TaxTMI 
TaxTMI 
2012 (12) TMI 493
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....the meaning of Section 80-P (2) (a) (i) of the Act? (3) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that interest on Non-SLR investment is exempt u/s 80-P (2) (a) (i) ignoring that the definition of financing Bank or Central Bank in U.P. Co-operative Society Act does not refer to Section 5 or 6 of Banking Regulation Act and restrict banking business to only members of the co-operative societies of the assessee's bank?" 3. Shri Dhananjaya Awasthi states that so far as Statutory Liquidity Ratio (SLR) Funds are concerned, the Supreme Court has held in CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194, Mehsana District Central Co-operative Bank Ltd. v. ITO [2001] 251 ITR 522 and CIT v. Nawanshahar Central Co-operative Bank Ltd. [2007] 289 ITR 6 that the cooperative bank carrying on business of banking is statutorily required to place a part of its funds in approved securities. The income as interest from such deposits of SLR Funds in the approved security, is an income, which is attributable to the business of bank and is deductible under Section 80 P (2) (a) (i) of the Act. He submits that so far as non-....
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....pex Bank (Supra); Mehsana District Central Co-operative Bank Ltd. (Supra) and Nawanshahar Central Co-operative Bank Ltd. (Supra). He submits that the Supreme Court in Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114 (SC) considered the question of the applicability of the notification exempting the income of cooperative bank from interest received from deposits and held that the placement of funds by cooperative bank in deposits with other banks, on long term deposits would amount to income arising from banking business. Shri Bansal submits that this question has also been decided by the Gujarat High Court and Bombay High Court. In CIT v. Baroda Peoples Co-op. Bank Ltd. [2006] 280 ITR 282, the Gujarat High Court held that the interest arising out of deposits of non-SLR funds by cooperative bank would qualify for deductions under Section 80 P (2) (a) (i) of the Act. The Andhra Pradesh High Court in CIT v. Andhra Pradesh State Co-operative Bank Ltd. as well as the Bombay High Court in CIT v. Goa Urban Co-operative Bank Ltd., [Tax Appeal Nos. 6 and 8 of 2005, and in Tax Appeal No.54 of 2008 decided on 15.7.2009] have also held that the interest from the excess investment ma....
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....nking business. The Privy Council in The Punjab Cooperative Bank Ltd. v. The Commissioner of Income-tax, Lahore [1940] 8 I.T.R. 635 where the profits arose from the sale of Government securities pointed out at p. 645 that in the ordinary cases the business of a Bank essentially consists of dealing with money and credit. Depositors put their money in the Bank at a small rate of interest and in order to meet their demands if and when they arise the Bank has always to keep sufficient cash or easily realizable securities. That is a normal step in the carrying on of the banking business. In other words I that is an act done in what is truly the carrying on or carrying out of a business'. It may be added that another mode of conducting business of a Bank is to place its funds in deposit with other banks and that also is to meet demands which may be made on it. It was however argued that in the instant case the moneys had been deposited with the Imperial Bank on long term deposits inasmuch as they were deposited for one year and were renewed from time to time also for a year; but as is shown by the accounts these deposits fell due at short intervals and would have been available to the ap....
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....f Income-tax v. Basant Rai Takhat Singh [1933] 1 I.T.R. 197." 9. The Bombay High Court in The Goa Urban Co-operative Bank Ltd.'s case (Supra) has held in paras 2 and 3 as follows:- "2. The facts are hardly in controversy. The investment by the assessee Bank is in excess of statutory liquidity ratio i.e. 25% of demand and liabilities in terms of Section 24 of the Banking Regulation Act. However, the excess investment made in SLR securities were subjected to taxation by the Assessing Officer vide his Order dated 24th February, 1999 which was upheld in appeal by the Commissioner of Income Tax (Appeals). It was felt by the authorities that the income from any investments coming out of SLR would be entitled to deduction under Section 80P(2) (a)(i) in terms of the Judgment of the Supreme Court in M.P. Co-operative Bank Ltd. v. Additional CIT MANU/SC/1085/1996 : 218 ITR 438 only if it was income from the banking business. These amount had been invested in approved securities by the Assessee Bank i.e. the Central Bank and other trust securities. Noticing that the object of Section 80P(2)(a)(i) was to encourage co-operative movement in the country and any income of the society from the in....