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..... ubmissions on record but we with great care and caution hesitate to allow the admission of additional grounds after the hearing in the appeal has been fully concluded and more so even where the proposed draft order signed by one of the Members is on record since October, 2004 (the proposed signed order was taken out of the file in December, 2004 before the file was released to the Registry. Thereafter, the sealed order was kept in the custody of Asstt. Registrar, Agra and was brought on the file in the Court today itself). The action of admitting additional grounds at this stage would not only lay down a dangerous precedent but would also be highly improper and inappropriate and also would tantamount to allowing the assessee to grossly abuse and make travesty of judicial procedure. We are pained to observe that the confidence reposed by the Bench by exercising its discretion to afford the parties an opportunity to address the Bench on the limited aspect of applicability of the judgment in 147 proceedings in the case of the assessee has been attempted to be abused with such callous and utter disregard of judicial proprietary, forum and procedure. 33. Reliance is placed by the Bench .....

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..... ships therein and also being of the view that the discretion exercised by the Tribunal in order to afford opportunity to address the Bench on the issue of applicability of the judgment of the jurisdictional High Court having been grossly abused by raising additional grounds after the conclusion of the hearing and after the proposed and signed order was pending signature with the other Member, we are of the view that the additional grounds sought to be raised by the assessee deserve to be rejected and this as such is not a fit case in which the discretionary exercise of the powers of the Tribunal should be used. 35. However, with regard to the fact that the judgment has been brought to the notice of the Bench and for this specific purpose an opportunity to either side to address this aspect was granted, we proceed to take judicial note of this judgment without resorting to the additional grounds which have been rejected. A perusal of the judgment in Farrukhabad Gramin Bank v. ITO [2005] 273 ITR 113 (All.) clearly shows that the said judgment is in the context of 147 proceedings taken by the Department. Needless to say that proceedings under 147 operate in the realm of a situation w .....

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..... at this juncture also dismissed after taking into account the judgment of the jurisdictional High Court in the case of the assessee in 147 proceedings. 40. In the result, the appeal of the assessee is dismissed. Per M.L. Gusia, Accountant Member. - I have had the privilege of going through the decision rendered by my learned Sister Smt. Diva Singh, Judicial Member, but I do not concur with her findings given in the said decision. Hence, I render my dissenting order as follows. 2. This appeal has been filed by the assessee against the order passed by CIT(A)-I, Agra, on 24-4-2004 for the assessment year 2001-02. The grounds of appeal read as under- "1. That the authorities below have erred on facts and in law by holding that the deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 is not allowable in respect of the income of the bank-assessed as AOP deemed Cooperative Society. 2. That the authorities below have erred on facts and in law in not following the order passed by Income-tax Appellate Tribunal, Agra Bench, Agra in assessee's own case for assessment year 1998-99 in which the Tribunal held that income of the bank was exempt under section 80P(2)(a)(i). 3. Th .....

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..... below have erred on facts and in law have ignored that the equity capital of Rs. 4,58,76,000 was sanctioned and provided by Central Government, Sponsor Bank and State Government concerned in the ratio of 50:35:15 as per letters already on file. 13. That the authorities below have erred on facts and in law in imposing interest Under section 234B               Rs. 1,74,75,673 Under section 234D               Rs.      70,830 Withdrawing under section 244A   Rs.      62,330 without passing a speaking order. The interest imposed is liable to be deleted." 3. The learned Authorized Representative of the appellant also furnished additional grounds of appeal, reproduced below, which have not been accepted by the learned J.M. However, I am of the opinion that these additional grounds being based on factual matrix and legal position of the case should have been accepted and taken on record: "Because in the facts and circumstances of the case, the decision of Allahabad High Court in assess .....

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..... nk (251 ITR 194). He further submitted that the Apex Court over-ruled its earlier decision in the case of M.P. Co-operative Bank Ltd. v. Addl. CIT (218 ITR 438) on which the Assessing Officer, placed reliance while denying the benefit of section 80P(2)(a) of the Act to the assessee. The learned AR of the assessee further submitted that the Agra Bench, ITAT, had considered the similar issue in the case of Farrukhabad Gramin Bank v. ITO passed in ITA No. 208/Agra/2000 vide order dated 31-7-2003 and furnished a copy of the said order in support of his submission." 6. After hearing the AR of the appellant, the Lucknow Bench observed as under:- "There is no dispute to the fact that provisions of section 80P(2) of the Act are applicable to a regional rural bank. The assessee is a regional rural bank under the Regional Rural Banks Act, 1976, and as per section 22 of the said Act, it is a deemed cooperative society for the purpose of Income-tax Act. The assessee earned interest income on the long-term investments made in Government securities as also in bonds, debentures, etc. As per section 5(b) of the Banking Regulation Act and section 18(1) of the Regional Rural Banks Act, 1976, the a .....

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..... apital of the under mentioned persons. For the purpose of Income-tax Act, 1961 and Interest-tax Act, 1974, the status of co-operative society has been assigned under the RRB Act, 1976 and accepted 'by Assessing Officer as status taken is Co-operative Society. This bank has been sponsored by Bank of India, Farrukhabad:- ------------------------------------------------- Sl.  Share Ratio  Share Holder     No. of Shares No.                                Subscribed ------------------------------------------------- 1.   50 per cent  Govt. of India   5,000 2.   35 per cent  Bank of India    3,500 3.   15 per cent  Govt. of U.P,    1,500 ------------------------------------------------- Issues decided by the Assessing Officer 11. In the order passed on 26-12-2003, the Assessing Officer objected to the grant of exemption on the following incomes:- (1) Income from SLR investments by the company required to be mad .....

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..... erated here at the cost of repetition that the reported judgment is in case of a Co-operative Bank and the funds required to be placed were in State Bank and RBI to enable the co-operative bank to carry out its banking business. The case of the appellant and the ratio emerging from the cited case is entirely on different footing as there is no similarity of facts or reasoning of the appellant case with the reported judgment. The similarity of facts is with reference to the status of the appellant, objectives of the appellant, the area of functioning of the appellant as also the investments made by the appellant in the SLRs and Non-SLRs, which were admittedly outside the purview of banking business as has been stated above. Therefore, the ratio of the judgment reported in 251 ITR 194 overruling the judgment reported in 218 ITR 438 (SC) does not have any connection or applicability so far as the case of the appellant is concerned. The Hon'ble Bombay High Court have held that if the income of a Co-operative Society (Bank) arises from and out of the business with third party as in case of investment of surplus assets, the exemption is not available because investment of fluid assets i .....

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..... co-operative society must establish that it is engaged in carrying on any of activities mentioned in sub-section (2) and is having income therefrom. Clause (a)(i) of sub-section (2) relates to carrying on business of banking or providing credit facilities to its members and stipulates that the whole of the profits and gains from these two activities will be allowed as deduction in computing the income of co-operative societies. Each clause or sub-clause of section 80P is to be treated as a separate and distinct head of exemption without being influenced by condition(s) of any other clause or sub-clause. In Karnal Co-operative Sugar Mills Ltd. v. CIT [2002] 253 ITR 659 (Punj. & Har.), the court has said that section 80P has been enacted with the object of promoting the cooperative movement and it has to be liberally construed. Comments on the objections taken by Assessing Officer and CIT(A) in regard to non-applicability of section 80P(2)(a)(i) to the assessee's case 15. The CIT(A) has decided that "the appellant is not a cooperative society, engaged in the banking business, but is engaged in the business of Regional Rural Bank (RRB), which is a separate business by itself and the .....

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..... sible under section 80P(2)(a)(i) have to be allowed, in making incometax assessment of these banks. 23. From the aforesaid discussion, the following two conclusions emerge:- (i) The CIT(A)'s view that RRBs cannot be considered as a co-operative society is entirely misconceived in view of the aforesaid section 22 of the RRB Act. (ii) A circular issued by the CBDT is binding on the field officers, like the Assessing Officer. Hence, CIT(A)'s Decision that a RRB is not a co-operative bank tantamounts to asking the Assessing Officer to defy the CBDT's Circular, which is binding on him/her. The CIT(A) is not competent to do so. 24.In M.P. Tewari v. Y.P. Chawla, ITO [1991] 187 ITR 506 (Delhi), it was held that the purpose of issuing such order, instruction, etc., is to ensure the proper administration of the Act. The CBDT is the highest executive authority of the department. Its power of administration, supervision and control extends over the whole of the department. The power conferred under section 119, however, is subject to the following two exceptions:- (i) it cannot interfere with the discretion of Appellate Assistant Commissioner (see Hon'ble Mr.Justice Iqbal Ahmad, In re [1 .....

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..... ot invest:...; in long-term investment for earning profit or interest therefrom is not backed by any legal provision. The bank is playing an active role in the development of rural areas by extending various banking services to different categories of people and for this purpose, income is necessary. 29. Section 80P(2)(a) provides as under- "(1) Where, in the case of an assessee, being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely- (a) in the case of co-operative society engaged in (i) carrying on the business of banking or providing credit facilities to its members, or the whole of amount of profit and gains of business attributable to anyone or more of such activities." 30. The expression used in clause (a)(i) is carrying on the business of banking [and not carrying on banking activities]. Business of banking bas a larger connotation to revolve around, all activities which are .....

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..... ssion 'derived from' as in the cases of new industrial undertakings, hotels, etc. But in the case of banking business, it has used the phrase 'attributable to' and is continuing with the same. Hence, there is no ground to give restricted meaning to this phrase in the context of banking business. 35. The foregoing discussion meets the objections raised based on SLR investments and non-SLR investments to the effect that income from investments is eligible for exemption. However, to make the issues raised clear beyond any doubt, the following further submissions are being made for consideration:- (i) SLR investments - Co-operative Societies/Banks are statutorily required by the RBI to invest and maintain with the RBI an average daily balance of not less than 3 per cent of total demand and time liabilities of a banking company. There is no escape from such investment, which is necessary for carrying on the banking business. These investments are being strictly monitored and done as per the instructions/guidelines issued by the RBI/NABARD. There is no change in this regard in the assessment years 2001-02 and 1998-99 for which year the claim of exemption has been approved by the ITAT. .....

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..... ini Narayan Dalal [2001] 249 ITR 219 and CIT v. Narendra Doshi [2002] 254 ITR 606. 39. It is submitted that in assessment year 1998-99, the Assessing Officer had himself exempted the income from SLR investments and taxed only income from non-SLR investments, which was also deleted by the ITAT, following the decision of Hon'ble Supreme Court in CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 and in appeal in number of cases in cases of Gramin Banks. All that the Assessing Officer had considered was that income from SLR investment is exempt and it was only the income from non-SLR investment, which is not exempt. 40. Obviously, in view of the decision for 1998-99, the Assessing Officer and CIT(A) should have accepted the decision of ITAT for an earlier year in the appellant's own case. But this has not been done. 41. The Assessing Officer has, however, given the following reasons for denying the benefit for SLR investment income- "The existence and maintenance of these reserves, is not a sine qua non for banking and banks do not have any control over them. On the contrary, these are governed by the Government's fiscal and monetary policy imperatives. Accordingly, .....

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..... iction and the order of the Tribunal is binding upon the Appellate Collectors and Assistant Collectors, who function under the jurisdiction of the Tribunal ...," 45. Although each year, being independent year on the other, the principle of res judicata or estoppel by records applies to Civil Court does not apply to Income-tax proceedings. Yet, for the sake of consistency and for the purpose of finality in all categories, including litigation arising out of fiscal statute, earlier decision on the same should not be reopened unless fresh facts are brought in subsequent year, as held in CIT v. ARJ Security Printers [2003] 264 ITR 276 (Delhi), Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) and Union of India v. Satish Panalal Shah [2001] 249 ITR 221 (SC). 46. No fresh facts or grounds have been indicated in the orders passed by the Assessing Officer and CIT(A). They have merely reappraised the facts and the legal decisions considered earlier and have come to a conclusion, which is different from that reached. The orders passed merely show change of mind and do not establish that the income from SLR investments is not entitled to the benefit conferred by section 80P(2)(a)(i) to Gra .....

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..... orking capital, including voluntary reserves accruing to co-operative banks are all income attributable to business of banking and are eligible for grant of deduction under section 80P(2)(a)(i). 49. The decisions, where SLR/CRR investments have been considered to be a normal banking business, have been discussed later. Government grants/subsidies 50. The two amounts given by the Government for cleansing the Balance Sheet and for providing liquidity have, obviously, been received in the context of banking business carried on by Gramin Banks and even if these amounts are considered to be profit of such banks (not conceded), these would be entitled for full deduction in terms of section 80P(2)(a)(i). This is clear from the discussion about case law (infra). 51. In any case, the amounts have not been given as grants or subsidy by the Government. The user of such funds cannot decide about their taxation. The two letters from the Ministry of Finance, Department of Economic Affairs, extracted in the assessment order passed by the Assessing Officer clearly establish that the amount of Rs. 4,58,76,000 (Rs. 3,72,00,000 + Rs. 86,76,000) has been given for increasing the equity capital of .....

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..... r taxing these amounts have no application in the facts and circumstances of the two receipts and therefore, need no comments, being wrongly applied. Since the receipts do not constitute income at all, their taxation, even on protective basis, cannot be held justified. The CIT(A) has, while commenting about these receipts, has not applied her mind to the facts of the case in making comments regarding these. Hence, the addition made needs to be deleted. Case-laws on the issues involved 54. During the course of hearings at various levels, namely at the Assessing Officer's, CIT(A)'s and ITAT stages, number of cases have been cited in favour and against the issue involved namely whether the income from investments SLR or non-SLR - and amounts received from the Government are exempt from tax. Mentioning about all cases and views expressed for and against the issues involved would make this discussion long winding and cumbersome. Hence, only brief references are being made regarding few court cases taking into account the factual and legal background under the following heads:- (A) Legal interpretation (i) A passing reference has been made at page 5 mentioning the decision in the cas .....

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..... 995] 75 ELT 13 (SC) (c) Orissa State Warehousing Corpn. v. CIT [1999] 153 CTR (SC) 177 (d) Dr. (Mrs.) Renuka Dalia v. CIT [2000] 158 CTR (AP) 555." (ii) The preponderance of views of the courts, including the Supreme Court, is that ambiguity should be resolved in favour of the assessee. If the provision of a taxing statute are clear and unambiguous, full effect must be given to them irrespective of any consideration of equity. Where, however, the provisions are couched in language, which is not free from ambiguity and admits of two interpretations, a view, which is favourable to the subject, should be adopted. The fact that such an interpretation is also in consonance with ordinary notions of equity and fairness would further fortify the court in adopting such a course [CIT v. Madho Pd. Jatia [1976] 105 ITR 179, 183-184 (SC); CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, 195 (SC) & Alladi Venkateswarlu v. Government of AP [1978] 41 STC 394,398 (SC)]. (iii) There are a number of other decisions to similar effect, which cannot be incorporated in this discussion considering the need for brevity. However, in case more authorities are considered necessary for supporting this vi .....

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..... banking' (i) The definition of 'banking' as already mentioned earlier, is not given in the Income-tax Act. Hence, its meaning in other acts becomes relevant. The definition given under the BR Act has already been extracted at page 7, where it has been defined to mean 'lending or investment of deposits of money from the public'. Hence, making of SLR or non-SLR investments, apparently, come within the purview of 'banking'. (ii) Even in dictionaries the term 'bank' has been used in a comprehensive manner. In Webster Comprehensive Dictionary (International Edition), the term 'bank' has been defined to mean an institution for lending, borrowing, exchanging, issuing or caring for money. In Tomlin's Law Dictionary, Bank (in commercial law) has been said to signify a place, where a great sum of money is deposited, returned by exchange or otherwise disposed of to profit. In these definitions, the words 'caring for money' and 'disposed of to profits' would include making money, including making of investments when the surplus amounts are not required for lending. The money cannot be allowed to lie idle. (iii) The decision that incomes from SLR/non-SLR investments are not entitled to exem .....

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..... cted to at the levels of Assessing Officer and CIT(A) (and, of course, upheld by the ITAT and accepted by the Income-tax Department in the case of Etah Gramin Bank) are entitled for exemption under section 80P. A beginning in this regard is being made mentioning about cases where income is earned, prima facie, from sources, which cannot be considered as banking, have been held to be income liable to deduction in case of Co-operative Societies covered by section 80P(2)(a)(i). 56. In CIT v. Madurai District Co-operative Bank Ltd. [1999] 239 ITR 700 (Mad.), income from letting out the surplus meeting hall of the assessee, which was assessed as business income was held eligible for deduction. 57. In CIT v. Grain Merchants Co-operative Bank Ltd. [2004] 267 ITR 742, 743-44, 749 (Kar.), income received by the co-operative society by letting out the premises belonging to it, as also interest received out of the funds deposited in the Reserve Bank and other banks have been held exempt under section 80P(2)(a)(i) for the assessment years 1989-90 to 1991-92. 58. In CIT v. Grain Merchants Co-operative Bank Ltd. [2004] 267 ITR 742 (Kar.), the High Court has said that from the reading of claus .....

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..... under section 80P(2)(a)(i). 66. In CIT v. Nawanshahar Central Co-operative Bank Ltd. [2003] 263 ITR 320 (Punj. & Har.) the decision is that income from investment in PSEB Bonds, which was in the nature of security specified under section 20 of the Indian Trusts Act, 1882, and therefore, was an investment in accordance with the mandatory provisions of section 44 of the Punjab Co-operative Societies Act, 1961 and hence was eligible for deduction under section 80P(2)(a)(i) for the assessment year 1994-95. 67. In CIT v. Sri Ram Sahakari Bank Ltd. [2004] 266 ITR 632, 634 (Kar.), interest and dividend income of Rs. 2,50,664 derived out of investment in National Savings Certificates, Indira Vikas Patras, Kisan Vikas Patras, short-term deposits in banks and shares of Maharashtra State Financial Corpn. of India, were held to be eligible for deduction under section 80P(2)(a)(i). This view has been followed in ITO v. Karnataka Central Co-operative Bank Ltd. [2004] 266 ITR 635, 636 (Kar.). 68. In CIT v. Rajasthan State Co-operative Bank [2004] 136 Taxman 458 (Raj.) income from investment of reserves and other funds in various securities is income from banking business so as to be exempt un .....

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..... ntitled Special deduction under section 80P(2)(a)(i). CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 (SC) This decision too, it has been said, relates to SLR investments. The decision in this case is that where assessee co-operative bank was required to place part of its funds with State Bank or Reserve Bank of India to enable it to carryon its banking business, placement of such funds being imperative for purpose of carrying on banking business, income derived therefrom was income from assessee's business falling under section 80P(2)(a)(i). In this decision, the court has overruled its earlier decision in Madhya Pradesh Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 (SC) and approved the decision in the case of Bangalore District Co-operative Bank. Malprabha Gramin Bank's case It is said that this decision deals with income from statutory reserve, where the decision of the AP High Court in the case of Rayalaseema Grameen Bank has been mentioned, upholding income from interest as eligible for deduction and hence, it deals with the situation of SLR investments. Yet, even income from SLR investments too has been taxed. Surat District Co-operative Bank L .....

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..... Bank - BOI - as contribution towards equity capital is a capital receipt, not liable to tax. Though the Gramin Banks are regulated by RRBs Act, their status under the Income-tax law is that of a co-operative society in view of deeming provision in section 22 of the RRB Act and hence, all the benefits that are available to a co-operative society under section 80P(2)(a)(i) can be availed of by FGB consequent to its being deemed as such. There are umpteen court decisions, important amongst them having been incorporated in the foregoing discussion, which support the view that income from investments too arises from banking business, being attributable to such business, and hence, the same is also entitled to deduction. 74. In view of the above, the appeal of the assessee is allowed. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT Per Smt. Diva Singh, Judicial Member.- Since there is a difference of opinion between the Members while adjudicating the captioned appeal the following questions are referred to the Hon'ble President of Income-tax Appellate Tribunal for hearing by the Third Member as contemplated in section 255(4) of the Act. On ground Nos. 11 and 12 there appears to be no .....

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..... hose years by the Tribunal? 7. Can additional ground be admitted after proposed order is written and signed lying pending over 70 days with the dissenting Member with no explanation offered who refixes for clarification and admits the additional grounds to decide the issue in favour of the assessee? Does this amount to abuse of the process of law and is it in consonance with judicial propriety? Per Shri M.L. Gusia, Accountant Member. - Since there is a difference of opinion between the Members while adjudicating the captioned appeal so many questions have been raised by the ld. Judicial Member and I do not agree with such questions framed for consideration of the third Member of the I.T.A.T. I, therefore, propose the concise question as under:- "Whether on facts and in circumstances of the case, the assessee 'Farrukhabad Gramin Bank, Farrukhabad' is deemed to be a Co-operative society under section 22 of the Regional Rural Bank Act, 1976. If so, whether the assessee bank is eligible for deduction under section 80P of the Income-tax Act on the amount of 'Profits & gains from business' attributable to such activities." THIRD MEMBER ORDER Per Shri R.V. Easwar, Vice President. - .....

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..... ts are mentioned in the orders of the income-tax authorities. The view taken by the Assessing Officer was confirmed by the CIT (Appeals). When the matter was carried in appeal to the Tribunal, Agra Bench, the learned JM, who passed the leading order, rejected the claim of the assessee-bank and upheld the orders of the income-tax authorities. The learned AM dissented and hence the present reference under section 255(4) of the Income-tax Act. 3. The learned JM has proposed the following seven questions and points of difference; "1. Whether while writing a dissent, can the dissenting Member refer to in the dissent order unpublished orders of judgments not referred to by either side or made available to the colleague on the Bench as well as the revenue while writing the order in favour of the assessee? 2. Whether merely the act of banking activity entitles the assessee to claim exemption under section 80P(2)(a)(i) or is the banking activity in terms of section 3(1) of the Regional Rural Bank Act, 1976 as per the Notification in the districts of Farrukhabad and Kannauj i.e., the target area is entitled for exemption in the facts of the case? 3. Is the Tribunal while dealing with iss .....

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..... er section 80P of the Income-tax Act, on the amount of 'Profits & Gains from business' attributable to such activities." 5. Before I deal with the orders of both the learned Members and sort out the precise controversy which I should decide under section 255(4), it is necessary to briefly refer to the gist of what the dissenting Members have held in their respective orders which put together run to about 161 pages. The learned JM who wrote the leading order has rejected the assessee's claim on the following grounds: "(a) According to the provisions of the Banking Regulation Act read with the provisions of the RRB Act, the assessee bank can give loans only to a particular target group in a particular area and therefore, only the income which arises from such loans can be considered as income from 'banking business' eligible for deduction under section 80P(2)(a)(i). The income from other activities carried on by the bank cannot qualify for the deduction. (b) The definition of banking business of regional rural bank, such as the assessee under section 18 of the RRB Act, is narrower than the definition of banking business under the Banking Regulation Act. (c) The various judgments .....

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..... ssue, but it appears to me, with respect, that the above three points represent the gist of his order. He has also referred to the various authorities which have been relied upon by both the sides. As has been done by the learned JM. 9. I now revert to the questions framed by the learned Members. Since they have not agreed on the questions to be referred under section 255(4), I will have to first identify the precise controversy in respect of which the learned Members deferred, without really being bound by the manner in which the points of difference have been framed. In my opinion, the precise controversies are only two: "(i) Whether the income of the assessee by way of interest from both SLR and non-SLR investments is eligible for the deduction under section 80P(2)(a)(i) of the Income-tax Act? (ii) Whether the Tribunal can make observations relating to the merits of the addition of the amount of Rs. 4,58,76,000, when the addition itself has been made only on protective basis for the year under consideration, and when admittedly it would fall for consideration only in the assessment year 1996-97?" 10. So far as the first question is concerned, it is my humble opinion, after .....

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..... (a) the granting of loans and advances, particularly to small and marginal farmers and agricultural labourers, whether individually or in groups, and co-operative societies, including agricultural marketing societies, agricultural processing societies, co-operative farming societies, primary agricultural credit societies or farmers service societies, primary agricultural purposes or agricultural operations or for other purposes connected therewith; (b) the granting of loans and advances, particularly to artisans, small entrepreneurs and persons of small means engaged in trade, commerce or industry or other productive activities, within the notified area in relation to the Regional Rural Bank." Reading all these provisions together it seems fairly clear to me that the various types of businesses which the regional rural bank may carryon in addition to the primary business of banking, or to be treated as closely connected to or an incidental part of the business of banking and no real distinction can be made between the two. The acquiring and holding of securities and investments of all kinds, which is a business permitted to be carried on by a regional rural bank under section 6(1 .....

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..... or in non-SLR investment can be divorced from the business of banking. It also seems to be significant that section 5(b) of the BR Act defines the word "banking" and not the words "business of banking". Section 80P(2)(a)(i) of the Income-tax Act, however uses the wider expression "business of banking". Thus whichever way the matter is looked at, I find it difficult to say that the activity of making investments in SLR or non-SLR investments should be considered not part of the business of banking. In my view, the learned JM, with respect, would appear to have attached undue emphasis upon section 18(2) of the RB Act, to hold that only the income from the granting of loans to the target group within the notified area in relation to the assessee bank can be considered as income from banking business. It seems to me, with respect, that section 18(1) of the RRB Act and the provisions of section 5(b) and section 6(1) of the BR Act have not been given their due importance in resolving the controversy. I am unable to concur with the finding of the learned JM in the view that section 18 of the RRB Act contains a narrower definition of banking. 11. I may incidentally add that the income-ta .....

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..... tment, such as FDRs, deposits with bank, Government securities, UTI etc. Even so the Tribunal held that the interest income from non-SLR investment was eligible for the deduction. In doing so, the Tribunal relied on the following authorities: (i) CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 (SC). (ii) Order of the Special Bench of the Ahmedabad Bench of the ITAT in the case of Surat District Co-operative Bank Ltd. v. ITO [2003] 78 TTJ (Ahd.) (SB) 1. 14. The Tribunal also relied on Circular No. 319, dated 11-1-1982 to the effect that for the purposes of the Income- tax Act, 1961 a regional rural bank, shall be treated as co-operative society and will be entitled to the deduction under section 80P(2)(a)(i) of the Act. With respect, the learned JM, ought to have followed the order of the Tribunal which has been passed by a co-ordinate Bench in the assessee's own case. If the learned JM was of the view that certain aspects of the matter were not considered by the earlier Tribunal, it could have been in order for the learned JM to have persuaded the learned AM to refer the matter to the Hon'ble President for constituting a Special Bench to decide the case. 15. I .....

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..... on 6(1)(a) of the BR Act and therefore, it is income from the business of banking and deductible under section 80P(2)(a)(i) of Income-tax Act. In the same decision, in the absence of necessary facts, the question whether the income derived by the assessee from the investment of its voluntary reserves has been utilized by it in the course of its ordinary banking business was restored to be CIT (Appeals) since the material placed by the assessee before the assessing authorities such as the balance sheets, accounts etc., was not considered at any stage for some reasons or the other. It appears that the income-tax authorities in the present case have distinguished the judgment of the Supreme Court in Mehsana District Co-operative Bank Ltd.'s case on the ground that no decision has been rendered by the Supreme Court on the question of the income from investment of voluntary reserves, which is akin to the, income from non-SLR investments. It is clear to me that the question was not decided because of the absence of necessary facts. It is also of significance that the assessee's claim was not rejected at the threshold by the Supreme Court. It is a matter of proving that the investment in .....

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..... the Special Bench, Ahmedabad in the case of Surat District Co-operative Bank Ltd. also dealt with income from investments made in excess of requirements of SLR and statutory results, in Government securities, fixed deposits, Indra Vikas Patra and Kissan Vikas Patra and other approved modes of investment and held that the same was eligible for deduction under section 80P(2)(a)(i). All the relevant judgments on this point has been considered elaborately in the order which I respectfully follow, as has been done by the Tribunal in its order for the assessment year 1998-99. The learned JM has sought to distinguish the judgments on the ground that they have been rendered under different Acts concerning co-operative banks or that they were not rendered in the context of income from SLR or non-SLR. The order of the Special Bench cited above in fact did consider the income from investments made in excess of the requirements of the SLR which means that it did consider the income from non-SLR investments. It seems to me that the learned JM has, with respect, erroneously sought to distinguish the orders of the Special Bench. The issue decided by the Special Bench is the same as in the present .....

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..... course of business and hence taxable as revenue receipt. The learned AM has noted that since the assessment of the amount has been made only as protective measure, the substantive assessment to be made in the assessment year 1996-97 if and when the stay on the assessment proceedings granted by the Hon'ble Allahabad High Court is vacated, no interference is called for at this stage. The protective nature of the addition has been confirmed by him. The learned JM however made observations on the merits of the dispute and has held that the amount is taxable as revenue receipt. I am inclined to agree with the view taken by the learned AM since even according to the department the amount is assessable only in the assessment year 1996-97. However, some difficulty is caused by the observations of the learned JM who has decided the issue on merit, which if allowed to stand would prejudice the case of the rival parties when the issue is considered in the assessment year 1996-97. When the assessment of the amount has been made admittedly on protective basis, no observations on the merits of the addition ought to have been made. The view taken by the learned AM appears to me to be the correc .....

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