2009 (6) TMI 15

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....n Vikas Patra ('KVP' for short) and Indira Vikas Patra ('IVP' for short) out of voluntary reserves is income from banking business exempt under section 80P(2)(a)(i)of the Income Tax Act, 1961?" 2. Mr. Gupta, learned counsel appearing on behalf of the revenue fairly stated that, the interest income earned by a co-operative bank from KVP/IVP, where investments in KVP/IVP are made from statutory reserves in compliance of any statutory provision would be income from banking business exempt under section 80P(2)(a)(i), in the light of the decision of this Court in the case of CIT V/s. Ratnagiri District Central Co-operative Bank Ltd. reported in 254 I.T.R. 697 and several decisions of the Apex Court including the decision in the case of CIT V/s.....

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.... of the ordinary banking business, it is just and proper to set aside the decisions of the Tribunal and remand the matter for de novo consideration. 6. We see no merit in the above contentions. This Court in the case of Ratnagiri District Central Cooperative Bank Limited (supra) after considering various provisions of the Maharashtra Cooperative Societies Act, 1960 and the Banking Regulation Act, 1949 has held that the investments made by a Cooperative Bank in IVP out of the funds generated from the banking business would have direct and proximate connection with or nexus with the earning from banking business and attract the provisions of Section 80P(2)(a)(i) of the Act. In other words, this Court in the above case has held that the inter....

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....t the deduction is being denied solely on the ground that the investment in KVP/IVP have been made from the funds lying in the voluntary reserves. 9. As rightly contended by Mr.Inamdar, learned counsel for the assessee, the ratio laid down by this Court in the case of Ratnagiri Dist. Central Co-op. Bank Ltd. (supra) as well as the Apex Court in the cases relied upon by the Tribunal is that making investments by a bank is part of the business of banking. Therefore, to avail deduction on income from investments in KVP/IVP under section 80P(2)(a)(i) of the Act, what is relevant is that the investments in KVP/IVP are made by the co-operative banks from the funds generated from the banking business. In all the cases in hand, it is not the case ....

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....immediately needed for the banking business. In such a case, it is contended that investing the surplus amounts in the voluntary reserves in KVP/IVP for a long period of 5 years cannot be said to be during the course of banking business. There is no merit in the above argument, because, the very same argument advanced by the revenue in the case of Karnataka State Co-operative Apex Bank (supra) have been rejected by the Apex Court by holding that there is nothing in the phraseology of section 80P(2)(a)(i) which makes it applicable only to income derived from working or circulating capital. 12. Therefore, in all these cases, where the surplus funds not immediately required for day to day banking were kept in voluntary reserves and invested i....