ITO, Oari V. M/s Jalaun District Cooperative Bank Ltd., Oari

ITA 422/LKW/2011

• Counselvise Citation: 42223714 RSA 2011
• Duration Of Justice: 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-08-2011
• Assessment Year: misc
• Appeal Filed On: 06-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Revised return
• Section: 143(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NO.422(LKW.)/2011 A.Y. : 2005-06 THE ITO 6(6), VS. M/S.JALUAN DISTRICT ORAI. CO-OPERATIVE BANK LTD., STATION ROAD, ORAI, DISTT. JALAUN. PAN AABCJ3383P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJESH YADAV ,D.R. RESPONDENT BY : NONE DATE OF HEARING : 17.8.2011 DATE OF PRONOUNCEMENT : 17.8.2011 O R D E R PER H.L.KARWA, VICE PRESIDENT THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD.CIT(A)-I, KANPUR DATED 29.4.2011 RELATING TO THE ASSESSMENT YEAR 2005- 06. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE IN THIS APPEAL READS AS UNDER : 1. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SEC. 80P(2) OF THE I.T.ACT, 1961 ON THE AMOUNT INTEREST INCOME EARNED FROM GOVERNMENT 2 SECURITIES AND FDRS TREATING THE SAME TO BE REGULAR BUSINESS INCOME IGNORING THE FACT THAT THE INTEREST INCOME EARNED FROM DEPOSITS/SECURITIES OUT OF THE INVESTMENT OF NON SLR FUNDS WAS IN FACT INCOME FROM OTHER SOURCES AND DEDUCTION U/S 80P(2) IS NOT ADMISSIBLE TO THE ASSESSEE. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT FOR THE ASSESSMENT YEAR 2005-06, THE BANK HAS FILED ITS RETURN OF INCOME SHOWING INCOME OF RS. NIL ON 31.10.2005. THE BANK DISCOVERED OMISSION AND THEREFORE, FILED A REVISED RETURN OF INCOME DECLARING NIL INCOME ON 31.10.2006, AFTER CLAIMING DEDUCTION OF RS.43,43,129.14 UNDER SECTION 80P OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). THE AO FRAMED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT AND DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS.43,43,130. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A) AND MADE THE FOLLOWING SUBMISSIONS : 1. JALAUN DISTT. CO-OPERATIVE BANK LTD. IS A COOPERATIVE SOCIETY CARRYING ON BUSINESS OF BANKING. THERE IS NO INCOME OF THE SOCIETY OTHER THAN BANKING BUSINESS IT IS ACCEPTING DEPOSIT FROM THE PUBLIC AND MAKING LENDING OR INVESTMENT OF MONEY LYING WITH IT. 2. THE SOCIETY IS GOVERNED BY THE CO-OPERATIVE SOCIETIES ACT, 1965 AS APPLICABLE IN UTTAR PRADESH. RULES AND REGULATIONS MADE UNDER THIS ACT, BY-LAWS REGISTERED WITH REGISTRAR U.P. CO- OPERATIVE SOCIETIES, BANKING REGULATION ACT. 1949 AND OTHER APPLICABLE PROVISIONS OF LAW FROM TIME TO TIME. 3. THE BANK HAS CLAIMED DEDUCTION OF ITS GROSS TOTAL INCOME AS PER SUB-SECTION (1) OF 80 P READ WITH SUB-CLAUSE (I) OF CLAUSE (A) OF SUB-SECTION (2) OF SECTION 80 P. 3 4. IN THE COURSE OF BUSINESS OF BANKING THERE WERE BANK'S OWN FUNDS (CAPITAL AND RESERVES), DEPOSITS FROM PUBLIC AND OTHER FUNDS WHICH WERE USED IN SLR, LENDING TO ITS MEMBERS AND SURPLUS MONEY WAS INVESTED FOR INCOME OF INTEREST ETC. THE BANK IS STATUTORILY REQUIRED TO MAKE INVESTMENT IN SLR SECURITIES. THE LENDING IS MADE CONSIDERING THE DEMAND FOR FINANCE FROM THE MEMBERS, USUAL LENDING AND REGULATORY NORMS. THE RATE OF INTEREST EARNED ON LENDING IS HIGHER THEN INTEREST EARNED ON DEPOSITS WITH OTHER BANKS. BUT IF THE DEMAND FOR FINANCE FROM MEMBERS, WITHIN THE BANK'S NORMS, IS LESS THAN THE FUNDS AVAILABLE WITH THE BANK, THIS WILL MAKE COMPULSORY FOR THE BANK TO DEPLOY ITS FUNDS IN GAINFUL OPPORTUNITIES WITHIN THE PERMITTED PARAMETERS. THE DEPOSITS FROM PUBLIC ARE INTEREST BEARING FUND AND IT IS NECESSARY FOR PRUDENT BANKING TO EMPLOY SURPLUS FUNDS IN OTHER INVESTMENTS WHERE PROPER INCOME COULD BE EARNED AND LIQUIDITY WITH BANK COULD BE MAINTAINED. IN THE NATURE OF PUBLIC DEPOSITS ANY TIME THERE MAY BE NEED OF LIQUID FUNDS ARISING FROM THE WITHDRAWALS BY THE PUBLIC AGAINST ITS DEPOSITS. THEREFORE IT IS A NEED OF THE BANK TO INVEST ITS FUNDS IN SUCH MANNER THAT SUCH INVESTMENT NOT ONLY GENERATE INCOME BUT IN CASE OF NEED COULD ALSO BE LIQUIDATED AS AN WHEN SITUATION SO ARISE. IN THIS VIEW THERE WERE INVESTMENT OF FUNDS WITH THE OTHER BANKS. THE INVESTMENT AND LENDING BOTH ARE DEPLOYMENT OF BANKS FUND AND ARE NECESSARY PART OF BUSINESS OF BANKING. IT IS FOR THE MANAGEMENT OF THE BANK TO EMPLOY ITS FUNDS IN GAIN FULL MANNER CONSIDERING SECURITY, ECONOMIC FACTORS AND REGULATORY MEASURES SUCH AS DIRECTIONS OF RBI SHIRS BANK (U.P. CO-OP. BANK). REGISTRAR OF CO-OP. SOCIETIES, CREDIT POLICY OF THE STATE GOVERNMENT ETC. ETC.. THE BANK EXECUTED ITS BUSINESS OF BANKING WITHIN THE REGULATORY MEASURES. IT WAS DULY EXPLAINED TO THE LEARNED ASSESSING OFFICER THAT INVESTMENTS OF THE BANK WERE IN THE COURSE OF BANKING BUSINESS. THE INTEREST ON LENDING OF FUNDS ARE MORE FAVOURABLE THEN EARNED FROM PLACING THE FUNDS WITH OTHER BANKS / KVP ETC. BUT BANK CAN NOT KEEP FUNDS IDLE. BANK CAN NOT KEEP SURPLUS OF FUNDS OVER LENDINGS IDLE BECAUSE IN THIS SITUATION BANK CAN NOT PAY INTEREST TO DEPOSITOR AGAINST DEPOSITS. THE LENDING AND 4 INVESTMENT BOTH ARE NORMAL FUNCTIONS OF THE BUSINESS OF BANKING. SECTION 5(B) OF BANKING REGULATION ACT 1949 DEFINES BANKING AS ................'(B) 'BANKING' MEANS THE ACCEPTING, FOR THE PURPOSE OF LENDING OR INVESTMENT, OF DEPOSITS OF MONEY FROM PUBLIC, REPAYABLE ON DEMAND OR OTHERWISE, AND WITHDRAWABLE BY CHEQUE, DRAFT AND ORDER OR OTHERWISE 5. THE DEPOSIT / INVESTMENT OF THE HANK ARE NOT RESTRICTED TO ITS MEMBERS ONLY. THE INVESTMENT / DEPOSIT WITH COMMERCIAL BANK ARE WELL WITH IN THE BUSINESS OF BANKING. THE BANK HAS DULY EXPLAINED THAT IT FULFILLS THE CONDITIONS LAID DOWN IN SECTION 80 P(2)(A)(I). 6. THE PROVISIONS WITH REGARD TO CO-OPERATIVE SOCIETY IS SUBJECT TO STATE LEGISLATION. THE BUSINESS OF BANKING WAS CARRIED BY THE BANK DULY COMPLYING THE PROVISIONS OF LAW. THERE IS NOTHING AGAINST THE BANK. 5. THE LD.CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE OBSERVING AS UNDER : 3. THE SAID ISSUE HAS NOW BEEN SETTLED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. NAWANSHAHAR CENTRAL CO-OPERATIVE BANK LTD. [2007] 289 ITR 6 (SC) WHEREIN THEIR LORDSHIPS HAVE OBSERVED AS UNDER : THIS COURT HAS CONSISTENTLY HELD THAT INVESTMENTS MADE BY A BANKING CONCERN ARE PART OF THE BUSINESS OF BANKING. THE INCOME ARISING FROM SUCH INVESTMENTS WOULD, THEREFORE, BE ATTRIBUTABLE TO THE BUSINESS OF BANK FALLING UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND THUS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE INCOME-TAX ACT 1961. THIS HAS BEEN SO HELD IN BIHAR STATE CO-OPERATIVE BANK LTD. V. CIT [1960] 39 ITR 114 ( SC), CIT V. KARNATAKA STATE CO-OPERATIVE APEX BANK [2001] SUPP. (2) SCR 35 ; [2001] 251 ITR 194 ( SC) AND CIT V. RAMANATHAPURAM DISTRICT CO-OPERATIVE CENTRAL BANK LTD. [2002] 255 ITR 423 ( SC). 5 6. AFTER HEARING SHRI RAJESH YADAV, LD.D.R., WE FIND THAT THE LD.CIT(A) HAS CORRECTLY FOLLOWED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. NAWANSHAHAR CENTRAL CO-OPERATIVE BANK LTD. (2007) 289 ITR 6 (S.C.). IN OUR VIEW, THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HON'BLE SUPREME COURT, WHICH HAS BEEN FOLLOWED BY THE LD.CIT(A) AND THEREFORE, WE DO NOT SEE ANY VALID GROUND TO DISTURB THE ORDER OF THE LD.CIT(A). IN THE CASE OF NAWANSHAHAR CENTRAL CO-OPERATIVE BANK LTD. (SUPRA), THE HON'BLE SUPREME COURT HAS CATEGORICALLY OBSERVED THAT WHERE A CO-OPERATIVE BANK CARRYING ON BUSINESS OF BANKING IS STATUTORILY REQUIRED TO PLACE A PART OF ITS FUNDS IN APPROVED SECURITIES, THE INCOME ATTRIBUTABLE THERETO IS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE INCOME-TAX ACT, 1961. 7. IN VIEW OF THE ABOVE, WE DO NOT SEE ANY MERIT IN THE APPEAL OF THE REVENUE AND ACCORDINGLY THE SAME DESERVES TO BE DISMISSED. 8. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 17.8.2011. SD. SD. (N.K.SAINI) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT AUGUST 17TH , 2011. COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.