TaxTMI 
TaxTMI 
2000 (11) TMI 45
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.... applications of the assessee for rectification of the aforesaid judgment of the Tribunal. In view of the fact that the questions referred to this court and the questions raised in the tax appeals are interconnected and involve interpretation of the same statutory provision, viz., section 80P(2)(a)(i) of the Act, with the consent of learned counsel for the parties, the tax references and the appeals were heard together and are being disposed of by this common judgment. In Tax Reference No. 48 of 1999, the following questions have been referred by the Tribunal: "(i) Whether the Tribunal was right in law in holding that interest income earned from short term deposits with nationalised banks out of its reserve funds was not entitled to exemption under section 80P(2)(a)(i), in view of the decision of the Supreme Court in M. P. Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438? (ii) Whether the Tribunal was right in law in holding that the provision of the Madhya Pradesh Co-operative Societies Act was substantially in pari materia with the Gujarat Co-operative Societies Act with regard to utilisation of reserve funds and, therefore, income from investment of such reserve f....
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....proceedings before this court, although none of the assessees on whose behalf they sought to intervene have any proceedings pending before this court. Having heard learned counsel for the assessee and learned counsel for the Revenue at whose instance the present tax references and the tax appeals are filed, we have permitted the above named learned counsel to intervene at the hearing of these proceedings. All learned counsel have been heard at length on all the questions being answered by this judgment. The facts leading to filing of the tax references and the tax appeals, briefly stated, are as under: The Gujarat State Co-operative Bank Ltd. (hereinafter referred to as "the bank"), an apex co-operative bank is carrying on the business of banking. It is rendering services in the nature of a bankers' bank. In the course of its activities- (i) the bank having surplus funds including funds in the various reserves invests the same in short term deposits with various scheduled banks and earns interest from such investments. (ii) the bank also has lockers in the bank premises for the benefit of its customers who come to the bank for banking purposes and the locker rent is ear....
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....loyment of funds out of reserve funds with banks other than co-operative banks is not deductible under section 80P(2)(a)(i). The Tribunal, however, upheld the alternative contentions of the assessee that if the said income is taxable, then proportionate expenses incidental to the said investment would be allowable and the Assessing Officer was directed to decide this aspect after hearing the assessee. (ii) The income by way of locker rent was held as not falling within income from banking business, following the judgment of the Madhya Pradesh High Court in Bhopal Co-operative Central Bank v. CIT [1988] 169 ITR 573. (iii) The issue whether income by way of commission was deductible as income from banking business was remanded to the Assessing Officer to examine the facts and decide the point. (iv) The remand by the Commissioner of Income-tax (Appeals) on the issue of dividend income was confirmed. Thereafter, an application for rectification for the assessment year 1991-92 (No. 26/A of 1998) was preferred by the assessee-bank as it was not clarified nor decided whether the order of the Tribunal applied only with respect to statutory reserves required to be created under the....
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....commission was deductible as income from banking business was remanded to the Assessing Officer to examine the facts and decide the point. (iv) The remand by the Commissioner of Income-tax (Appeals) on the issue of dividend income was confirmed. Thereafter, an application for rectification for the assessment year 1991-92 (No. 26/A of 1998) was preferred by the assessee-bank as it was not clarified nor decided whether the order of the Tribunal applied only with respect to statutory reserves required to be created under the Gujarat Co-operative Societies Act or it applied to all other reserves as well which were voluntary and which could be brought back in the profit and loss account. The Tribunal allowed the application for rectification, and by judgment dated September 24, 1998, held that it had not decided this aspect and hence the rectification application was maintainable and consequently held that the judgment of the Tribunal was only in relation to statutory reserves. The clarification was given on the ground that the Supreme Court decision in M. P. Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 pertained to only statutory reserves. Similar rectification appli....
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....tions Nos. (1) and (2) raised in the tax appeals. Hence, out of the questions raised in the tax appeals, only question No. (3) is required to be decided by this court. Tax deductibility of interest on deposits/investments of reserves: Questions Nos. (i) and (ii) in Tax Reference No. 48 of 1999, the question referred in Tax Reference No. 49 of 1999, and question No. (3) in the tax appeals are all interconnected and are, therefore, being discussed jointly and not separately. Before narrating the contentions raised and the submissions made on behalf of various assessees and the Revenue, looking to the nature of the controversy, we have perused the relevant provisions of the Madhya Pradesh Co-operative Societies Act (the M. P. Act), Rajasthan Co-operative Societies Act, Maharashtra Co-operative Societies Act and the Karnataka Co-operative Societies Act and the Gujarat Co-operative Societies Act (the Gujarat Act). However, the provisions of only the M. P. Act and the Gujarat Act and Rules are set out. Statutory provisions of the Co-operative Societies Act-Madhya Pradesh Act and the Gujarat Act. Madhya Pradesh Co-operative Societies Act: "43. Funds and projects.--(1) No pa....
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....tualities will, however, be very rare." Gujarat Co-operative Societies Act, 1961: "2. (24) 'working capital' means funds at the disposal of a society inclusive of paid-up share capital, funds built out of profits, and money raised by borrowing and by other means. 67. Reserve fund.--(1) Every society which does, or can, derive a profit from its transactions, shall maintain a reserve fund. (2) At least one-fourth of the net profits of the society each year, shall be carried to the reserve fund; and such reserve fund may be used in the business of the society or may, subject to the provisions of section 71, be invested, as the State Government, may by general or special order direct, or may, with the previous sanction of the State Government, be used in part for some public purpose likely to promote the objects of this Act, or for some such purpose of the State, or of local interest: Provided that if the Registrar is satisfied that financial condition of the society is such that it is unable to carry to its reserve fund an amount upto the aforesaid limit of one-fourth of its net profits, he may by order in writing for such period as he may specify in the order, fix for ....
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.... such shares or debentures of any company registered under the Companies Act, 1956, as may be approved by the Registrar. 30. Restrictions on investment.--(1) The investment under rule 29 shall not at any time exceed 5 per cent. of the deposit liabilities or 15 per cent. of the surplus fund of the bank whichever is less. (2) The investment in shares or debentures under rule 29 shall not exceed- (a) in the case of preference shares 10 per cent. (b) in case of ordinary shares 5 per cent. (c) in the case of debentures 15 per cent. of the total surplus funds : Provided that no investment shall be made under this sub-rule if it is likely to affect the ordinary business of the bank. Explanation.--For the purpose of this sub-rule 'fund' shall mean such portion of the funds as are available for adva....
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....; prohibition against investing reserve fund in the business Once funds are separately invested, Rule 55(3) Cannot be withdrawn without sanction of Registrar which will be given only for certain purposes Maharashtra Reserve fund may be used: Section 66(2) (1) in the business, or (2) invested....
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....of the Act, or (2) Rule 29 of the Rules ----------------------------------------------------------------------------------------------- Contentions urged on behalf of co-operative banks: The contentions raised by learned counsel for the assessees, are as under : The restrictive provisions of section 44 of the M. P. Act and more importantly the notification issued by the Registrar on October 7, 1960, categorically state in the first para. that the reserve fund shall be fully invested outside its business. Secondly, it states that no part of the reserve fund should be utilised as its working capital. The subsequent paragraphs of the notification state that such reserve fund invested in deposits shall not be withdrawn without the previous sanction of the Registrar which can be given when the amount is required to meet losses or when the society is to be wound up. In other words, under the M, P. Act, the statutory reserve was taken out of the banking business or working capital of the bank and it could only be used for twin objectives mentioned in the notification. Contrasted wi....
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....funds in short term deposits, because the funds are temporarily surplus with the bank, cannot possibly take those funds out of the banking business of the applicant and such short term deposits continue to remain part of business funds of the bank. In Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114, the Supreme Court has clearly laid down. the principle that the investment of surplus funds in short term deposits till the moneys are required by the bank does not take the funds out of its business and the income was exempt. This was the position in spite of the comparatively restrictive nature of the exemption contained in the notification issued under section 60 of the Indian Income-tax Act, 1922. The judgment goes on to say that such short term deposits are the normal activities of the bank as part of its banking operations as surplus moneys cannot be kept idle or unremunerative and as prudent managers, they would be entitled to earn income by Way of interest on short term deposits or Government securities which are easily realizable securities at a minimum notice if funds are required. This judgment was reaffirmed by the Supreme Court in the judgment reported in CIT....
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....of the society but the definition of working capital contained in the Gujarat Act includes reserve funds in it. Thus, positively under the Gujarat Act reserve fund constitutes working capital of the bank and is part of the banking funds available for banking business and its investment in short term deposits which are easily realisable securities does not take them out from the business funds. In other words, they continue to be circulating capital or stock-in-trade of the bank. The Rajasthan High Court judgment in CIT v. Rajasthan State Co-operative Bank [1997] 223 ITR 55 follows the Supreme Court judgment in M. P. Co-operative Bank Ltd.'s case [1996] 218 ITR 438 because similar restrictions and prohibitions existed under the Rajasthan Act with regard to Utilisation of the statutory reserves. There is a demarcating line between investments from reserves on utilization of which there are prohibitions and restrictions, e.g., by the M. P. Act and the Rajasthan Act on the one hand and investments of free reserves which continue to be part of the business funds of the bank and are without any restrictions or prohibitions as is shown in the case of the Maharashtra Act, Gujarat Act an....
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....ed by the assessees would be contrary, to the legislative intent and clearly counter-productive. The true test for applying the deduction under section 80P is whether the income earned is attributable to the utilization of circulating capital of the co-operative society, engaged in the activity of the business of banking, which in every case must depend on the attendant facts and circumstances, which in the instant case are as under : I. Admittedly the investments in question are made out of funds: (i) lying surplus, beyond the requirement of CRR, SLR and minimum involvement of NABARD, (ii) not required for lending or repayment. II. The investments are made as authorised under bye-laws which permit investment only of surplus funds as understood under the Co-operative Act to mean funds not required for banking business. III. Admittedly, the investments are attributable to reserve funds specifically earmarked as such and appropriated from the profits earned and shown as investments in the assessee's balance-sheet clearly underlining the intention to exclude the same from its circulating capital. A harmonious interpretation of the statutory scheme of section 80P c....
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.... [1996] 218 ITR 438 would not apply to the co-operative banks in Gujarat and thus answer questions Nos. (i) and (ii) in Tax Reference No. 48 of 1999, as framed by the Tribunal in favour of the assessee and against the Revenue. It is submitted that the Revenue had not argued before the Tribunal that even if the provisions of the two Acts were different, the interest earned by the bank on short term deposits out of the reserve funds of the bank would not be deductible under section 80P because such reserve funds were not a part of the circulating capital. It is submitted that the Revenue not having taken up such a contention and the Tribunal not having decided this issue, this court cannot permit the Revenue to raise such a question in these proceedings. In support of the said contention, learned counsel for the assessees have placed strong reliance on the decisions of the apex court in New Jehangir Vakil Mills Ltd. v. CIT [1959] 37 ITR I 1 ; CIT v. Scindia Steam Navigation Co. Ltd. [ 1961] 42 ITR 589 ; CIT v, Kirkend Coal Co. [1969] 74 ITR 67 ; Pullangode Rubber and Produce Co. Ltd. v. CAIT [1970] 76 ITR 7 ; Kusumben D. Mahadevia v. CIT [1960] 39 ITR 540 and on the following paramet....
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.... court has ample power and discretion to reframe the questions and to consider all the relevant aspects of the question. The question whether a particular judgment applies or not, really skirts the main issue and does not bring out the real controversy between the parties as observed even in the statement of case and the order of the Tribunal and has a tremendous potential for mischief as inadvertently widening the scope of the deduction. It is further submitted that accepting the argument of the assessee would reduce the role of the court to that of a silent spectator, bound to proceed further even when the Tribunal or the parties have misdirected themselves, which is certainly not the role approved by the Supreme Court in Salem Co-operative Central Bank Ltd. v. CIT [1993] 201 ITR 697. Having heard learned counsel for the parties, we find considerable substance in the argument of Mr. Joshi for the Revenue that this court is not precluded from considering all the relevant aspects of a question merely because the Tribunal had chosen to frame the question in a particular manner highlighting only one particular aspect of a question, when the question was very much before the ....
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....sp; 36,00,68,743 2. Income from fixed deposit 16,42,17,479 3. Income from Government securities 13,79,90,208 4. Income from other securities 1,23,09,835 5. Bills 28,64,863....
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....sp; 4,381 2. Dena Bank, Ahmedabad 900 3. Bank of India, Ahmedabad 1,900 4. State Bank of Saurashtra, Ahmedabad 1,500 5. Indian Bank, Bhadra 1,500 6. Discount and Finance House of India 500 &nbs....
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....sation fund, investment and depreciation reserve other funds and reserve inc luding training deposits funds as reflected in the balance-sheet should not be treated as income not qualifying for exemption under section 80P(2)(a) of the Act." The Tribunal also had present in its mind the real question which had fallen for its consideration, as will be clear from the following observations in its judgment dated December 3, 1997 : "Various available judgments on the issue, i.e., availability of exemption under section 80P(2)(a)(i) have repeatedly emphasised and have upheld the proposition that once the circulating capital or stock-in-trade is interested by a bank in the course of its banking business in readily realisable securities, then income from such investments shall be liable to be treated as income from banking business and thus exempt under section 80P(2)(a)(i), but if this condition is not fully satisfied and the income is earned by deployment of surplus fund on long term or short term basis, separately identified as 'reserves' out of the appropriation of pro fits, the same cannot be said to be income earned by deployment of funds which are in, the nature of circulating ....
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....question which arises for consideration is whether the deposits/securities on which the bank has earned interest and in respect of which deduction is claimed under section 80P(2)(a)(i) were part of the circulating capital or stock-in-trade of the banking business of the assesseebank. These investments were admittedly out of the funds which were not merely surplus as treated by the bank itself but were also earmarked by the bank as reserves. Now the expression "reserves" is loosely used in different senses. Banking reserves: A bank is required to maintain certain funds separate as per the Banking Regulation Act, 1949, and allied statutory provisions (for brevity "banking reserves"), (i) cash reserve at at least 3 per cent. of the total demand and time liabilities known as cash reserve ratio (CRR), (under section 18 read with section 56(j) of the Banking Regulation Act), (ii) statutory liquidity at not less than 20 per cent. of the total of its demand and time liabilities popularly known as statutory liquidity ratio (SLR), (under section 24 read with section 56(q) of the Banking Regulation Act), (iii) reserves known as NABARD reserves. (under the National Bank fo....
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....r book which is a part of the assessment order for the assessment year 1991-92 reflects the following income, in so far as the same is relevant here : Advances income : i.e., interest on advances to borrowers (Rs. 36 crores approx.) (Rs. 36,00,68,743) Income from fixed deposits under SLR funds (Rs. 16 crores approx.) (Rs. 16,42,17,479) Income from Government securities and other securities (Rs. 15 crores approx.) under non SLR funds (Rs. 15,03,00,043) There is no controversy whatsoever about the interest earned by the bank from its borrowers on advances made, nor about interest earned by the bank from the deposits referable to the CRR, SLR and NABARD reserves (compendiously referred to as "SLR funds" or "banking reserv....
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....n 67(2) of the Act, may be used in the business of the society. It is, therefore, submitted that there is no prohibition, unlike the Madhya Pradesh Act and the circular thereunder, which prohibits the bank from using the reserve funds in the business of the bank. On the contrary, there is an express permission in the Gujarat Act to use the reserve funds in the business of the bank. In Madhya Pradesh and Rajasthan, the reserve funds of a co-operative bank could be vised-only for the purpose of meeting the losses of the bank or to repay the depositors at the time of winding up of the co-operative bank and riot otherwise. In Gujarat, for encashing the deposits the co-operative bank is not required to obtain the permission of the Registrar unless such a condition was stipulated in any order issued under section 71(2) of the Gujarat Cooperative Societies Act. Under the Bombay Co-operative Societies Act and the Karnataka Co-operative Societies Act also the reserve funds can be used for business of the co-operative bank and it is only for the purpose of withdrawal that permission of the Registrar is required and, therefore, in cases arising from these statutes particularly in the Ka....
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....heir surplus resources in a pro forma as may be prescribed by the Registrar of Co-operative Societies, in this behalf." Similar notifications are issued permitting the above three categories of banks to deposit their surplus resources with other institutions like Gujarat State Co-operative Marketing Federation, Gujarat State Co-operative Consumer Federation, Gujarat State Co-operative Cotton Marketing Federation and the Gujarat State Oil Seeds Growers Federation. Learned counsel for the assessee submits that the deposits in question are not made with any of the abovenamed institutions most of which are themselves co-operative societies. Even otherwise interest earned on deposits with co-operative societies is exempt under section 80P(2)(d) of the Act and, therefore, it is submitted that these notifications have no relevance. Although the notifications may not be of relevance in the sense that (as per the case of the assessee-bank) the amounts are not deposited with the Housing Development and Finance Corporation or similar other institutions covered by notifications dated October 12, 1992, clause 2 of the notification clearly provides that the surplus funds of the bank ....
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....merits about the interpretation of the provisions of section 80P(2)(i) of the Income-tax Act, 1961. Under the Income-tax Act, 1961, the relevant provision was contained in section 81 and the same read as under : "81. Income of co-operative societies.-Income-tax shall not be payable by a co-operative society : (i) In respect of the profits and gains of business carried on by it, if it is : (a) a society engaged in carrying on the business of banking-or providing credit facilities to its members;.... Provided that, in the case of a co-operative society which is also engaged in activities other than those mentioned in this clause, nothing contained herein shall apply to that part of its profits and gains as is attributable to such activities and as exceeds fifteen thousand rupees ; .... (iii) in respect of any interest and dividends derived from its investments with any other co-operative society ;" Section 80P as now applicable reads as under "80P. Deduction in respect of income of co-operative societies.-(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 deduc....
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....is a deduction of the entire income which is attributable to banking business. It is submitted that the words "attributable to" are much wider as held by the apex court in Cambay Electricity Supply's case [1978] 113 ITR 84 and Vellore Electric Corporation Ltd.'s case [1997] 227 ITR 557. On the strength of the said judgments, it is contended that the expression -"attributable to" includes all activities ancillary/incidental to or connected with banking and that, therefore, parking of its surplus funds by a co-operative bank (or any bank for that matter) in short term deposits or in Government securities is as much a part of banking business as advancing loans is. In support of the said contention, strong reliance is placed on the decisions of the Supreme Court in various cases of State/District Co-operative Banks of Bihar, Bombay, Ahmedabad and Bangalore. A perusal of the various statutory provisions indicates that the Legislature has always been conscious of the fact that a co-operative society carrying on the business of banking may be involved in banking activities as well as non-banking activities. While the deduction is unlimited for income attributable to banking acti....
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....g, buying, selling, collecting and dealing in bills of exchange, hoondees, promissory notes, coupons, drafts, bills of lading, railway receipts.... otherwise ; the providing of safe deposit vaults ; the collecting and transmitting of money and securities ;" As per this statutory provision, even lending or advancing of money does not amount to the business of banking, but for the purposes of section 80P(2)(a)(i) we are not inclined to accept this definition which is too narrow. At this juncture, we would like to refer to the definition of bank in Webster's New 20th Century Dictionary "Bank : 1. an establishment for the deposit, custody and issue of money, for making loans and discounts, and for making easier the exchange of funds by cheques, notes, etc., banks made profit by lending money at interest 2. a company or association carrying on such a business bank-to deposit (money) in a bank. bank-to engage in banking, to operate or manage a bank". The expression "banker" (and consequently banking business) is explained in Halsbury's Laws of England (4th edition, volume 3, para. 38) in the following words : "A 'banker' is an individual, partnership or corporatio....
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.... one, i.e., to take deposits from people and then to advance loans out of those deposits to borrowers. The controversy is when there are surplus funds, such funds may be invested or to use a neutral word " parked" or "deposited" with another bank, i.e., a nationalised bank, in short term or long term deposits or in Government securities or other securities. When such deposits are made from funds which are not merely surplus in the sense of excess of deposits over advances, but which are also treated by the assessee-bank itself as "reserves" meaning thereby the funds are earmarked for other activities like constructing buildings, etc. (though the bank may continue to use such funds as circulating capital), it can safely be said that deposit of such funds with another bank or another institution cannot be treated as "a banking activity" properly so called. Now we proceed to explain why the expression "income attributable to banking activity" is to be confined to income arising on deposits of "banking reserves" only and not on deposits of other surplus funds of the bank like statutory reserves under section 67 of the Act and the voluntary reserves. In M. P. Co-operative Bank Ltd....
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....compliance with the aforesaid statutory provisions is a part of the mandatory conditions fulfilment of which is necessary for the continuance of the business of banking. In our view, since the Banking Regulation Act is a special Act, we are of the view that only those funds which are required to be kept as surplus by the bank in accordance with the relevant provisions of the Banking Regulation Act and the allied Act being the NABARD Act requiring the bank to keep a certain percentage of its deposits as surplus can be taken into account while accepting the bank's contention that parking of its surplus funds by depositing the same with nationalised banks in Government securities/other securities is a part of its banking business or is attributable to the banking activity. Even the provisions of section 2(24) and section 67 of the Gujarat Cooperative Societies Act far from advancing the assessee's case, support the above construction of the expression "banking activity". Section 2(24) provides that the working capital means funds at the disposal of a society which include funds built out of profits. That does not mean that all the profits of a co-operative bank are necessarily a....
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....positing of such reserve funds would fall outside the business of banking. The very fact that the State Legislature permits the surplus funds not required for its business to be invested in Government securities approved under section 71 of the Act indicates that investments of such securities even if referred to as parking of surplus funds is outside the normal business of the bank and is not attributable to the banking activity properly so called. It is true that learned counsel for the co-operative banks have placed strong reliance on the decisions of the apex court explaining the scope of the expression "reserve" particularly in Metal Box Co. of India Ltd. v. Their Worhmen [1969] 73 ITR 53 (SC) and Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 (SC). It is submitted that as per the accounting principles which are recognised in the aforesaid two decisions, funds created out of the reserves form part of working capital. Even proceeding on that basis, the question which really falls for determination is whether parking of funds which are surplus after giving advances to the borrowers and after making provisions for run on the money as per the statutory requirements for....
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....quence of an administrative order of Government and does not oblige them, although it may permit them, to invest the fund at all, and it seems to me that as they are to hold the fund in readiness to meet some particular liability which is specified, it cannot be said to be part of their business as a bank to invest these liquid assets in the interval." In Madras Provincial Co-operative Bank Ltd. v. CIT [1933] 1 ITR 158, I Bench of three learned judges of the Madras High Court dealt with a similar question and Bardswell J., observed as under : "I agree that the interest derived by a co-operative bank from its investments in Government securities is not to be regarded as part of the profits of its business qua such bank. I would take it that the exemption is meant as an encouragement to the employing of as much capital as possible for the financing of co-operative societies and so extending the scope of co-operation. The investing of money in Government securities does not further the cause of co-operation but is only a means of keeping.from lying idle.funds that cannot immediately be used for such a purpose." In CIT v. Madras Provincial Co-operative Bank Ltd. [1942] 10 ITR ....
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....eadily 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." For arriving at this conclusion, the apex court relied on the observations of the Privy Council in Punjab Co-operative Bank Ltd. v. CIT [1940] 8 ITR 635, where the Privy Council observed 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 realisable securities. That is a normal step in the carrying on of the banking business. In other words "that is an act done in what is truly the carrying on or carrying out of a business". Even after basing its decision on the aforesaid observations of the Privy Council, the apex court dealt with the argument of surplus funds in the following terms (page 122) : "Stress was laid on the use of the word 'surplus' both by the Tribunal as well as by the High Court and it was also contended before us that in the bye-laws under the heading'Business of the bank' it was prov....
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.... provided the cash reserve ratio and the statutory liquidity ratio under the Banking Regulation Act and under the National Bank of Agricultural and Rural Development Act, 1981, as sufficient for meeting emergencies like a run on the money, we do not see any justification for extending the scope of deduction to income on surplus funds in excess of the banking reserves or SLR funds (as explained by us in para. 21 above). The argument that all the surplus funds lying with the bank are deposits which are not utilised for advancing loans and are to be treated similarly merely explains the source of such surplus funds, but the distinction between the two sets of surplus funds is that in case of banking reserves (or SLR funds) they cannot be advanced in view of the statutory prohibitions under the Banking Regulation Act applicable to all banks and cooperative banks and are, therefore, required to be parked in interest earning deposits/securities whereas in the case of non-SLR funds, the bank does not find borrowers and, therefore, such funds are invested to earn interest. It does not mean that parking the excess surplus funds is a part of its banking business or to be precise, a part o....
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....e declaration of the mere conclusion is not contemplated under article 141. (vide Manager, Panjarapole, Deodar v. C. M. Nat [1997] 2 GLR 1321, 1325). The contentions raised by the Revenue in the present case particularly that the income in question was not attributable to a banking activity was never raised before the apex court as the Tribunal's finding against the Revenue was not challenged in Bangalore District Co-operative Central Bank Ltd.'s case [1998] 233 ITR 282 (SC). The contention of Mr. Joshi for the Revenue (para. 16.2 11) that the investments made as authorised under the bye-laws of the assessee-bank which permit investment of only surplus funds (meaning funds not required for the business of banking) has not been disputed on behalf of the assessee-bank and, therefore, the case goes out of the ratio of the Bihar State Co-operative Bank Ltd.'s case [1960] 39 ITR 114 (SC) and all the subsequent decisions. In view of the above discussion, it is obvious that the income earned by a co-operative bank on deposits of its non-SLR funds (i.e., funds other than those advanced as loans and the banking reserves as explained in para. 21 above) is not deductible under section 8....
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....diture in respect of non-taxable activities. It is also clarified that this decision is confined to the assessee-bank's claim for deduction under section 80P(2)(a)(i) and does not at all deal with its claim, if any, in respect of deduction of interest arising from deposits with other co-operative banks under section 80P(2)(d) of the Act. Locker rent : Coming to the next question about the locker rent, learned counsel for the co-operative societies have submitted that running a safe deposit vault is very much a part of the banking business and that even the provisions of section 6 of the Banking Regulation Act provide that running a safe deposit vault is incidental to banking business and, therefore, it will certainly fall within an activity which is attributable to banking business. In support of the said contention, reliance is placed on the decision in CIT v. Bhopal Co-operative Central Bank Ltd. [1988] 172 ITR 423 (MP) and CIT v. Dhar Central Co-operative Bank [1984] 149 ITR 438 (MP). On the other hand, Mr. Joshi, learned counsel for the Revenue, has submitted that the Tribunal has rightly relied on the decisions of the M. P. High Court in Bhopal Co-operative Cent....