Commissioner of Income Tax Vs. H.P. State Co-operative Bank Ltd., - Court Judgment

SooperKanoon Citationsooperkanoon.com/903700
SubjectDirect Taxation
CourtHimachal Pradesh High Court
Decided OnApr-01-2010
Judge Deepak Gupta and; Sanjay Karol, JJ.
AppellantCommissioner of Income Tax
RespondentH.P. State Co-operative Bank Ltd., ;The Jogindra Central Co-operative Bank Ltd. and the Kangra Centr
Cases ReferredThe Totgars Cooperative Sale Society Limited v. Income Tax Officer
Excerpt:
- deepak gupta, j.1. these aforesaid income tax appeals are being disposed of by a common judgment since the following identical questions of law are involved in all these cases:1. whether the assessee co-opertive bank was entitled to deduction under section 80p(2)(a)(i) of the income tax act in respect of interest earned on deposits of non-slr and surplus funds in non statutory reserves, even though the income so earned can not be said to be profits or gains of business, and hence falls outside the purview of section 80p(2)(a)(i).2. whether the itat was correct in law in holding that the issue regarding allowability of deduction under section 80p(2)(a)(i) of the it act in respect of such income had been settled by the hon'ble supreme court in the case of nawanshaher central co-op. bank, whereas that judgment related to income from investment of statutory reserves only.2. this court had decided these questions vide judgment dated 3.11.2009 in income tax appeal no. 40 of 2006 and other connected matters wherein virtually identical question of law was involved. we had answered the question in favour of the assessee in the following terms:any banking institution, carrying on banking business will not keep its reserves uninvested where they earn no income. the question which arises is whether the income earned on account of interest on deposits made out of the non slr funds can be said to be attributable to the banking activities of the bank. there can be no dispute with the preposition that the word attributable is much wider in scope than derived. the legislature has used the words 'attributable to' in conjunction with the phrase 'any one or more of such activities'.the words used by the legislature are very important. the first word used is attributable, which is much wider in scope than the word derived. the second phrase used is any one or more of such activities. any banking business providing credit facilities to its members and investing the sums deposited by the members of the society is part of banking business.we are, therefore, of the considered view that the investment of the funds by the banks including the non reserves were part of the banking activities since no bank would like its reserve funds to remain idle and not earn any interest. this is not only prudent business management but is also a part of the activity of banking. therefore, the interest earned on such deposits is directly attributable to the business of banking. the question is accordingly answered in favour of the assessee and against the revenue.3. sh. vinay kuthiala, learned counsel for the revenue states that he wants to rely upon one judgment of the apex court delivered after the aforesaid judgment was delivered by us. he has drawn our attention to the judgment of the apex court passed in m/s. the totgars cooperative sale society limited v. income tax officer, karnataka wherein a similar question was decided in favour of the revenue and against the assessee. we, on careful perusal of the judgment, find that the judgments cited by the assesse in support of its contention were not considered to be relevant by the apex court on the ground that the judgments cited were cases relating to cooperative banks and the assessee-society before the apex court was not carrying on banking business. the relevant portion of the judgment of the apex court reads as follows:a number of judgments were cited on behalf of the assessee(s) in support of its contention that the source was irrelevant while construing the provisions of section 80p of the act. we find no merit because all the judgements cited were cases relating to cooperative banks and assessee-society is not carrying on banking business.we are confining this judgment to the facts of the present case.4. admittedly, in the present case(s), the assessee(s) is a cooperative bank carrying on banking business, therefore, the law laid down by the apex court in totgar's case is not applicable to the present case. all the appeals are disposed of in the aforesaid terms. no order as to costs.
Judgment:

Deepak Gupta, J.

1. These aforesaid Income Tax Appeals are being disposed of by a common judgment since the following identical questions of law are involved in all these cases:

1. Whether the assessee co-opertive bank was entitled to deduction Under Section 80P(2)(a)(i) of the Income Tax Act in respect of interest earned on deposits of non-SLR and surplus funds in non statutory reserves, even though the income so earned can not be said to be profits or gains of business, and hence falls outside the purview of Section 80P(2)(a)(i).

2. Whether the ITAT was correct in law in holding that the issue regarding allowability of deduction Under Section 80P(2)(a)(i) of the IT Act in respect of such income had been settled by the Hon'ble Supreme Court in the case of Nawanshaher Central Co-op. Bank, whereas that judgment related to income from investment of statutory reserves only.

2. This Court had decided these questions vide judgment dated 3.11.2009 in Income Tax Appeal No. 40 of 2006 and other connected matters wherein virtually identical question of law was involved. We had answered the question in favour of the assessee in the following terms:

Any banking institution, carrying on banking business will not keep its reserves uninvested where they earn no income. The question which arises is whether the income earned on account of interest on deposits made out of the non SLR funds can be said to be attributable to the banking activities of the bank. There can be no dispute with the preposition that the word attributable is much wider in scope than derived. The Legislature has used the words 'attributable to' in conjunction with the phrase 'any one or more of such activities'.

The words used by the legislature are very important. The first word used is attributable, which is much wider in scope than the word derived. The second phrase used is any one or more of such activities. Any banking business providing credit facilities to its members and investing the sums deposited by the members of the society is part of banking business.

We are, therefore, of the considered view that the investment of the funds by the banks including the non reserves were part of the banking activities since no bank would like its reserve funds to remain idle and not earn any interest. This is not only prudent business management but is also a part of the activity of banking. Therefore, the interest earned on such deposits is directly attributable to the business of banking. The question is accordingly answered in favour of the assessee and against the revenue.

3. Sh. Vinay Kuthiala, learned Counsel for the revenue states that he wants to rely upon one judgment of the Apex Court delivered after the aforesaid judgment was delivered by us. He has drawn our attention to the judgment of the Apex Court passed in M/s. The Totgars Cooperative Sale Society Limited v. Income Tax Officer, Karnataka wherein a similar question was decided in favour of the revenue and against the assessee. We, on careful perusal of the judgment, find that the judgments cited by the assesse in support of its contention were not considered to be relevant by the Apex Court on the ground that the judgments cited were cases relating to Cooperative Banks and the assessee-Society before the Apex Court was not carrying on banking business. The relevant portion of the judgment of the Apex Court reads as follows:

A number of judgments were cited on behalf of the assessee(s) in support of its contention that the source was irrelevant while construing the provisions of Section 80P of the Act. We find no merit because all the judgements cited were cases relating to Cooperative Banks and assessee-Society is not carrying on Banking business.

We are confining this judgment to the facts of the present case.

4. Admittedly, in the present case(s), the assessee(s) is a Cooperative Bank carrying on banking business, therefore, the law laid down by the Apex Court in Totgar's case is not applicable to the present case. All the appeals are disposed of in the aforesaid terms. No order as to costs.