2008 (8) TMI 193

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....Co-operative Bank in the shape of F. D. Rs. is income derived from banking business and, therefore, eligible for deduction under section 80P(2) (a) (i) of the Income-tax Act?" 2. The brief facts necessary for decision of the case are that the assessee is a co-operative Bank created under the H. P. Co-operative Societies Act, 1968. Section 57 of the Act reads as follows: "57. Reserve fund. - (1) Every society shall maintain a reserve fund in respect of the profits, if any, derived from its transactions. (2) On the net profits of a society in each year there shall be carried to the reserve fund not less than twenty-five per centum or such higher proportion as may be prescribed for such society or class of societies. (3) Save to th....

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.... reserve could not be regarded as income from banking activities and as such the interest amount earned by the assessee from such securities did not qualify for exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961 (for short "the Act"), which reads as follows: "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 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 ....

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....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. v. CIT [1996] 218 ITR 438 (SC) that only income derived form circulating or working capital would fall within section 80P(2)(a)(i). There is nothing in the phraseology of that provision which makes it ap....