Banking income attribution under section 80P: approved investments, locker rent and incidental receipts qualify for deduction.

Income of a co-operative bank from investments in Government securities, bonds, fixed deposits, KVPs and other approved instruments, together with locker rent and surplus interest tax collected in the ordinary course of banking, was treated as attributable to the banking business under section 80P(2)(a)(i) of the Income-tax Act. The analysis relied on the wider scope of "attributable to" compared with "derived from" and on the Banking Regulation Act provisions recognising investment in securities and provision of safe deposit facilities as normal incidents of banking. Receipts arising from investments made out of reserve funds and working capital, and other incidental banking receipts, therefore retain the character of business income eligible for deduction.

---

---

Issues: Whether interest income from investments in Government securities, bonds, fixed deposits, KVPs and similar approved instruments, locker rent, and surplus interest tax collected by co-operative banks was income attributable to the business of banking and deductible under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: Section 80P(2)(a)(i) grants deduction for the whole of the profits and gains of business attributable to the banking activity of a co-operative society. The expression "attributable to" has a wider ambit than "derived from". The Banking Regulation Act, 1949 recognises banking as accepting deposits for lending or investment, and section 6 permits investment in securities, debentures, shares and the provision of safe deposit vaults as part of banking business. Sections 18 and 24 of that Act require maintenance of cash reserve and statutory liquidity reserve, showing that investment in safe and readily realisable securities is a normal incident of banking. Under the Gujarat State Co-operative Societies Act, 1961, reserve funds and working capital form part of the funds available for banking operations, and investments made from such common funds in approved securities retain the character of banking business. Locker rent is also an incident of banking activity in view of the Supreme Court ruling on safe deposit vaults. Surplus interest tax collected from customers in the ordinary course of banking is a trading receipt connected with banking operations.

Conclusion: The disputed income was held to be attributable to the banking business and deductible under section 80P(2)(a)(i), in favour of the assessee.

Final Conclusion: The denial of deduction on the disputed banking-related receipts was set aside, and the assessees were held entitled to relief on the income in question.

Ratio Decidendi: For a co-operative bank, income from approved and readily realisable investments made as part of normal banking operations, as well as incidental receipts integrally connected with banking activity, is income attributable to the business of banking within section 80P(2)(a)(i).

---