TaxTMI 
TaxTMI 
2005 (11) TMI 164
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....le Supreme Court being in the case of Co-operative Bank are not applicable to the Regional Rural Bank. 4. That the authorities below have erred on facts and in law in stating that the investments mentioned in the assessment order are not in accordance with the provisions of Regional Rural Bank Act, 1961. 5. That the authorities below have erred on facts and in law in taxing the income from SLR investments and Non-SLR investments ignoring the various decisions of Hon'ble Supreme Court, High Courts and Income-tax Appellate Tribunal. 6. Your appellant submits that in view of the definition of the banking business as contained in the Banking Business as contained in the Banking Regulation Act, 1949, which defines that 'banking means the accepting, for the purpose of lending or investments, of deposits of money from public', the income of the appellant bank from its investment is its income from the banking business and hence, eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. 7. That the orders passed by both the lower authorities below are without appreciating the facts, various submissions, explanation and information submitted by the appellant....
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....; No. of shares No. subscribed ----------------------------------------------------- 1. 50% Govt. of India 5,000 2. 35% Bank of India 3,500 3. 15% Govt. of Uttar Pradesh 1,500 ----------------------------------------------------- However, for the purpose of Income-tax Act, 1961 and Interest tax Act, 1974, the status of Co-operative Society has been assigned under RRB Act, 1976. 3.1 The working area of the assessee Bank has been notified in terms of section 3(1) of the Regional Rural Banks ....
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....; Rs.62,64,22,951 ---------------- 3.4 After taking into consideration the decisions mentioned at pages 2 and 3 of the assessment order, namely CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 (SC), MP Co-operative Bank Ltd v. Addl. CIT [1996] 218 ITR 438 (SC), Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114 (SC), CIT v. Ratnagiri Distt. Central Co-operative Bank Ltd. [2002] 174 CTR (Bom.) 116 and a decision of Special Bench of ITAT, Ahmedabad in the case of Surat District Co-operative Bank Ltd. v. ITO [2003] 78 TTJ (Ahd.) (SB) 1, he was of the view that these case laws would establish that under section 80P(2)(a)(i) deduction is largely dependent upon facts of the case and more particularly:- 1. Investments were out of surplus funds. 2. In approved securities and easily reliable in case of need. 3. Placement of such funds being imperative to the carrying of business of banking. 4. That funds were to be part of ....
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....are effectively outside the control of Banks and as such are permanently withdrawn from the banking systems of these Regional Rural Banks. 3.8 Accordingly, on account of the fact that the banks neither have discretion nor any control over this funds and which are designed to fulfil objectives not of the Regional Rural Bank and thus would not be an essential part of Banking activity of Regional Rural Bank inasmuch as there is no provision for their withdrawals, they are effectively out of the purview of the Bank business of Regional Rural Bank. 3.9 Thus on account of this reasoning, he was of the view that such "Investments" being outside the pale of Banking activity and not available to the Bank, as per its discretion accordingly the Income thereon would not qualify for deduction under section 80P(2)(a). 4. With regard to the non-SLR investments, which were calculated as under:- (i) HPSFCL Bonds. Rs. 1,00,00,000 (ii) IDBI Bonds &nbs....
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....,02,30,000 4.1 Observing that the assessee has shown a net profit of Rs. 6,21,91,455.44 and that the entire income had been claimed exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961, which included the interest income earned on Non-SLR investment which amounted to Rs. 4,02,30,000. He was of the view that since this income was earned on the investments which were not in accordance with the scheme of Regional Rural Banks Act, 1976 since under the provisions of RRB Act, 1976, the bank has to conduct banking business in the notified area. The Non-SLR investments on the 'other hand according to him were made outside the notified area even though under the guidelines of Reserve Bank of India and NABARO, yet they were held to be not entitled for deduction under section 80P of the Income-tax Act, 1961 because the business of assessee bank was beyond the purview of RRB Act, 1976. Being of the view that these investments are not in accordance with the objects as specified in the RRB Act, 1976. Therefore, income earned on Non-SLR investment was also held not entitled for deduction under section 80P of the Income-tax Act, 1961. 4.2 In the circumstances, he required the bank t....
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....ness of Regional Rural Banks because the manner of working differs on account of different enactments, by which they are governed. The business of Cooperative banks, it was observed, is governed by: (a) State Co-operative Banks' Acts; and (b) Banking Regulation Act, 1949. The business of Regional Rural Banks, on the other hand, is governed by; (c) Regional Rural Banks Act, 1976; and (d) Banking Regulation Act, 1949. 4.7 On account of this fact he was of the view that the issue whether making investments by Regional Rural Banks is "ordinary course of banking business" or not, it was necessary to consider the provisions of RRB Act, 1976. 4.8 In this context referring to the objects for which the Regional Rural Banks were established, he referred to the preambles which read as under:- "An act to provide the incorporation, regulation and winding up of Regional Rural Banks with a view to developing the rural economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to the small and marginal farmers, agricultural labourers, artisans an....
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....d) Surat District Co-operative Bank Ltd. v. ITO [2003] 78 TTJ (Ahd.) (SB) 1. (e) CIT v. Bazpur Co-operative Sugar Factory Ltd. [1988] 172 ITR 321 (SC). (f) Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC). 5.2 Before the CIT(A) the Assessing Officer also placed written submissions which have been reproduced in para 3.2 onwards from page 3 of the CIT(A)'s order. 5.3 The sum and substance of these submissions which can briefly be culled out is that Co-operative bank and Regional Rural Banks are governed by different statutes as such the decisions in the case of Co-operative Bank will not apply. Another distinction namely the objects for which the Regional Rural Banks were formed namely developing the Rural Economy on Regional basis was also considered to be a marked distinction whereas the Co-operative banks have to develop the co-operative sector of the country, as such this distinction was submitted to be important. On facts, it was further submitted that in the year under consideration the assessee has shown the following sources of income: "(i) Interest income from loans and advances granted by the banks. (ii) Interest income from investment known ....
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.... and deduction thereon is not admissible. 5.7 Reliance was placed upon the following decisions: (1) CIT v. Bangalore Distt. Co-operative Central Bank Ltd. [1998] 233 ITR 282 (SC) (ii) CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 (SC) (iii) MP Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 (SC) (iv) Malprabha Gramin Bank, Dharwad v. Jt. CIT, Hubli ITAT Order. (v) Surat Distt. Co-operative Bank Ltd. v. ITO [2003] 78 TTJ (Ahd.) (SB) 1 (vi) Farrukhabad Gramin Bank v. ITO, Ward-I, Farrukhabad, ITAT, Agra Bench, Agra [IT Appeal No. 54 (Farrukhabad) of 1999-2000, dated 29-2-2000] (Vii) Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) (viii) Union of India v. Satish Panalal Shah [2001] 249 ITR 221 (SC) (ix) CIT v. A.R.J. Security Printers [2003] 264 ITR 276 (Delhi) 5.8 With regard to disallowance of deduction under section 80P on the income earned from SLRs, the Assessing Officer by way of the written submission, contended as under:- "In respect of the assessee's claim for section 80P(2)(a)(ii) deduction on 'Interest from Government Securities subscribed under SLR requirements', please find enclosed a news paper clipping from....
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....anking is concerned Reserve Bank of India is supreme and the absence of Circular enjoining the investment of reserves in SLR Securities does not in any way detract the inherent powers which is that certain portion is to be invested in SLR or CRR securities as per RBI norms. 5.12 Vide the written submissions, it was also pointed out before the CIT(A) that the ITAT Bombay Bench distinguished the judgment of Supreme Court in MP Co-operative Bank Ltd.'s case by referring to the fact that the Government securities subscribed under SLR can be traded. It was his submission that this impression is erroneous for it is only such securities subscribed in excess of SLR/CRR requirements that can be traded, and not those that conform to the limits laid down by the SLR/CRR requirements. 5.13 The submission was also made that CRR is not a sine qua non of the business of banking, for this reliance was placed on the practice in England wherein the Bank of England does not prescribe any CRR (i.e., effective CRR rate is Zero) for the banks whose operatives it is requires to super-use. 5.14 On the basis of the above facts and submissions, it was contended that the basis on which the judgment o....
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....at the case laws cited by the ld. Counsel on behalf of the assessee pertains to the case of Cooperative Banks, which are treated as co-operative societies under the provisions of section 80P of the Income-tax Act, whereas the assessee admittedly is a Regional Rural Bank and not a Co-operative bank and hence, the deduction admissible to the income derived from the co-operative bank will be admissible to the appellant bank only to the extent it qualifies for such deduction within the meaning of Board's Circular No. 319, dated 11-1-1982 read with section 22 of the Regional Rural Banks Act, 1976. Moreover even in case of Co-operative Banks, there are a number of judicial pronouncements including those of Hon'ble Apex Court of the Country in which it has clearly been laid out that the entire income of a Co-operative Society carrying on banking business is not exempt. It has been held by the Honourable Apex Court in MP Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 that "every income of Co-operative Society carrying on banking business is not exempt. If a co-operative Society engages itself in any other activity and earns profit therefrom, the income so derived becomes liable to ....
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....--- 'Income SLR Non-SLR Banking Total ------------------------------------------------------------------ Interest 20,63,02,000 4,02,30,000 6,90,17,000 31,55,49,000 earned Misc. - - 43,23,000 43,23,000 Income Total Income(A) 20,63,02,000 4,02,30,000 7,33,40,000 31,98,72,000 Expendi- 16,61,91,162 3,24,08,171 5,90,80,667 25,76,80,000 ture (B) Net Profit 4,01,10,838 78,21,829 1,42,59,333 6,21,92,000'" during the year (A-B) ------------------------------------------------------------------ 5.18 Thus, he was of the view that as per the break up of profits given by the assessee himself, the assessee has admittedly earned income from three distinct sources as under:- (1) Interest on ....
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....tment for earning higher rate of income. Reliance placed by the assessee on Surat District Co-operative Bank Ltd.'s case was held to be misplaced as the order was held to be distinguishable since it pertained to the case of a Co-operative Bank and not a Regional Rural Bank. 5.22 Similarly, the judgment in the case of MP Co-operative Bank Ltd v. Addl. CIT [1996] 218 ITR 438, which had been overruled by the Apex Court in the case of CIT v. Karnataka State Cooperative Apex Bank [2001] 251 ITR 194, he was of the view that in the said judgment the Apex Court has laid down as under:- "... There is no doubt, it is not disputed, that the assessee cooperative bank is required to place a part of its funds with the State Bank or the Reserve 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 tha....
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....ishable. 5.26 He was further of the view that the Tribunal had placed reliance upon the judgment of Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172, wherein, it has been held that it is well-settled that the tax is attracted at the point when the income is earned. Taxability of income is not dependent upon its destination or the manner of its utilization. It has to be seen whether at the point of accrual, the amount is of revenue nature. If so, the amount will have to be taxed. In the present case Assessing Officer has considered the income taxable by denying the exemption under section 80P. 5.27 The judgment of Mehsana District Co-operative Bank Ltd. v. ITO [2001] 251 ITR 522 (SC) was also held to be distinguishable since it pertained to a co-operative society engaged in the banking business. In that context interest earned on the funds utilized from the statutory reserves and from the income of hiring of safe deposits, was held to be qualifying for deduction under section 80P(2)(a)(i) as the funds were utilized in accordance with the ordinary banking business. 5.28 The case of CIT v. Ramnathapuram Distt. Co-operative Cent....
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....inding of act in this behalf. No such attempt was made by either of the authorities below in this regard. Therefore, the Court has to decide these matters on the facts found and available on record. The facts found and available on record do suggest that the interest income was attributable to the assessee's business income and the investment made in IVPs are investments made from the fund generated from the banking business. It has a direct and proximate connection with or nexus to the earning from banking business in order to attract provisions of section 80P(2)(a)(i). In the facts and circumstances, findings recorded in favour of the assessees and against the Revenue are upheld." 5.30 Referring to the said judgment wherein the Court observed that each investment is to be examined, considered and decided on its own merit in order to apply the principles and for this purpose investigation of facts and definite findings are necessary. Accordingly, in this context the CIT(A) was of the view the court observed that in the absence of detailed inquiry in the nature of available surplus and investment thereof by the Revenue in that case, it was difficult to go along with the submissi....
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....ccordingly it could not be held that the entire banking business from the income therein were attributable to the business specified under section 18B of the RRB Act. 5.33 Accordingly, he was of the view, the assessee is not entitled for deduction under section 80P with reference to the income earned on SLR and Non-SLR which is to the tune of Rs. 4,72,32,667. Thus, the contention of the assessee that it is the income-itself in the business venture as per the provisions of Banking Regulation Act, does not hold good as the issue under consideration according to him is whether or not the income earned from such activities is qualified for deduction under section SOP of the Act. 5.34 He was further of the view that in fact Their Lordships of Bombay High Court itself in para 28 of the said judgment have stated that the judgment was confined only to the facts of these cases in which the judgment was given and the fact remains that in the facts, as placed earlier, Their Lordship of Bombay High Court held that no facts were investigated by any authority and the judgment was as such rendered on the facts available on record. 5.35 On the basis of these facts, he was of the view that....
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....urther submitted that this issue has been considered by various other Benches of the Tribunal and one of the orders, i.e., the order of the Hyderabad Bench had been confirmed by the A.P. High Court (copy) of this order, it was submitted is placed at page 90 and order of the Tribunal, which has been confirmed, it was submitted, is placed at pages 84 to 89. As such, on the basis of these circumstances, it was argued that the issue of exemption is fully settled and covered in favour of the assessee and as such it deserves to be allowed. 7.5 The ld. A.R. inviting attention to section 22 of the Regional Rural Bank Act and sections 3 and 18 of the same along with section 24 of the Banking Regulation Act contended that the issue is covered in favour of the assessee. 7.6 The ld. A.R. was required to address the Bench on the aspect of its SLR and Non-SLR investments as to how the amount has been invested by the assessee on which the deduction is sought to be claimed. 7.7 The learned A.R. sought time to ascertain the exact facts. As such, the case was adjourned to the next day. On the next date, the attention was invited to page 264, which was filed on behalf of the assessee in the ....
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.... activities not connected with the aims and objectives of the bank have been disallowed, it was his submission that since the assessee has earned an income of about 25 crores in the year under consideration and further has claimed exemption of only five to six crores then only that aspect has been brought to tax. It was his submissions that the question of expenses incurred on SLR and Non-SLR do not come into picture at all. As such, it is not correct on behalf of the assessee to submit that the entire income earned by the assessee has been brought to tax. It was his contention that CIT(A) is fully correct on the aspect that how can the assessee on its own allocate proportionate expenditure on SLR or Non-SLR and as such they should not be allowed. 7.12 In this background, the ld. A.R. was required to specifically address the Bench on the aspect as to what is the exact SLR income on which exemption is sought to be claimed and what is the exact non-SLR income, on which deduction is also claimed. Since the relevant facts were not available with the learned A.R. he sought time to verify and place a correct picture before the Bench. Accordingly, the case was adjourned to 12-7-2004. ....
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.... The attention for this purpose was invited to the observation of the Assessing Officer that no expenditure has been incurred and it was submitted that this finding was confirmed by the CIT(A). With respect to the errors pointed out by the assessee, it was firstly contended that there was no error with respect to the figures given in the assessment order. 7.16 In this background, the assessee was directed to give in writing instead of addressing the Bench orally as to the total SLR and Non-SLR investment and income thereon. The assessee was directed to file copies of the same before the Bench and give one to the learned D.R. The Revenue was also given an opportunity to make necessary verification on this aspect. The objections if any, of the Revenue, were also invited on whether the assessee should be allowed to get the correct figure regarding the SLR and Non-SLR investment substituted at this juncture. Accordingly vide order sheet entry dated 12-7-2004 observing as under, the appeal was adjourned to the next date of hearing: "In the course of hearing, it was pointed out by the learned A.R. Mr. Dayal Saran that the assessee vide letter dated 7-7-2004, filed in the Registry i....
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.... figures should be taken on record since they were not placed before the Assessing Officer and how and why they could not be placed before the CIT(A). In the court, it was announced that since certain aspects have to be verified and certain clarification are required, time was given to the Revenue to do the same and it was announced that the case would be fixed for hearing on 26-7-2004. However, while dictating it was considered that looking at the peculiar nature of the issues, which arise for determination, it would be appropriate first of all to direct the learned A.R. to place in writing the errors sought to be pointed out in the assessment order, put in writing as to how and why the said facts were not brought to the notice of Assessing Authority under section 154 or before the CIT(A) when the assessee went in first appeal. The learned A.R. will give this reply in writing on or before 19-7-2004 and also give one copy of the same to the learned D.R. who on the receipt of the said reply of the assessee will give in writing the stand of the Revenue addressing the issue of correctness of assessee's version and anything else which the Revenue would like to address on this aspect on....
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.... Please see position of investment and interest thereon filed -------------------------------------------------- SLR Non-SLR -------------------------------------------------- Banking Interest Income 20,63,02,000 4,02,30,000 6,90,17,000 TDR with Bank 20,39,25,000 Other SLR Securities 23,77,000 ------------ 20,63,02,000 ------------ Please see details of Rupee Earned, as in the Annual Report, (Pie-chart), --------------------------------------------- On ....
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....ication made and maintenance of portfolio are the responsibility of the sponsor Bank. Please note that all in SLR and Non-SLR assets, no application for allotment of 'securities' has been made by the assessee Bank nor does it have any choice in the selection of portfolio. All of it, is at this discretion, management and control of the 'Sponsor Bank'. Having said that, one has no option but to conclude that the assessee has undertaken this exercise to allow himself that apportionment of Expenditure on his terms, even as the issue has not adjudicated thus by the Assessing Officer. At best, he can take the 'plea' of the assessment being remanded to Assessing Officer for considering of allow ability of expenditure, he cannot suo motu allocate and adjucate the apportionment of 'expenses' himself. That will be foreclosing the issue, especially when the issue of (a) whether expenditure is to be allowed at all, is still open to question and (b) if it is to be apportioned, then on what basis. Accordingly, the reason for this exercise seems to be a suo motu adjudication of apportionment of expenses. Thus, the 'correct figures' are not to be treated as either correct, genuine o....
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....tment in Bonds/ Debentures/Units Rs. 21,93,00,000.00 Inter Bank Deposit (Non-SLR) Rs. 146,73,81,522.64 -------------------- Total Rs. 168,66,81,522.64 -------------------- 2. That the income of Rs. 20,39,25,000.00 on SLR investments has been mentioned at page No. (5) of assessment order dated 26-12-2003, the correct income on SLR investment is as under:- Income on approved &n....
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....e Bench directed the learned D.R. to submit the submissions in writing that the learned Assessing Officer has allowed the deduction under section 80P as the Counsel of the appellant has orally submitted before the Hon'ble Bench that no deduction under section 80-P has been allowed and the entire income has been taxed. Therefore, the specific errors in the assessment order could not be pointed out either before Assessing Officer or before CIT(A) earlier. As per assurance given by the assessee's counsel before the Bench, the assessee has requested the Assessing Officer for verification of the correctness. Thanking you, For Farrukhabad Gramin Bank Sd/- (A.R. Shiwalkar) Chairman Dated: 15-7-2004 &....
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....nbsp; ----------- Accordingly, in this background, the following calculations were given:- "Stage-I:- On page 115 of assessee's Paper Book the Hon'ble Members will find details of SLR and Non-SLR investment, presented to the Assessing Officer, on 3-12-2003, during the course of proceedings under section 143(3) for assessment year 2001-02. Vide 8:- (a) Deposits with Bank of India Rs. 59,14,22,951.00 (b) NABARD & IDBI Bonds Rs. 3,50,00,000.00 ------------------- Total SLR Investment Rs. 62,64,22,951.00 ------------------- ....
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.... -------------------- Remarks:- In this case, for RRB's RBI has clarified that 'Cash' and 'Time Deposits' with Sponsor Banks will qualify as SLR's. Hence SLR Investment as presented at 62,64,22,951. (a) However, the figure of 21,93,00,000 for Non-SLR is not correct. (b) Besides, assessee omitted to supply figures of income on SLR and Non-SLR investment. Stage-II: The Assessing Officer in relying upon the figures furnished by the assessee, deduced the income from investments from Schedule-13. Where interest earned on TDR, FDR's at 20,39,25,000 was adopted as income from SLR investments. and Income on Investments at 4,02,30,000 was adopted as the income from Non-SLR investment. Stage-III:- However, the assessee, made an error in classification of its FDR/TDR's with other Banks, which up to a certain limit are termed SLR but beyond that are termed Non-SLR.So, out of a total TDR deposit of 2,11,45,44,043 as per Schedule 7, (a) Money at 'Call and Short-notice' (TDR with Sponsor Bank) ....
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....fficer at 4,02,30,000 which included Income from SLR and non-SLR investments, which is bifurcated as under:- Income on 'SLR Investment' = 48,75,000 Income on Non-SLR investment = 3,53,55,000 ------------ 4,02,30,000 ------------ Thus, out of the figure of 4,02,30,000 adopted by Assessing Officer as 'Income on Non-SLR Investments' a sum of 48,75,000 would be income from 'SLR Investments' and 3,53,55,000 would be 'income from Non-SLR Investments'. Stage-V:- Income on Bank Deposits The Assessing Officer relying on Schedule-13 of the Annu....
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....Hon'ble Members may please note that Income from SLR and Non-SLR Investments being = 5,60,79,000 + 19,04,43,000 = 24,65,22,000 is still in excess of the 'Net-Profit disclosed' which is 6,21,95,444 and which has been claimed as exempt under section 80P. Now, it must be noted that income from SLR and Non-SLR investments, has been treated as ineligible for deduction under section 80P but the disallowance has been restricted to the extent of deduction claimed under section 80P which is 6,21,45,444. Thus, it is not that the entire income from Banking and Investments have been treated as disallowable, but it is that entire income from SLR and Non-SLR investments have been treated as in-eligible for deduction under section 80P but the disallowance has been restricted to the 'amount claimed as deduction' which corresponds to the Net-Profit viz., 6,21,45,444. 'Further, conclusion-II' However, it must be pointed out, that non-inclusion of other TDR's in other Banks, although Non-SLR investment, but....
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....nbsp; ------------------ In this figure, he failed to include other TDR's subscribed with other Banks. Now, at this stage, the said details have been submitted, which rightfully ought to be 'additional evidence' and the assessee ought to file a formal application before the Bench, regarding its admissibility, the reasons for non-submission and omission and failure to present the same before even the CIT(A). But, notwithstanding, the above, the attention of the Hon'ble Member is drawn to the composition of this TDR's of Rs. 146,73,81,522, which is as per Annexure-A. As, one can see, that this Non-SLR investment is made even in private Banks, like Indus-Ind Bank, Global Trust Bank at all and the area of such subscription is far and beyond the districts of 'Farrukhabad' and 'Kannuaj' which has been the case of the Assessing Officer that the funds are deployed in 'areas' for beyond 'approved area' under RRB Act. Hence, this is a significant omission. Besides, the Bench would observe that once funds are placed from an RRB into a Commercial Bank albeit at the same place, then there is no....
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....Ltd v. Addl. CIT [1996] 218 ITR 438 had been overruled and as such, the reliance placed upon the same by the Assessing Officer for denying the SLR investment on the basis of MP Co-operative Bank Ltd v. Addl. CIT [1996] 218 ITR 438 (SC) was not correct. Similarly, the reliance was placed upon CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 which apart from overruling the judgment of Supreme Court in MP Co-operative Bank Ltd v. Addl. CIT [1996] 218 ITR 438 also included the Gujarat State Cooperative Bank Ltd.'s case, which judgment has been discussed by the Assessing Officer. 7.28 On the aspect of Non-SLR income, attention was invited to the case of Bangalore District Co-operative Bank copies at pages 22 and 23 and in the case of Ramanathapuram District Co-operative Central Bank Ltd., copy of which was placed at pages 95, to 97, operative portion at page 97 was also referred to. 7.29 Reliance was also placed upon an unpublished order of Bangalore Bench of the Tribunal copy of which is placed at pages 34 to 37, ITA No. 844/Bangalore/2000 and stay petition No. 64/ Bangalore/2001. 7.30 Reliance was also placed upon the order of Ahmedabad Special Bench of the Tr....
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....lied upon by the assessee in support of its claim. 7.33 The arguments made in the context of SLR investments were reiterated with respect to Non-SLR investments by the learned A.R. reliance was placed upon the order of the Tribunal in its own case. 7.34 It was his submission that the CIT(A) has been guided by the fact that the assessee bank was constituted for the purpose to develop to the notified area and as such, the claim of the assessee has been rejected on account of wrong application of the principles. It was argued that the CIT(A) has failed to appreciate that if the assessee bank does not maintain statutory reserves as per the directions of the RBI and the Non-SLR investment, then the assessee bank will not be allowed to venture in the business of banking and thus if the assessee does not venture in the business of banking, the question of developing banking business in the notified area does not arise. It was also submitted that the bank has maintained its statutory reserves guided by RBI directions in the lead Bank of the assessee, which is constituted within the notified area and as such when under the specific Acts, by which the assessee bank is functioning. If t....
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....er hand, placed heavy reliance on the finding and observations of the Assessing Officer as well as of the CIT(A). Reliance was also placed upon the written submissions filed by the department on various stages. 8.1 With respect to the submissions of the assessee that the issue pertaining SLR income is covered by the judgment of Supreme Court and Ahmedabad Special Bench decision of the Tribunal, copy of which had been placed at page 38 of the paper book, namely, Surat District Co-operative Bank Ltd's case. It was vehemently contended by him that the said order does not help the assessee bank at all. It was submitted by him that if the investments exceeds the prescribed minimum investment under the directions of the RBI then those investments are automatically termed as non-SLR and investment within the limit are termed as SLR. Accordingly, the Ahmedabad Special Bench of the Tribunal has had an occasion to consider not the income of SLR and has considered only the surplus idle money and Non SLR income. As such, the submissions of the assessee on this aspect are not correct. 8.2 It was further submitted by him that even in the case of income from Non-SLR investment, even then....
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....ackground, it was urged that the Special Bench held that income from these investments though made in excess of requirements of NSLR and statutory reserves were eligible for deduction under section 80P(2)(a)(i). 8.8 Accordingly, it was submitted that in this context, the reliance placed upon by the ld. A.R. that this order has considered the aspect of SLR investment is not correct. 8.9 With regard to the submissions of the assessee that even in the case of non-SLR, reliance has been placed by the ld. A.R. on this order it was reiterated that it pertains to Co-operative Bank and this material distinction cannot be ignored. The aims and objectives of the two and also sections of both of the Acts materially differ and thus, in view of this difference, the findings given on an appreciation of the enabling Act therein i.e., the relevant Co-operative Societies Act cannot be applied to the facts of the assessee bank which is created under the Regional Rural Bank Act and has its own distinct aims and objectives. 8.10 It was submitted that exemption is available only to the income which is from activities consonant to the aims and objectives of the assessee-Banks. The interpretatio....
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....eveloping that area as per the aims and objectives of the RRB Act, the income of which is to be exempt. 8.15 As such, the reliance placed upon the said order, it was submitted, was misplaced. 8.16 It was submitted that reliance as such placed upon the finding on which heavy emphasis was placed by the assessee is context specific. It is given on an appreciation of facts in the case of an assessee governed by a Co-operative Society Act that the Tribunal observed:- "... therefore, it cannot be said as to which reserve has been invested where. As a matter of fact all funds of the bank including the capital, reserves and un-appropriated profits constitute a single or mixed fund out of which various loans and advances have been given to borrowers and investment in various Government securities and deposits with other banks etc. have been made. The main object of the Co-operative bank is to carryon the business of banking." 8.17 It was stated that it was appreciated by the Tribunal therein that in the case of Co-operative bank, the main activity is the business of banking. It was emphasized that whereas in the case of Regional Rural Banks, the main object is not only banking b....
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....directions are entitled for exemption. It was his contention that as and when any industry is set up then there are various regulatory authorities, which govern the various aspects of this industrial enterprise by virtue of which in order to make its industry come into existence, various costs/regulatory terms/requirements from different Regulatory Authorities are to be met or certificates to be obtained like from Pollution Control Boards, securities to be maintained with different banks or Government authorities is the basic requirement, but these costs or income from investments so made cannot be taken as their income from business activity and allowed to claim deduction in it. 8.20 It was his argument that the guidelines of the RBI which the assessee cannot ignore is basically the guideline of a regulatory authority for the banking industry/business and thus by virtue of the deployment of the funds as per the directions of the RBI in the case of the Co-operative Societies Act of different States, it may have been found that the banking business is eligible for deduction under section 80P(2)(a)(i) by virtue of Banking Regulation Act and State Co-operative Society Acts. However....
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....nd UTIs, interest on IVPs etc. "was easily realizable in case of need" and as such available on requirement for normal banking activity of the Cooperative Society. This aspect, it was considered, was again context specific finding and apart from being easily realizable by the assessee in times of need were also found to be in consonance with the aims and objectives of the relevant Co-operative Societies Act. In the issue at hand, it was vehemently argued that this income has not been earned from the deployment of funds which are in consonance with the aims and objectives of RRB Act. It was also submitted that there has not been a single case of any funds of Regional Rural Bank, which have been invested by it either in the lead bank or in other manner as per the RBI guidelines where it can be said that the said sum in time of need is easily realizable by the Regional Rural Bank. It was his vehement contention that in the case of an exemption, the taxing authority is required to look into the aspect of allowing or denying the same strictly since, the exemption is given either to a particular activity or to a particular activity, which is area specific. In the present context, it was ....
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....llel provisions in the RRB Act which lays down that any and every banking activity is eligible for exemption. Since the Regional Rural Bank, as its very name suggests, is confined to a specific area and thus, it is the banking activity, no doubt as incorporated by the Banking Regulation Act and regulated by RBI, which is carried out in the certain area for the aims and objectives of the Regional Rural Banks, it is that activity which is entitled for exemption. 8.25 It was further submitted that when the judgment of M.P. was overruled by the Supreme Court then they specifically relied upon this reasoning and the subsequent decision of Hon'ble Supreme Court have relied upon the deployment of reserves as covered by the Act itself and income thereon should be held to be treated as attributable to banking activities. 8.26 It was further submitted that RBI has made the deployment of funds in sponsor bank, which is also qualified as SLR. Moreover it was submitted that at the relevant point of time, no Regional Rural Bank could directly apply to the RBI for Government Securities and thus the argument was that all that Regional Rural Bank had been created to cater to the specific area....
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....opy of the judgment was filed. Referring to the said order, it was submitted that the question which was for consideration before the Hyderabad Bench was the deployment of reserves, wherein there was a finding of fact given by the Tribunal that there was a common pool and investment made in the context of the Banking Regulation Act. It was the D.R.'s contention that the issue at hand is not on deployment of reserves or on creation of reserves. It is on the aspect of income earned from SLR and Non-SLR investments. It was submitted that the two issues are distinct as both are on opposite sides of the balance sheet. Thus, the order of the Hyderabad Bench of Tribunal is in the context of left hand side of the balance sheet and thus, this order is entirely different context and cannot be made applicable to the issue at hand. Moreover, the aspect of income neither from SLR nor from Non-SLR investments were considered there. Thus simply because this order was in the case of a Gramin Bank does not help the assessee as the question which was examined was entirely different. 8.30 The attention was also invited to an unpublished order of the Tribunal i.e., ITA Nos. 7109 to 7119 (Born.) of ....
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....r a reserve account. The arguments advanced were that there is no fetter against the use of the funds for any of the declared activities of the Grameena Bank and these statutory reserves with the bank, it was submitted, could be used as any other fund and as such no specific amount was earmarked and set apart corresponding to the reserve created, and creation of reserve is only an adjustment entry. It was submitted that it is only an appropriation for adjustment and no funds are invested in any specific or earmarked fund against statutory reserve. Conversely, the statutory reserve is not supported by any corresponding specific invested fund. Thus the cash or specific fund is not earmarked towards any reserve and this is a peculiar concept of law. It was stated that the arguments on behalf of the assessee was that whatever cash was available with the bank is investible and altogether available with the bank for investment in any of its activities connected with banking business. It was submitted by the ld. DR that no arguments on income from SLR or non-SLR investments were advanced and no distinction between Co-operative Societies Act or RRB Act were advanced and as such had not bee....
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.... the impugned order as well as advanced before the Bench, it was stated that the Revenue has successfully demonstrated that these arguments and facts have not been considered in any other order or judgment either of the Special Bench or by the Division Bench of the Tribunal. Moreover, it was submitted that these orders as such are context specific and under the different and distinct Acts and the order of the Hyderabad Bench is on entirely a different issue and as such does not render any help to the issue at hand. It was reiterated by the D.R. that on a reading of the orders and judgments on going through line by line the order of the Special Bench of Tribunal as well as Hyderabad Tribunal, he has been able to demonstrate that this issue has not been examined in any order/judgment. 8.35 Attention was invited to section 24 of the RRB Act, which deals with the creation of statutory reserves and requirement of the Maintenance of SLR. It was his contention that there was no provision for withdrawing nor any instance in practice that the said sum was available to the Regional Rural Bank. The attention was invited to the judgment of Supreme Court in the case of South Malabar Gramin B....
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....ender or businessman or from mere profit and loss statement." It was submitted that although this judgment is in the context of fixation of wages, however, the emphasis is placed on the paramount objectives of the RRB Act, which is to cater to the under developed section of the Society. It was emphasized that the Banking activity also is no doubt a developmental activity, but it is catering to all the segments of the society and has a commercial angle to it whereas the Regional Rural Banks were created specially to cater to the under-developed and under-privileged areas and thus commercial angle is not a paramounting aim there since the paramount objectives is to develop these underdeveloped and under-privileged areas. 8.36 With respect to the income from non-SLR investment, the submissions of the ld. D.R. were that the arguments advanced for income from SLR investment would apply to the non-SLR investment. On facts, it was submitted that there are certain differences in figures as available in the assessment orders which were not challenged by the assessee and as such not corrected by the CIT(A) and with respect to which now certain figures have been given by both the sides.....
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....o not promote the aims and objectives of the Regional Rural Bank and these investments are guided purely by commercial angle. Inviting attention to the same, it was submitted that almost 234 lakhs have been locked up in the investment from commercial angle. It was further submitted that these Banks were created specifically to encourage banking in certain deprived socio-economic specified areas and parking of the funds in other investments is contradictory to the very purpose of creating the Regional Rural Banks. 8.39 With respect to the issue being considered by the Tribunal in the case of the assessee, it was submitted that firstly the Tribunal has proceeded on the basis that SLR investment was allowed by the Assessing Officer which is not a fact here, and secondly no arguments distinguishing the respective Acts i.e., Cooperative Societies Act and Regional Rural Banks Act were advanced or considered. Similarly, it was submitted that the aims and objectives of the Regional Rural Banks were not referred and as such not considered by the Bench and the issue was decided on the basis of facts as presented there and considering the Special Bench order which it was submitted has been....
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....rein and moreover, the principle of res judicata and ratio decidendi in the case of Income-tax proceedings is well established. 9.1 The next reply of the ld. A.R was that the order of the Tribunal in the case of Rayalaseema Grameen Bank pertains to SLR as well as Non-SLR. The order of the Bombay Bench in the case of Maharashtra State Co-operative Bank pertains to only non-SLR and the observations on which reliance has been placed by the ld. D.R., it was submitted, has been overruled by the Hon'ble Supreme Court. 9.2 It was further submitted that the arguments that the income from banking has been to the extent applied in the notified area, has been exempted is not correct since the entire income of the assessee has been taxed. It was further submitted by him that Regional Rural Bank has applied for allotment of Agricultural securities. Further, the Regional Rural Banks have been allowed by the RBI to directly apply for Revenue securities. On this point of time, the ld. D.R. again objected that this was subsequently directed by the RBI and is in a later year and not in the year under consideration. It was further stated on behalf of the assessee that no income from sale or pur....
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....rtunity was afforded to the assessee to peruse the judgment. On the date of hearing, it was put to the learned D.R. that after the conclusion of the hearing it was not appropriate. However, since the learned A.R. stated that he had no objection, both the sides were heard. 10.1 The learned D.R. stated that in that case the assessee is required to subscribe to shares and in the case at hand assessee is required to subscribe to SLR. In both the cases there is no provision for withdrawing and transferring such shares and in both the cases investments though compulsory cannot be held as an object. In that case relying upon Badridas Daga v. CIT [1958] 34 ITR 10 (SC) Tribunal came to the conclusion that the investment was a capital investment and not a trading capital or circulating capital as such investments were not "business" of the assessee and it was this ratio the D.R. argued which was fully applicable to the assessee's case. 10.2 The learned A.R. Shri Dayal Saran, on the other hand, submitted that the case has no relevance to the issue at hand and is in the context of allowance of business expenditure and relates to a company in respect of investment in shares in Co-operativ....
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....ivate enterprises where even a few hundred Rupees are watched with a careful eye. This attitude of carelessness does not believe a State sponsored enterprises which no doubt is created for laudable social causes. Thus, for this reason itself it is all the more reason to give due care attention and caution since these institutions are repository of public trust and funds and created for specified socio-economic benefits. In such a situation, we are of the view, it is all the more necessary to see where each and every Rupee is going. The fact that this enterprise presumably must have been managed with this aspect is not doubted since the accounts are audited. However, the comment is only on the aspect that an enterprise must know as to what is the amount on which deduction is being claimed and what is the bifurcation of its various investments in different nomenclature namely SLR and non-SLR investment and other investment etc. Without going into the aspect as to how the factual mistake has not been pointed out to the CIT(A) since the focus on either side has been on the legal aspect only, however, at the same time being conscious of the fact that the Tribunal is the final fact findi....
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.... 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 the case of a co-operative society engaged in (i) carrying on the business of banking or providing credit facilities to its members." Section 22 of the Regional Rural Banks Act, 1976 read as under:- "Regional Rural Bank to be deemed to be a co-operative society for purpose of the Income-tax Act, 1961.- For the purpose of the Income-tax Act, 1961 (43 of 1961), or any other enactment for the time being in force relating to any tax on income, profits or gains, a Regional Rural Bank shall be deemed to be a co-operative society." 11.4 The fact that the assessee is a Regional Rural Bank created under the Regional Rural Banks Act, 1976 to cater to the requirements of a specified notified area have already been addressed at length and need not be reproduced since there is no dispute on this aspect. It may also be worth mentioning that investments in the manner and up to the percentage of its t....
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.... by cheque, draft, order or otherwise; (c) 'banking company' means any company which transacts the business of banking [in India]." 11.9 The business of banking set out in Part-II of the same in section 6 of this Act is defined as under:- "6. Forms at business in which banking companies may engage.-(1) In addition to the business of banking, a banking company may engage in anyone or more of the following forms of business, namely:- (a) the borrowing, raising, or taking up of money; the lending or advancing of money either upon or without security; the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hoondees, promissory notes, coupons, drafts, bills or lading, railway receipts, warrants, debentures, certificates, scrips and other instruments and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, traveller's cheque and circular notes; the buying, selling and dealing in bullion and specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, d....
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.... or convenient for the purposes of the company; (l) selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company; (m) acquiring and undertaking the whole or any part of the business of any person or company, when such business is of a nature enumerated or described in this sub-section; (n) doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company; (o) any other form of business which the Central Government may, by notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage. (2) No banking company shall engage in any form of business other than those referred to in sub-section (1)." 11.10 The terms 'reserve fund' and 'cash reserve' are set out in sections 17 and 18 in view of the fact that there is no dispute that maintaining the statutory reserve is a mandatory requirement, the same need not be reproduced. 11.11 It may also be added here that we have also taken into consideration section 24 of the Banking....
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....connected therewith. (b) the granting of loans and advances, particularly to artisans, small entrepreneurs and persons of small means engaged in trade, commerce or industry or other productive activities, within the notified area in relation to the Regional Rural Bank." On a perusal of these above provisions, it is seen that in the case of a Regional Rural Bank it is not only imperative that the requirements of the Banking Regulation Act, 1949 be fulfilled but even the requirements of the Regional Rural Banks Act, 1976. On a perusal of the above, it is seen that the Regional Rural Banks came into existence after the implementation of the Act on 26-9-1975. The specific type of business which the Regional Rural Bank was required to engage in can be seen from the perusal of section 18 which gives effect to the aims and objectives enshrined in the preamble of the Act. It is not any and every banking activity for which Regional Rural Banks were created but for a specific target group of people which was further qualified by making it area specific. Thus, as per section 18 of the Regional Rural Banks Act, the banking income entitled for deduction was the income generated from grant....
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....ned order. The case of the assessee on the other hand is that the issue is covered in its favour by virtue of various orders and judgments. No arguments at any stage have been advanced before us or for that matter before the tax authorities so as to contend that the income on which deduction is being claimed even otherwise is covered under the narrowed definition of banking even in the case of Regional Rural Bank as per section 18 of this Act. It is not only the fact that the assessee has failed to establish its case on this aspect but that no attempt has been made to establish the case on this footing and merely orders/judgments are relied upon contending that the case is fully covered. 11.15 In this background, we set down to considering the applicability of the judgments/ orders on which heavy reliance has been placed. Thus after a perusal of the relevant provisions, we proceed to consider the judgments/orders on which heavy reliance has been placed. The A.R. has argued that the order of the Special Bench has considered all aspects. Before we proceed to examine the applicability of the principles laid down in the case of Surat District Co-operative Bank Ltd. by the Special Be....
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....ubstantially different from that of the Madhya Pradesh State Cooperative Societies Act, the judgment of the Hon'ble Supreme Court in case of MP Co-operative Bank Ltd. is not applicable to the facts and circumstances of the appellant-bank," 11.18 Identical grounds were raised by the Baroda Central Cooperative Bank Limited. 11.19 A perusal of this order shows that in the case of Surat District Co-operative Bank Ltd, the Assessing Officer observed that the Co-operative Society/Bank was obliged to invest the amount in Government securities as per CRR requirement of RBI. On examining, he observed that SLR deposits exceeded the requirement of section 24 of the Banking Regulation Act-being of the view that the CRR requirement and SLR requirement is met by the balance in current account maintained in various banks and balance in current account and fixed deposits with various banks respectively, he rejected the claim of the assessee under section 80P. This fact is brought out from para 3.1 of the Special Bench Order of the Tribunal. The Assessing Officer also denied deduction under the said- section to the receipts of locker rent. 11.20 The Commissioner held in appeal that banking....
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....ative Bank and Baroda Central Co-operative Bank and Baroda Peoples Co-operative Bank Limited, it is not clear whether the investment which has been referred to in respect of SLR or Non-SLR investment although the dispute pertains to the income from Government securities. But the factum of the SLR or Non SLR investment is not clear. On a careful reading it is seen that since the Special Bench was required only to look into the aspect of deduction of income on Government securities which income on a cojoint reading of Banking Regulation Act and Gujarat Societies Act was found to be business income of the assessee bank as such the aspect of income of SLR income or Non-SLR income was not required to be considered for deciding the issue. However, this fact itself is not as relevant as the fact that on the questions which was before the Tribunal, it was necessary to examine not only the relevant provisions of the Banking Regulation Act as has been observed but also sections thereof which are particularly relevant to Co-operative Societies which fact is borne out from para 22 of the Special Bench Order which considers section 18 of the Banking Regulation Act as modified by section 56 as a....
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....capital is not relevant since this is not the issue at hand and what also emerges is that in all these judgments which were taken into consideration by the Special Bench in none of these cases was the issue of Regional Rural Bank and specific provisions by which they are governed and which have been taken note of by the Assessing Officer in the present appeal have come up for consideration or discussion by either the Special Bench or by other Judgments relied upon by the assessee. It is seen that the Special Bench was not required to consider this aspect at all. For this purpose, brief reference may be made of para 43 of the said order which starts with the sentence:- "The investments in the aforesaid securities have been made in approved modes of investments which are permitted under the provisions of the BR Act and/or section 71 of the Gujarat Co-operative Societies Act, 1961 ....." 11.24 Similarly, a reading of para 45 of the Special Bench also shows the same thing:- "The part amount of interest income on fixed deposits with other banks (Kayami Thapan), interest on Central and State Government securities and other trustee securities aggregating to Rs. 3,01,39,708 has be....
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....It may also be further stated that the order of the Special Bench which has relied upon various judgments of the Apex Court as well as different High Courts and thereafter concluded the issue in favour of the assessee does not lend any help to the issue at hand as in that case the deduction was denied by the Assessing Officer purely on the consideration that the Apex Court decided the issue in the case of MP Co-operative Societies Act in favour of the Revenue and the Special Bench. The Special Bench noted the distinctive facts and circumstances in the case of M.P. State Co-operative Societies Act and Rules and the Gujarat State Co-operative Societies Act. In the cases before the Special Bench the facts were on the aspect that the funds invested out of reserve fund or working capital etc. according to the Assessing Officer were not from banking activity. Apart from that, various other issues like income of the bank on account of excess collection of interest were considered which are not relevant for deciding the issue at hand. It is necessary thus to mention that while considering these aspects on a perusal of the relevant provisions of the Gujarat Co-operative Societies Act and th....
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....ecessary to establish before allowing deduction is that the funds so invested are even as per section 18 of the Regional Rural Banks Act are in consonance with them. This fact let alone established has not even been argued or canvassed by the assessee and as we have already observed despite ample opportunity assessee is relying only on legal principles which do not help the assessee in any manner as those principles were laid down in the context of different Co-operative Societies Act of different States and not in the context of Regional Rural Banks Act. It is seen that no arguments have been advanced canvassing that this aspect has been considered in any judgments or order of the Tribunal. Apart from that, no other basis for claiming deduction of the said income has also been put before us. As has already observed earlier the assessee has only sought to rely upon the legal principle in the order of the Special Bench. The detailed study of which has shown that before the Special Bench no arguments regarding the mandatory nature of maintaining funds were advanced and even otherwise the Special Bench only took into consideration the application of funds which were found to be in ....
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....he statute itself. A casus omissus should not be readily inferred and for the purpose all the parts of the statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if a literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the Legislature. An intention to produce an unreasonable result is not to be imputed to a statute if there is some other construction available. Where to apply words literally would defeat the obvious intention of the legislation and produce a wholly unreasonable result the court must do some violence to the words so as to achieve that obvious intention and produce a rational construction." No order or judgment of any Tribunal in the context of these provisions has been brought to our notice and the issue simply because in the context of relevant provisions of Co-operative Societies Act read with Banking Regulation Act certain activities were found to be from t....
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....dgments taken into consideration therein the said order in the facts of the present case is not relevant. 11.31 As has been brought out in detail in the earlier part of this order, heavy reliance has been placed upon various judgments of the Apex Court which are rendered in the context of the Co-operative Societies Act of different States. It may be pertinent to briefly refer to those here. Reliance has been placed upon the judgment of the Apex Court in the case of CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194. A perusal of this judgment shows that their Lordship followed the view taken by the Apex Court in the case of CIT v. Bangalore District Co-operative Bank [1998] 233 ITR 282. A perusal of this judgment shows that the finding arrived at in favour of the assessee therein was on appreciation of sections 24 and 56 of the Banking Regulation Act, 1949 which are applicable to Co-operative Societies read with section 57(2) of the Karnataka Co-operative Societies Act, 1959 and rule 23(3) of the Karnataka Co-operative Societies. Rules, 1960. It is seen that in the facts of the present case its not necessary to consider section 56 of the Banking Regulation Act, 194....
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....ulation Act along with the provisions of Regional Rural Banks Act which are required to be taken into consideration in the present appeal. 11.32 Heavy reliance before us has also been placed upon the unreported order of the Tribunal in the case of Rayalaseema Grameen Bank v. Jt. CIT [IT Appeal No. 10 (Vizag) of 2000, dated 6-3-2000] rendered by the Hyderabad Bench. The arguments on behalf of the assessee has been that this order is in the context of a Regional Rural Bank and has been upheld by the A.P. High Court and has dealt with the issue of SLR investments. The arguments on behalf of the Revenue, on the other hand, has been that this order is not in the context of income from SLR investment and in fact is in the context of the deployment of funds, as such, the provisions of the Regional Rural Banks Act which have been pressed into service by the Revenue necessarily have not been considered by the Tribunal therein. On a careful perusal of the said order, copy of which is placed at pages 84 to 89 and legible copy thereon was supplied later, shows that no doubt this order is in the context of Regional Rural Bank. However, it is neither in the context of income from SLR investme....
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....xt of State Cooperative Societies Act and the relevant provisions thereof. 11.37 As we have already observed that as far as the order of the Tribunal in the case of the assessee itself is concerned, the issue of SLR investment was neither argued nor considered, as such, for the purposes of SLR investment this order will not render any help to the assessee. 11.38 Before us reliance has been placed upon Agrawal Warehousing & Leasing Ltd. v. CIT [2002] 257 ITR 235 (MP) for the proposition that the Tribunal cannot review its order and has to refer to a larger Bench. In view of the elaborate discussion which we have made in the earlier part of this order wherein after a careful perusal of the orders and the judgments of different Courts we have come to the conclusion that in the context of income from SLR investment, none of these orders or judgments have addressed this issue on the aspect of deduction available to the Regional Rural Banks taking into consideration the specific provisions of the Regional Rural Banks Act, 1976. Thus, on account of this fact agreeing with the principle laid down by this judgment, we are of the view that it does not help the assessee in any manner. ....
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....ven in non-SLR investments are in the context of the provisions of different State Cooperative Societies Act and the Tribunal has not therein examined the provisions, preamble and spirit and the provisions of the Regional Rural Banks Act, 1976 as no arguments were advanced and moreover the facts and circumstances were entirely distinguishable. 11.42 On a careful consideration of the arguments advanced and noting the fact that the facts and circumstances in the two assessment years are entirely different and also without going into a lengthy discussion on the principles laid down by various judgments in the law of res judicata we would merely like to confine ourselves to the finding that there is a material distinction in the facts and circumstances of the two years. Where as in 1998-99 assessment year wherein the issue travelled to the Tribunal only on non-SLR investment, it is seen that the deduction in the income from SLR investment had already been allowed by the Assessing Officer himself and as such there was no finding in the assessment order that the funds so invested i.e., SLR investments though mandatory under the Banking Regulation Act were not in consonance with sectio....
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....iven while discussing the claim on account of income from SLR investments and the discussion in respect of the change in facts and circumstances with respect to the claim of income from non-SLR investment, the assessee's claim with respect to non-SLR investments is rejected. Accordingly, the grounds in support of the claim are rejected. 12. The facts pertaining to ground Nos. 11 and 12 are that from the perusal of reserves and surplus of the bank as on 31-3-2001, it was observed by the Assessing Officer that this showed an amount of Rs. 4,58,76,000 as additional fund sent by the Government of India for the following purpose: 1. For cleansing the balance sheet 3,72,00,000 2. Towards liquidity 86,76,000 12.1 Observing that this amount of Rs. 4,58,76,000 in the books had been recorded under the head "Share deposit account", he put the assessee to notice vide office notice dated 16-12-2003 requiring him to give reasons as to why this subsidy should not be added in the total income of the assessee because it was given during a running business. ....
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....g share which is to be provided by the sponsor bank and State Government concerned added to the existing issued capital of Rs. 1 crore has increased the existing limit of authorized capital of Rs. 5 crores. Government has therefore considered this issue in consultation with NABARD and concerned Sponsor Banks and has decided to enhance with effect from 31-3-1995 the authorized capital in exercise of powers given under proviso to section 5 of the RRBs Act, 1976 of 27 RRBs including your bank to the extent mentioned against the names of each RRB in the Annexure. Thus authorized capital of Farrukhabad Gramin Bank has been enhanced to Rs. 5,58,76,000 lakhs (Rupees Five crores fifty eight lakhs and seventy six thousand only) with effect from 31-3-1995. Yours faithfully Sd/- (C.B. Prasad) Under Secretary to the Government of India Copy forwarded to: 1. Chairman, NABARD Head Office, Bombay 2. Chief Officer, RPCD, Central Office, RBI, Bombay 3. The Sponsor Bank (as per list) 4. Chief Secretary, State Govt. (As per list)." 12.2 From the perusal of the above, it was concluded by the Assessing Officer that the re-structuring was designed to improve the business of....
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....s been added in the income of the appellant as a protective measure. The Assessing Officer noted that the reserve surplus of the bank as on 31-3-2001 include an amount of Rs. 4,58,76,000 as additional funds sanctioned by the Government of India for cleansing of balance sheet at Rs. 3,72,00,000 and towards liquidity at Rs. 86,76,000. The appellant recorded in the books the said deposits under the head 'Share deposit account'. The Assessing Officer after referring to the letters of the Government referred to at pages 7 to 9 of the assessment order noted that the restructuring was designed to improve the business of the appellant assessee and relying upon the Honourable Apex Courts Judgement reported in 228 ITR 253 and 172 ITR 321, the same was held to be revenue receipt." 14. Aggrieved by this the assessee is in appeal before us. Our attention was invited to the written submissions filed before the CIT(A) Ghaziabad, copy of which is placed at page 9 of the paper book. It was submitted that the addition was sought to be made in 1996-97 assessment order, 148 proceedings with respect to 1998-99 assessment year were stayed by Allahabad High Court. As such substantive addition could no....
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....ied upon in support of the claim, it was argued and which has been reproduced in the assessment order, it was stated, is the only authority, on the basis of which it is being stated that the amount is not taxable. It was his argument that this was not a good enough basis for claiming deduction. As the assessee is bound by relevant provisions of the Income-tax Act and the RRB Act, 1976. It was his submission that since even the Board's approval which is mandated by the Act is not placed on record and formalities under the Act have not been complied with the question of entertaining the assessee's request in the case does not arise. 15.1 It was further submitted that the letter of the Ministry of Finance is not an authority that the amount is not taxable. Attention was also again invited to section 6 of the Act, which talks of the increase. Similarly, as far as the argument of the assessee that the issued capital is concerned, it was his submission, it cannot be agreed. 15.2 It was his submission that the nature of the fund is for cleansing the balance sheet, i.e., cleansing the non-performing assets, but right to use the infused funds cannot be treated as equity since the proc....
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....ilable on record. We have also taken into consideration the judgments referred before us by either side as well as the judgments referred to by the Tax Authorities. After a careful perusal of these and considering the relevant provisions of the Regional Rural Banks Act, 1976 as well as the Income-tax Act, 1961 coupled with the peculiar facts and circumstances of the case which have already been referred to in detail while discussing the facts and findings of the Tax Authorities and various other documents to which our attention was invited, we are of the view that in the peculiar facts and circumstances of the case, the claim of the assessee deserves to be rejected. The facts remains that the funds that were given for cleansing the Balance Sheet and have been used to write off the losses of the Regional Rural Bank. The revenue loss which was standing in the accounts of the assessee bank on account of these funds have been written off. On account of this fact itself let alone the other facts and circumstances taken into consideration by the Tax Authorities, the funds received are revenue receipts and cannot be treated to be capital in nature and as such the principle of the Apex Cou....
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....it was submitted that as has been submitted, the interest is mandatory, he would not want to elaborate this issue since it would be consequential to the finding to the earlier grounds. The learned D.R., in the circumstances, relied upon the provisions of the Act and the orders of the Tax Authorities. 20. Having heard the rival submissions, in the aforementioned facts and circumstances, the ground being consequential to the findings given in the earlier part of this order, ground No. 13 raised by the assessee is also rejected. 21. In the result, appeal of the assessee is dismissed. 22. [This para is not reproduced here as it involves minor issue] 23. The learned A.R. responding to this submitted that the assessee is in fact with the permission of the Court wanting to move additional grounds and this fact had been communicated by him to the D.R. 24. The additional grounds sought to be raised by the assessee read as under:- "Whether in the facts and circumstances of the case, the decision of Allahabad High Court in assessee's own case in Writ Civil Miscellaneous Petition No. 132 of 2002 dated 23-11-2004 upholding that the income earned from banking business is exempt....
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.... him. However, he came to know of the hearing through the cause list. In the circumstances, it was put to the ld. AR whether he would like to seek adjournment. However, in categoric term it was stated by him that he was ready to argue and he just wanted to make this point known to the Bench. It was further put to him that in case he would experience any handicap then the hearing can be adjourned to another date. However, he was ready to argue and he stated that he was not handicapped on account of this fact. The Bench Clerk was required to state as to why notice was not sent to the assessee. The Bench Clerk on perusal of the file stated that notice to the assessee in some other petition had been sent for 29-4-2005 and as such it was mistakenly considered that notice for today's hearing had also been sent. Accordingly, for this lapse an apology was tendered by him. In view of the fact that ld. A.R. in clear terms submitted that he was not handicapped in any manner the issue was left. 27. Before proceeding it was put to the ld. A.R. that certain appeal argued by Shri Wasim Arshad had been de-heard by the Bench comprising of my ld. brother Shri M.L. Gusia sitting with some other J.....
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....ncluded. 31. Having heard the rival submissions and taken into consideration the entirety of the facts and circumstances of the case. Taking note of the fact that no judgments could be relied upon or pressed into for support by the learned A.R. for admission of additional grounds at this juncture namely wherein the hearing has been fully concluded and the notice to either side has gone only to address the limited aspect of the applicability of the judgment of the Hon'ble High Court in assessee's case. More so where the proposed draft order has already been on record since 7-10-2004. In the circumstances, the prayer made to the Tribunal to exercise its discretionary right was made. After a careful consideration, we are of the view that the admission of additional grounds at this juncture deserves to be rejected. Taking note of the fact that there is no authority in law or any ruling which supports the stand of the assessee the additional grounds sought to be raised at this juncture are rejected. 32. No doubt the Revenue has no objection if the additional grounds are entertained by the Bench. However, we are of the view that to admit the same at this juncture would tantamount t....
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.... material which we declined. The hearing concluded on the same day. Notwithstanding the same their advocate on record filed a letter dated 28/30-4-1993 stating that an application was moved for rehearing because a very crucial document having a direct bearing was not brought to the notice of the Court. Even with these application Nos. I.A. 3 & 4 of 1993 the so-called crucial document was not appended. In these applications the rehearing was sought on the very same grounds on which an adjournment was sought earlier. This was followed by yet another communication which included a certificate of the Chartered Accountant to which was appended a statement of accounts showing that the importers had incurred a substantial loss in the sale of highseas-basis. We are indeed surprised at the attitude of the learned advocates representing the importers. It betrays a misconception that any document can be produced at any time and stage of the proceedings and the Court can be expected to reassemble to give a fresh hearing or a second innings to fill the gaps left by the importers because of their default merely because they have the means to afford it. We cannot countenance such a demand and mus....
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....ts and circumstances are entirely distinguishable and bought out in the orders of the tax authorities and discussed in great detail in this order. 36. A precedent is an authority only for what it actually decides and not for what may remotely or even logically follow from it, a decision on a question that has not been argued cannot be treated as the, precedent for which proposition reliance is placed upon Goodyear India Ltd v. State of Haryana [1991] 188 ITR 402 (SC). 37. Needless to say that it is incumbent upon the Tribunal to consider the reasons given by the CIT(A) for his decision before upsetting his decision. 38. Reliance may be placed upon the judgments in the case of Omar Salay Mohamed Sait v. CIT [1959] 37 ITR 151 (SC). Ramesh Chandra M. Luthra v. Asstt. CIT [2002] 257 ITR 460 (Guj.), Rajesh Babubhai Damania v. CIT [2001] 251 ITR 541 (Guj.), ITO v. K. Ambaji Rao [2001] 250 ITR 277 (Kar.). Reliance may also be placed upon the judgment of Apex Court in the case of CIT v. Stepwell Industries Ltd. [1997] 228 ITR 171 wherein claim was not made either before the ITO or the CIT(A) wherein their Lordships of the Apex Court has held that the Tribunal could not allow the c....
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.... of the appellant bank from its investment is its income from the banking business and hence eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. 7. That the orders passed by both the lower authorities below are without appreciating the facts, various submissions, explanation and information submitted by the appellant from time to time which ought to have been considered before passing the impugned orders. 8. That the authorities below have erred on facts and in law in not following the instruction of the Government that the entire income of the Rural Bank is exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961. 9. That the authorities below have erred on facts and in law in holding that the interest on SLR and non-SLR investments are not income from banking business is as much the investment were made in the course of banking business as per provisions of the statutory relevant provisions and guidelines of the RBI. 10. Because any view of the case the additions made are highly excessive and liable to be deleted. 11. That the authorities below have erred on facts and in law in treating receipt in the previous year relevant to assess....
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....he Regional Rural Banks Act, 1976, is entitled to claim exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961 ('Act' hereinafter for brevity). For the assessment year 1998-99, in ITA No. 208/Agra/2000 vide order dated 31-7-2003, the Agra Bench of the Tribunal, comprising of S/S N.K. Karhail (JM) and M.L. Gusia (AM) has already decided the issue in favour of the appellant (hereinafter referred to as 'PGB' for brevity), reversing the decision of the CIT(A), who upheld the order of the Assessing Officer, holding that the long-term investments made for earning interest or dividend cannot be taken as part of banking activity as the liquidity goes down and the purpose for which bank has been constituted, namely making advances to lower strata of Society for their upliftment cannot be fully achieved. Hence, these amounts are not eligible for deduction under section 80P of the Income-tax Act, 1961. 5. A similar decision has been taken by the ITAT, B-Bench, Lucknow, in the case of Avadh Gramin Bank [IT Appeal No. 952 (AH) of 1999, dated 1-12-2004 for the assessment year 1996-97, where before the Bench, the following submissions were made on behalf of the appellant:- "The le....
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....ramin Bank, Barabanki [IT Appeal No. 21 (All.) of 1999] for assessment year 1996-97. 8. The latest decision of the ITAT, Amritsar Bench dated 20-9-2004 in the case of Jammu Rural Bank v. ITO [2005] 93 ITD 717 for the assessment year 2001-02 also supports the assessee's case. Although, this decision is in respect of claim of section 43B, but in para 5 on page 720, the Hon'ble ITAT have mentiond as under - "There is no dispute about the fact that the assessee was entitled to deduction under section 80P as it was carrying on the business of banking or providing credit facilities within the meaning of section 80P(2)(a)(i). Clause (a) of sub-section (2) provides that in case of a co-operative society engaged in the carrying on the business of banking or providing the credit facilities to its members, the whole of the amount of 'profits and gains of business' attributable to such activity shall be deducted." 9. The appeal for the year 2001-02 normally should have been decided taking into consideration the decisions mentioned earlier and on the basis of the decisions mentioned there. The law is well-settled that no Tribunal has any right or jurisdiction to come to a conclusion co....
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....e sheet as on 31-3-2000 by the Government of India are liable to tax:- (i) For cleansing the Balance Sheet : Rs.3,72,00,000 (ii) For providing liquidity : Rs. 86,76,000 to the bank on protective basis CIT(A)'s decision - Brief Analysis 12. The three decisions enumerated earlier by the Assessing Officer have been confirmed by the CIT(A) on the following grounds:- (a) Regarding Income from SLR & Non-SLR investments "(i) ... the appellant is not a co-operative society engaged in banking business but is engaged in the business of Regional Rural Bank, which is a separate business by itself and the provisions of two separate Acts viz., Banking Regulation Act, 1949 and Regional Rural Banks Act, 1976 need not to be mingled with each other as the aims, objectives and business laid down in the two Acts are quite different and distinct. Moreover, the deduction under section 80P(2)(a)(i) of the Income-tax Act is admissible with regard to the income earned on the business laid down as per the RRB Act, whereas, income from other banking business is not qualified....
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....that the receipts of Rs. 4,58,76,000 were liable to be taxed. The receipts were, however, stated to have been received in the year relevant for assessment year 1996-97. The Assessing Officer has noted that on account of stay order from the Hon'ble Allahabad High Court against the assessment proceedings for assessment year 1996-97, the receipt is added in the income of the appellant only as a protective measure while the substantive assessment would have to be made in assessment year 1996-97 as and when the said order is vacated. Considering these facts and also the fact that the addition has been made only as a protective measure, the Assessing Officer is directed to follow the findings as and when given with reference to substantive assessment on this income. As regards this appeal is concerned, since the assessment is only as a protective measure, no interference is called for at this stage. Legal position 13. Section 80P allows a deduction, in the computation of the total income of a co-operative society. The deduction under section 80P is allowed from gross total income calculated after ignoring income exempt under section 10. In order to claim deduction under section ....
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....t, 1961 (43 of 1961) or any other enactment for the time being in force relating to any tax on income, profits or gains, an RRB shall be deemed to be a co-operative society." 19. It is a well-settled rule of interpretation that in construing the scope of a legal fiction, it would be proper and even necessary to assume all those facts on which alone the fiction can operate. As observed by Lord Asquith, in the case of East End Dwellings Co. Ltd. v. Finsbury Borough Council [1951] 2 All ER 587, 599 [1952] AC 109 (HL): "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents, which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it." 20. Referring to section 22 of the RRB Act, 1976, the CBDT has issued a Circular F.No. 178/4/81-IT(AI), dated 11-6-1982, which reads as under:- "A question has arisen whether RRBs (to which the provisions of the RRBs Act, 1976 apply) can be treated as co-operative societies for the purpose of section 80P of the Income-tax Act, 1961." 21. There is a specific provision namely sec....
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....nd hence, entitled to the benefit provided by section 80P(2)(a)(i) if the conditions mentioned therein are satisfied. Whether Farrukhabad Gramin Bank is engaged in banking business? 27. The words 'banking or business of banking' are not defined in the Income- tax Act and therefore" for all purposes, these are to be imported from another statute of the Government of India namely of Banking Regulation Act, 1949 ('BR Act' hereinafter for short). Section 3 of BR Act provides that the said Act shall apply to co-operative banks in the manner and to the extent specified in Part-V. Under Part-V, section 50 makes various provisions of BR Act applicable to co-operative societies. Accordingly, the definition of the word 'banking' as given in section 5(b) will apply to RRBs. This reads as under:- "... 'banking' means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise." 28. The learned CIT(A) has failed to appreciate that the banking implies, inter alia, investment of deposits. If the view as taken by the CIT(A) is to prevail, there could be situations wh....
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....section 80P(2)(a)(i) is to be allowed to a co-operative society engaged in anyone or more of the activities as specified in clause (a) of sub-section (2) of section 80P to the extent of whole of the amount of profits and gains of business attributable to anyone or more of such activities. The word 'attributable' here has a larger connotation. Its scope is wide and covers the other receipts incidental to such activities. Accordingly, a co-operative society engaged in carrying on the business of banking as specified in sub-clause (i) of head (a), earning income by way of commission and brokerage by dealing in bills of exchange, subsidy from Government, admission fee from members, incidental charges and financial penalties, will be entitled to claim deduction in respect of such incidental receipts also because these are all attributable to the business of banking. 32. There are a number of decisions in the context of Chapter VI-A of the Act, where the meaning of the words 'attributable to' has been explained. In Cambay Electric Supply Industrial Co. Ltd v. CIT [1978] 113 ITR 84 (SC), the meaning of the words 'attributable to' have been explained saying that it is of very wide impor....
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....acement of such funds being imperative for the purpose of carrying on banking business, the income therefrom would be income from assessee's business. 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'." 36. Other Decisions which support Farrukhabad Gramin Bank's case. (a) CIT v. Bangalore Distt. Co-operative Central Bank Ltd. [1998] 233 ITR 282 (SC) dated 24-7-1998. (b) CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 (SC) Division Bench dated 22-8-2001. (c) Hon'ble ITAT, Ahmedabad, Special Bench - Surat Distt. Co-operative Bank Ltd. v. ITO [2003] 78 TTJ (Ahd.) (SB) 1. (d) Hon'ble ITAT, Hyderabad, Bench-A, in the case of Rayalaseema Grameen Bank v. Jt. CIT (Asst.), Spl. Range, Guntur [IT Appeal No. 10 (Vizag) of 2000, dated 6-3-2000] (e) Hon'ble Andhra Pradesh High Court in the case of CIT, Vijaywada v. Rayalaseema Grameen Bank, HO : PB No. 65, Cuddapah. 37. The judgment of AP High Court in the case of Rayalaseema Grameen Bank's case which is completely in favour of the assessee. The said decision was not challenged before Supreme Court by the departm....
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....l position and the fact that in the context of judicial discipline, the CIT(A) was bound to follow the jurisdictional Tribunal's decision, the view of the Assessing Officer has been confirmed by the CIT(A). The Bombay High Court in the case of Bank of Baroda v. H.C. Shrivastava [2002] 122 Taxman 330 has held that it is necessary for judicial unity and discipline that all authorities below Tribunal must accept as binding judgment of the Tribunal. Prima facie, both the Assessing Officer and the CIT(A) have flouted this cardinal principle of judicial without mentioning any plausible/reasonable ground for not following the decision of the ITAT, Agra Bench, on the issues decided. 44. The position taken by the Assessing Officer and the CIT(A) is also not in consonance with the views expressed by the Apex Court. The Hon'ble Supreme Court in the case of Union of India v. Kamlakshi Finance Corpn. Ltd. [2002] 123 Taxman 66 (sic), held that order of the higher authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not acceptable to the department is in itself an objectionable phrase, and is the subject matter o....
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....ties Act, 1961. Substantial part of interest income derived on fixed deposits (Kayami Thapan) attributable to the extent of meeting requirements of SLR/CRR has been held to be exempt under section 80P(2)(a)(i) by the Assessing Officer himself. The investments of the surplus amounts beyond the amounts required to be invested to meet the requirements of SLR/CRR has been made in those very fixed deposits (Kayami Thapan). The nature of investments and nature of income derived therefrom is similar. The fixed deposits (Kayami Thapan) are easily realizable in case of need and in case of liquidity crisis by their premature encashment. The Government securities and other trustee securities are also easily realizable as such securities are freely transferable in open market and the amounts can be realized as and when needed. All these investments fully satisfy the tests of 'easily realizable in case of need'. Such investments in approved securities and approved modes of investments are considered to be extremely safe and secured. It protects the interest of large number of depositors. The bank has derived substantial interest income from such investments made in approved securities by invest....
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....0 per cent, 35 per cent and 15 per cent respectively. In the case of 27 RRBs, additional amount already released by Central Government and the matching share which is to be provided by the sponsor bank and State Government concerned added to the existing issued capital of Rs. 1 crore has increased the existing limit of authorized capital of Rs. 5 crores. Government has therefore considered this issue in consultation with NABARD and concerned sponsor banks and has decided to enhance with effect from 31-3-1995 the authorized capital in exercise of powers given under proviso to section 5 of the RRBs Act, 1976 of 27 RRBs, including your bank, to the extent mentioned against the names of each RRB in the Annexure. Thus, authorized capital of Farrukhabad Gramin Bank has been enhanced to Rs. 5,58,76,000 lakhs (Rupees Five crores fifty eight lakhs and seventy six thousand only) with effect from 31-3-2005." 52. Apparently, by the amount provided, the shares of GOI, BOI and Government of UP in FGB have enhanced. Hence, by no stretch of imagination such amount can be considered as income as it has been clearly mentioned in the Government's letter that 'the authorized capital of Farrukhabad ....
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....81(1)(c) and it has been reiterated in this decision that section 81(1) was intended to encourage and promote the growth of co-operative societies and consequently, a liberal construction must be given to the operation of that provision. Hence, to construe the terms 'banking'/'business of banking' in a narrow sense, ignoring the definition of 'banking' given in section 5(b) of the BR Act and excluding income from investments (whether SLR or non-SLR) and Government subsidies/grants would be against the spirit echoed by the highest court of the country in the two decisions mentioned earlier. (B) Interpretation in case of doubt (i) The meaning of the term 'banking business' is very clear from the definition given in section 5(b) of BR Act and hence, issues regarding interpretation in favour of or against the assessee should not arise. However, in his written arguments filed before the CIT(A), the Assessing Officer has raised this issue in the following way - "In the end, I submit that Andhra Pradesh High Court delivered judgment in favour of assessee while Gujarat High Court delivered judgment in favour of revenue. Thus, there is a controversy and ambiguity regarding admis....
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....following Novopan India Ltd. v. Collector of Central Excise 1994 (6) Jt. 80, 88, it has been said that in the case of an ambiguity or doubt regarding an exemption provision in a fiscal statute, the ambiguity or doubt will be resolved in favour of the Revenue and not in favour of the assessee. (v) These decisions do not advance the Assessing Officer's view that advantage of ambiguity should be given to the Revenue because as has already been pointed out earlier, there is no ambiguity involved. Further, these decisions have to be considered in the background of the two Supreme Court decisions advocating liberal interpretation in the context of provisions of section 80C/81. (vi) The decision in the case of Orissa State Warehousing Corpn. has no application as the same has been given in the background of a situation, where the language used is 'derived from' - not 'attributable to'. The observations made in the last decision too do not support the theory made out by the Assessing Officer. Firstly, it was not a case, where availing of any exemption under Chapter VI-A was involved. The situation considered related to 'Kar Vivad Samadhan Scheme' and in this context, the court has sa....
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....nd incidental thereto. (iv) The Regional Rural Banks are authorized to undertake the following types of business: (i) Granting of loans and advances, particularly to small and marginal farmers and agricultural labourers, whether individually or in groups, and to co-operative societies, including agricultural marketing societies, agricultural processing societies, co-operative farming societies, primary agricultural credit societies or farmers' service societies, for agricultural purposes or agricultural operations or for other purposes connected therewith. (ii) Granting of loans and advances, particularly to artisans, small entrepreneurs and persons of small means engaged in trade, commerce or industry of other productive activities, within the notified area in relation to the Regional Rural Banks. (v) The Regional Rural Banks are inspected by the National Bank for Agriculture and Rural Development. The Regional Rural Banks are permitted to open branches by the RBI on the recommendation of NABARD. (vi) The discussion about the functioning of the RRBs does not indicate that RRBs are prohibited to make investments in any manner of its surplus fund. There is also no pro....
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....ion 80P(2)(a)(i). 60. Similarly, income from interest, dividends, Government subsidies, locker rents, etc., have been held to be exempt in the following cases:- 61. In CIT v. Madurai District Co-operative Bank Ltd. [1999] 239 ITR 700 (Mad.), following CIT v. Madurai District Central Cooperative Bank Ltd. [1984] 148 ITR 196 (Mad.), it has been held that interest on securities, subsidy from Government interest from other co-operative institutions and banks, dividend received by the assessee were business income entitled to deduction under section 80P(2)(a)(i). 62. Similar view has been taken in the case of this very bank in the decision in CIT v. Madurai District Central Co-operative Bank Ltd. [2000] 164 CTR (Mad.) 71. 63. In CIT v. Ahmednagar District Central Co-operative Bank Ltd. [2003] 264 ITR 38 (Born.), income earned by a co-operative bank by way of commission/fee for collecting electricity charges for and on behalf of its customers has been held to be income from banking activity, qualified for deduction under section 80P(2)(a)(i). 64. In CIT v. Ratnagiri District Central Co-operative Bank Ltd. [2002] 254 ITR 697, 707 (Bom.), special leave petition dismissed by ....
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....term fixed deposits in banks and shares of Maharashtra State Finance Corpn. of India. The assessee had made said investments out of its surplus funds. It has been held that since the assessee had utilized its surplus or voluntary reserve funds in course of its ordinary banking business, it was entitled to deduction as claimed. 70. There are other decisions too, where similar views, including deduction for Government subsidies, have been held to be deductible, but the foregoing decisions clearly establishes that the view taken against the FGB by the Assessing Officer & CIT(A) is not correct. Hence, other decisions are not being mentioned keeping in view the need for brevity in these submissions. 71. Position regarding the decisions considered in the CIT(A)'s order. CIT v. Bangalore District Co-operative Bank [1998] 233 ITR 282 (SC) In this decision, it has been said, is applicable in relation to only income from SLR investments, which are deductible and not to non-SLR investments. Hence, its application in the context of non-SLR investments has been objected to. However, there is no discussion about SLR or non-SLR income in this decision. The position as emerges from the....
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....is to develop the rural economy on regional basis, therefore, each and every rule of co-operative society is not applicable on the RRBs. If the investment is made by the RRBs beyond the area, that is the normal commercial banking, which is liable to income-tax like the business of other commercial banks. Obviously, this decision has not been considered helpful in a casual way without appreciating the findings in the background of the facts. Mehsana District Co-operative Bank Ltd. v. ITO [2001] 251 ITR 522 (SC) This decision supports the appellant's case. This decision is on the same lines as the decision in Karnataka State Co-operative Apex Bank's case. It has been said 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. Hence, income derived by placing of funds with the SBI/RBI has been held to be deductible under the aforesaid provisions of section 80P. 72. The assessee bank filed writ petition against the reopening of the assessments for the assessment years 1995-96 to 1997-98 and the Hon'ble Allahabad High Court pronounced its decision on 23-11-2004 by quashing the proce....
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....of section 3(1) of the Regional Rural Bank Act, 1976 as per the Notification in the districts of Farrukhabad and Kannauj i.e., the target area is entitled for exemption in the facts of the case? 3. Is the Tribunal while dealing with issues of exemption to be governed merely by law as considered in different context in different legislations or are the specific facts of the case in as much the notification under section 3(1) of RRB Act, 1976 in the facts of the case in each year under consideration is to be considered? 4. Can the issue be stated to be covered by the orders of the Tribunal in the earlier years, where no facts qua the SLR income being exempt are discussed since assessment is made in those years on the basis that SLR income is exempt? Thus, can those orders of the Tribunal be stated to have considered the exemption qua the SLR and non-SLR income wherein admittedly, no arguments or facts even before the Tribunal on the specific target area and target group of the banking activities are addressed? 5. Can the Tribunal, a final fact finding body ignore the facts brought out in the orders of the Tax Authorities and addressed at length from either side, especially i....
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....jective was to discharge the responsibilities under section 18(2)(a) and (b) of the RRB Act, 1976 by extending credit facilities through implementation of various Government sponsored schemes for social and economic upliftment of the weaker sections of the society and to small and marginal farmers, village artisans, landless labourers for the purpose of agriculture and allied activities, trade, commerce etc. The assessee-bank is a scheduled commercial bank and is authorized to do banking business as defined in the Banking Regulation Act. The area of operation of the bank is Farrukhabad and Kannauj districts, where the main occupation of the people is agriculture (potato). The bank provides services to the customers through its network of 82 branches and 2 extension counters in two districts, 14 Blocks and 6 Tehsils. The head office is situated in Sahyog Bhavan, Chaurasi, Fatehgarh in Farrukhabad district. 2. In the return filed for the assessment year under appeal, the assessee claimed exemption under section 80P(2)(i) in respect of the net profit of Rs. 6,21,91,455 shown in its profit and loss account, on the footing that the entire income represents profits and gains attributa....
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....n those orders of the Tribunal be stated to have considered the exemption qua the SLR and non-SLR income wherein admittedly, no arguments or facts even before the Tribunal on the specific target area and target group of the banking activities are addressed? 5. Can the Tribunal, a final fact finding body ignore the facts brought out in the orders of the tax authorities and addressed at length from either side, especially in the background, where on facts, both the Members agree that verification is required since the issue on facts has been restored to the Assessing Officer by the JM on which aspect there is no dissent by the learned AM since that issue has not been touched at all in the dissent order? As such can this order be said to be covered when on facts both after verification is requested. 6. Where on facts both Members are in agreement that verification on facts is required. In the circumstances, can the issue be stated to be covered by the earlier orders of the Tribunal, where admittedly no discussion on facts on SLR income is there in those years by the Tribunal? 7. Can additional ground be admitted after proposed order is written and signed lying pending over 70....
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....rest from both SLR and non-SLR investments are in dispute and therefore, the earlier order does not govern the present year." 6. The learned JM has embarked upon the very elaborate discussion of the issue, but so far as I can see, with respect, the gist of the detailed discussion appears to be the above four salient points. 7. The learned AM has adopted the following reasoning in support of his dissent: "(a) Judicial consistency and discipline requires that the earlier order of the co-ordinate Bench of the Tribunal for the assessment year 1998-99 should be followed. (b) There is no difference between the interest on SLR investment and the interest from non-SLR investment in nature and character. Both types of interest relate to the banking business carried on by the assessee. Whereas the interest from SLR investment is from investment which are compulsorily to be made by the assessee as per directions of the Reserve Bank of India, the non-SLR investments are those investments which the assessee voluntarily makes in order to meet requirement of its business. They are also of temporary in nature and are easily realizable in case of need. They are thus closely connected to....
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....ness of banking. There can be no dispute that the assessee, though a rural bank is deemed to be a co-operative society for the purpose of the Income-tax Act, 1961 as provided in section 22 of the RRB Act. Thus the primary condition that the person who claims the deduction shall be a co-operative society is satisfied. When I turn to the question as to what will constitute the business of banking in the case of a regional rural bank such as the assessee, I need to refer to section 18 of the RRB Act. Sub-section (1) says that every regional rural bank shall carryon and transact the business of banking as defined in section 5(b) of the Banking Regulation Act, 1949. The sub-section goes on to say that the regional rural bank may engage in one or more forms of business specified in section 6(1) of the BR Act. Section 5(b) of the BR Act, says that 'banking' means, the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise, section 6(1) of the BR Act contains several clauses which described what are all the other forms of business in which a banking company may engage i....
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....s of the RBI. The word "Liquidity" suggests that the investments are to be made in order to ensure that the liquidity position of the bank is sound so that in case of any contingency the bank has no difficulty in meeting its liabilities towards the depositors. The very purpose and object of the SLR investment is to safeguard both the assessee bank as well as the depositor and I am unable to see how the activity of investment can be viewed as not forming part of the banking business. I am also in agreement with the view expressed by the learned AM that there can be no real distinction between the SLR investment and non-SLR investment. Even the non-SLR investments, which are investments made by the assessee bank voluntarily and without any statutory compulsion are made with the same object as in the case of the SLR investment. It must be remembered that section 6(1)(a) of the BR Act permits a bank to acquire and hold securities and investments, of all kinds and I am not able to see why this activity should be permitted, unless it was absolutely necessary to regard the same as part of the banking activity, though described as another form of business. It must be remembered that the BR....
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....t for this reason, it cannot be said that the investments are not part of the business of banking. 12. One more thing which the learned AM has highlighted, which appears to have escaped the attention of the learned JM, is that section 80P(2)(a)(i) uses the words "attributable to" the business of banking. It is now well-settled, especially after the judgment of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd v. CIT [1978] 113 ITR 84, that these words are wider in scope and connotation than the words "derived from". The use of the former expression in the section suggests that it is not necessary that the income in respect of which deduction is claimed should be derived from the activity of granting loans to the target group. The income may relate to any other activity which is inextricably linked with the banking activity and this view is also strengthened by the use of the words "business of banking", as against "banking", in the above section. I have already indicated the difference between the two expressions. I have also indicated that at any rate the word "banking" itself has been defined by section 5(b) of the BR Act to mean the accepting of the d....
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....und of the assessee was about Rs. 33 lakhs and the circulating capital was about Rs. 22 lakhs and held that the investment was out of the reserve fund and confirmed the assessment. On appeal, the Tribunal accepted the contention of the assessee that the interest income was attributable to the assessee's business income. The Karnataka High Court having upheld the order of the Tribunal, the matter was carried in appeal to the Supreme Court by the CIT. The Supreme Court held that since the Tribunal has found that the income in question is attributable to the business of banking, the assessee was eligible for the deduction. 16. I may now refer to the judgment of the Supreme Court in Karnataka State Co-operative Apex Bank's case. There it was held that the interest arising from investment made in compliance with statutory provisions to enable it to carryon banking business, out of reserve fund by a co-operative society engaged in banking business, is exempt under section 80P(2)(a)(i) of the Act, since the placement of such funds was imperative for the purpose of carrying on banking business. It was held that the income would be from the assessee's business of banking. It was further ....
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....e bank has made prudent and profitable investment of its funds, that all the investments have been approved by the Board of Directors and were made under the guidance of the Bank of India which is the sponsor bank, that the guidelines of RBI have been followed, that for the sake of profitability and viability the fund management is handled by the Asset Liability Management Committee at the Head Office as per new investment policy, that the branches are maintaining their current account with the Bank of India/SBI in order to have better cash management/bill collection at branches and they deposit their surplus cash always in sponsor bank branches to earn interest and that the Board of Directors makes quarterly reviews of the investments made by the bank. The learned DR submitted before me that this statement shows that the motive of the bank is to earn more profits, which is a deviation from its main aim to help weaker sections of rural India. He also pointed out that the entire advances amounting to Rs. 3,443 1akhs made during the year were not made to weaker sections which is also deviation from the aims and objects of the bank. I am not in the present appeal concerned with whethe....
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....ue from the angle of the Banking Regulation Act as well as the provisions relating to the Gujarat Co-operative Societies Act, 1961 which are substantially similar to SLR and non-SLR investments with which the present case is concerned, the decision was fully applicable to the present case which aspect appears to have been overlooked by the learned JM. Not only that, it is the ratio of the decision which ought to have been kept in mind. The Special Bench has examined the nature of the income from investment made in accordance with the statutory investments and those made in excess of the statutory requirements and held that there is in essence no difference between the two. This is precisely the issue in the present case. 18. There are two Circulars which are relevant. The first is dated 11-1-1982. In Circular No. 319 issued by the CBDT, it says that Regional Rural Bank is to be treated as co-operative society for the purpose of section 80P(2)(a)(i) of the Income- tax Act. In view of section 22 of the RRB Act. This aspect I have already noticed in the beginning of the order. 19. The next Circular, which in fact is an earlier Circular dated 20-10-1978 issued by the Banking Divi....
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....tions are academic in nature and most of them only touch upon the propriety of the steps taken during the decision-making process. Such questions cannot be referred as points of difference under section 255(4). These issues are to be discussed and sorted out between the Members themselves, whether they concur or they are constrained to take different views. The points of difference envisaged by section 255(4) are only with respect to the merits of the decision, not with respect to the conduct of the other Member with reference to the decision-making process. Those are all internal matters with which the section is not concerned nor is it proper to make a grievance out of the same by proposing such questions to the Hon'ble President under section 255(4). Framing such questions tends to cause irreparable damage to the Tribunal as an institution and undermines its fair name and reputation. Such self-inflicted injuries, in my humble opinion, shall be avoided at all costs. The framing of the points of difference under section 255(4) shall not be made a platform to expose what is perceived to be non-judicial behaviour by the other Member or to ventilate any grievance against the other Me....