TaxTMI 
TaxTMI 
2013 (7) TMI 560
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....ithin 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 Commissioner of Income Tax v. Karnataka State Cooperative Apex Bank, 251 ITR 194; Mehsana District Central Cooperative Bank Ltd. v. Income Tax Officer, 251 ITR 522; and Commissioner of Income Tax v. Nawanshahar Central Cooperative Bank Ltd., 289 ITR 6 (SC) 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) ....
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....g to non-SLR funds is also covered by the same ratio and reasoning as in the case of CIT v. Karnataka State Cooperative Apex Bank (Supra); Mehsana District Central Cooperative Bank Ltd. v. Income Tax Officer (Supra) and CIT v. Nawanshahar Central Cooperative Bank Ltd. (Supra). He submits that the Supreme Court in Bihar State Cooperative Bank Ltd. v. The Commissioner of Income Tax, (1960) 39 ITR 114 (SC)=AIR 1960 SC 789 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 Commissioner of Income Tax-III v. the Baroda Peoples Co-op. Bank Ltd., (2006) 280 ITR 282 (Guj), 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-III v. The Andhra Pradesh State Cooperative B....
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....t be said that the business of such a Bank consists only in receiving deposits and lending money to its members or such other societies as are mentioned in the objects and that when it lays out its moneys so that they may be readily available to meet the demand of its depositors if and when they arise, it is not a legitimate mode of carrying on of its banking business. The Privy Council in The Punjab Cooperative Bank Ltd. v. The Commissioner of Incometax, Lahore (1940) 8 I.T.R. 635 where the profites 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 wh....
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....t, it has to carry on its business in the manner that ordinary banks do. It may be added that the various heads under s. 6 of the Income Tax Act 'and the provisions of that Act applicable to these various heads are mutually exclusive. Section 12 is a residuary section and does not come into operation until the preceding heads are excluded. Commissioner of Income-tax v. Basant Rai Takhat Singh (1933) 1 I.T.R. 197." 9. The Bombay High Court in CIT v. The Goa Urban Co-operative Bank Ltd. (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 ....