Commissioner Of Income Tax Jaipur v. M/S Shekhawati Gramin Bank Fatehpur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 396 / 2009 Commissioner Of Income Tax Jaipur ----Appellant Versus M/S Shekhawati Gramin Bank Fatehpur ----Respondent Connected With D.B. Income Tax Appeal No. 103 / 2010 C I T Jaipur III, Jaipur ----Appellant Versus M/S Shekhawati Gramin Bank Fatehpur ----Respondent D.B. Income Tax Appeal No. 164 / 2010 C I T Jaipur ----Appellant Versus M/S Shekhawati Gramin Bank Sikar ----Respondent D.B. Income Tax Appeal No. 489 / 2011 C I T Jaipur ----Appellant Versus M/S Shekhawati Gramin Bank Fatehpur ----Respondent _____________________________________________________For Appellant(s) : Mr. Sameer Jain For Respondent(s) : Mr. Gunjan Pathak with Ms. Ishita Rawat _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE VIJAY KUMAR VYASOrder 11/04/2017 1.Since all these appeals involve common question of law andfacts, hence, they are decided by this common judgment. 2.By way of these appeals, the department has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeals preferred by the department and confirmedthe order of the CIT(A) which has reversed the order of AO. 3.This court while admitting the appeals framed followingsubstantial questions of law:- Appeal No. 396/2009 “ (I)Whether, on the facts and in the circumstancesof the case, the learned I.T.A.T. was right in law inholding that the interest income arising from theinvestment made by the assesses from fund other thanthe reserve fund is exempt under Section 80 p (2) (a)(i) ? (ii) Whether, on the facts and in the circumstances ofthe case, the learned I.T.A.T. was legally justified inholding that the interest income, arising from theinvestment made by the assessee voluntarily andwithout any statutory requirement of RBI orgovernment , is exempt under section 80 p(2) (a) (i) byplacing reliance on the decision of the Hon’ble SurpremeCourt in the case of CIT Vs. Karnataka state Co-operative Apex Bank [251 ITR 194 (SC)]? (iii) Whether, on the facts and in the circumstances ofthe case, the learned I.T.A.T. was legally justified inholding that the interest income, arising from the loanadvanced to the employees of the bank is exempt undersection 80p (2) (a) (i) by placing reliance on thedecision of the Hon’ble punjab & Haryana High Court inthe case of CIT Vs. H. State Co-op Land Dev. Bank [254ITR 107]?” Appeal No. 103/2010 “ (i) Whether, on the facts and in the circumstances ofthe case, the learned I.T.A.T. was right in law in holdingthat the interest income arising from the investmentmade by the assesses from fund other than the reservefund is exempt under Section 80 p (2) (a) (i) ? (ii) Whether, on the facts and in the circumstances ofthe case, the learned I.T.A.T was legally justified inholding that the interest income, arising from theinvestment made by the assessee voluntarily andwithout any statutory requirement of RBI orgovernment, is exempt under section 80 p (2) (a) (i)by placing reliance on the decision of the Hon’bleSupreme Court in the Case of CIT Vs. Karnataka StateCo-operative Apex Bank [251 ITR 194 (SC)]? (iii) Whether, on the facts and in the circumstances ofthe case, the learned I.T.A.T. was legally justified inholding that the interest income, arising from the loanadvanced to the employees of the bank is exempt underSection 80p (2) (a) (i) by placing reliance on thedecision of the Hon’ble Punjab & Haryana High Court inthe case of CIT Vs. H. State Co-Op Land Dev. Bank [254ITR 107]?” Appeal No. 164/2010 (iii) Whether, on the facts and in the circumstances ofthe case, the learned I.T.A.T. was legally justified inholding that the interest income, arising from the loanadvanced to the employees of the bank is exempt underSection 80p (2) (a) (i) by placing reliance on thedecision of the Hon’ble Punjab & Haryana High Court inthe case of CIT Vs. H. State Co-Op Land Dev. Bank [254ITR 107]?” Appeal No. 164/2010 “(i) Whether, on the facts and circumstances of thecase, the interest income, arising from the investmentmade by the assessee voluntarily and without anystatutory requirement of RBI or government is exemptunder section 80 p 92) (a) (i)? (ii) Whether on the facts and circumstances of the casethe allowing of deduction u/s 80 p (2) (a) (1) of theIncome Tax Act 1961 on the interest income earnedfrom investments in IDBI Bond made out of the fundswhich were neither statutory reserves nor rotationalworking capital of assesses and therefore were not partof banking business?” Appeal No. 489/2011 (i) “Whether Tribunal was justified in holding that theinterest income arising from the investment made bythe assessee from fund other than the reserve fund isexempt under Section 80 P (2) (a) (i)? (ii) “Whether Tribunal was justified in holding that theinterest income, arising from the loan advanced to theemployees of the bank is exempt under Section 80 P (2) (a) (I)? 3.1. In all these appeals different question were framed, howeverissue no.3 in appeal no.396/2009 which is question no.2 & 3 andother appeals is already decided in favour of department in D.B.Income Tax Appeal No.105/2006 CIT vs. M/s Sirohi S.B.V. BankLtd. Decided on 24.9.2008 where the interest income which waspaid in advance held to be not admissible and therefore the issueswas decided in favour of the department. Hence, the issue no.3 isdecided in favour of the department. 4.The other two issues are interconnected regarding theinvestment which are made arising out of by the funds other thanthe reserve funds exempted under Section 80P (2)(a)(i) of theAct, 1961. Section 80P (2)(a)(i) of the Act, 1961 is reproduced asunder:- “80P. Deduction in respect of income of co- operative societiessocieties (1)Where, in the case of an assessee being a co-operative society, the gross total income includes anyincome referred to in sub- section (2), there shall bededucted, in accordance with and subject to theprovisions of this section, the sums specified in sub-section (2), in computing the total income of theassessee.operative society, the gross total income includes anyincome referred to in sub- section (2), there shall bededucted, in accordance with and subject to theprovisions of this section, the sums specified in sub-section (2), in computing the total income of theassessee. (2)The sums referred to in sub- section (1) shall bethe following, namely:-the following, namely:- (a)in the case of a co- operative society engaged in- (i) 3 carrying on the business of banking or providingcredit facilities to its members, or”credit facilities to its members, or” 5.Counsel for the appellant has contended in view of Section 14 of the Income Tax Act readwith Section 56(1) and judgment ofthis court in the case of CIT Vs. Rajasthan State Cooperative Bank reported in (1997) 223 ITR 55 holding as under:- (2)The sums referred to in sub- section (1) shall bethe following, namely:-the following, namely:- (a)in the case of a co- operative society engaged in- (i) 3 carrying on the business of banking or providingcredit facilities to its members, or”credit facilities to its members, or” 5.Counsel for the appellant has contended in view of Section 14 of the Income Tax Act readwith Section 56(1) and judgment ofthis court in the case of CIT Vs. Rajasthan State Cooperative Bank reported in (1997) 223 ITR 55 holding as under:- “In Reference No. 49 of 1987, a question has beenreferred on the basis of reserve fund and other funds.While in Reference No. 80 of 1986, the reference is onthe basis that it is income from investment of reservefund. The findings with regard to investment of reservefunds have already been given. The details of otherfunds were not stated either in the order of the IncomeTax Appellate Tribunal or in the statement of case and,therefore, it would be open to the assessee to satisfythe Tribunal as to whether the said investment was inaccordance with the provisions of Section 63 read withRule 54 or in accordance with Rules 55 and 56 andwhether the investment should be considered as stock-in-trade or circulating capital. If it is found that the saidinvestment is of stock-in-trade or circulating capital,then the exemption to that extent would be given.” 6.He has also relied upon the decision of Supreme Court in Commissioner of Income Tax vs. Karnataka State Co-operativeApex Bank (2001) 251 ITR 194 wherein it has been held as under:- “The question is whether we agree with the reasoningin M.P. Co-operative Bank Ltd. There is no doubt, and itis not disputed, that the assessee-Co-operative bank isrequired to place a part of its funds with the State Bankor the Reserve Bank of India to enable it to carry on itsbanking business. This being so, any income derivedfrom funds so placed arises from the business carriedon by it and the assessee has not, by reason of section-80P(2)(a)(i), to pay income-tax thereon. Theplacement of such funds being imperative for thepurposes of carrying on the banking business, theincome derived therefrom would be income from theassessees business. We are unable to take the viewthat found favour with the Bench that decided the caseof Madhya Pradesh Co-operative Bank Ltd. (supra) thatonly income derived from circulating or working capitalwould fall within section 80-P(2)(a)(i). There is nothingin the phraseology of that provision which makes itapplicable only to income derived from working orcirculating capital. In the premises, we take the view that the decision ofthis court in the case Madhya Pradesh Co-operativeBank Ltd. (supra) does not set down the correct lawand that the law is as we have put it above. The question, accordingly, is answered in the affirmativeand in favour of the assessee.” 7.He contended that the income which has been received isother than SLR and CCR. In that view of the matter, the judgmentof the Supreme Court is distinguishable and MP judgment which issought to be relied by the Tribunal and CIT(A) is impliedlyoverruled. He has also relied upon the decision of the SupremeCourt in Totgars’ Co-operative Society Ltd. Vs. Income Tax Officer,Karnataka (2010) 3 SCC 223, holding as under:- In the premises, we take the view that the decision ofthis court in the case Madhya Pradesh Co-operativeBank Ltd. (supra) does not set down the correct lawand that the law is as we have put it above. The question, accordingly, is answered in the affirmativeand in favour of the assessee.” 7.He contended that the income which has been received isother than SLR and CCR. In that view of the matter, the judgmentof the Supreme Court is distinguishable and MP judgment which issought to be relied by the Tribunal and CIT(A) is impliedlyoverruled. He has also relied upon the decision of the SupremeCourt in Totgars’ Co-operative Society Ltd. Vs. Income Tax Officer,Karnataka (2010) 3 SCC 223, holding as under:- “In the present case, as stated above, assessee-Society regularly invests funds not immediatelyrequired for business purposes. Interest on suchinvestments, therefore, cannot fall within the meaningof the expression "profits and gains of business". Suchinterest income cannot be said also to be attributableto the activities of the society, namely, carrying on thebusiness of providing credit facilities to its members ormarketing of the agricultural produce of its members.When the assessee-Society provides credit facilities toits members, it earns interest income. As statedabove, in this case, interest held as ineligible fordeduction under Section 80P(2)(a)(i)is not in respectof interest received from members. In this case, weare only concerned with interest which accrues onfunds not required immediately by the assessee(s) forits business purposes and which have been onlyinvested in specified securities as "investment". 8.Taking into consideration, he contended that the deductioncould not be allowed u/s 80P(2)(a)(i) and the issue is required tobe answered in favour of the department. 9.Counsel for the respondent Mr. Pathak appearing for theasseesse has contended that the first decision which has beenfollowed in the subsequent year wherein CIT(A) has held asunder:- “From the above it can be noted that the scope ofbanking business is very wide and the word “acceptingfor the purpose of lending or investment” is broadenough to cover the activities of making investment inbonds and providing loan to employees. These are partand parcel of banking business. The observation of theA.O. the investment in bonds are not to meet SLR/CRRration and these are long term investment are thereforeof no relevance. The Banking Regulation Act 1949nowhere places any restriction that investment inbonds/securities can be only for a short duration or forincreasing SLR/CRR ratio. Once the bank accept adeposit (which it cant otherwise refuse) it has to deploythe funds in best possible manner & therefore theBanking Regulation Act 1949 provides that depositsaccepted from public can be used for the purpose oflending or investment. In this connection RBI has issuedcircular dt. 13/12/1996 which is modified by circular dt.23/02/2004 to provide for prudential guidelines oninvestment in Non SLR debt securities. These guidelinesitself proves that a Regional Rural Bank as a part ofbanking business can make investment inbonds/debentures etc. The investment of Rs. 58.65crores in bonds of various public financial institutions orpublic sector undertaking or nationalized bank istherefore a part of banking business and interest earnedin these investment are part of income from bankingbusiness entitled for deduction u/s 80P(2)(a)(i).” 10.He contended that in view of the detail reasoning which hasbeen subsequently followed and the following decisions which arerendered by different high courts:- 10.1 In CIT vs. H.P. State Cooperative Bank Ltd. (H.P.) (2010) 323 ITR 0001 wherein it has been held as under:- 10.He contended that in view of the detail reasoning which hasbeen subsequently followed and the following decisions which arerendered by different high courts:- 10.1 In CIT vs. H.P. State Cooperative Bank Ltd. (H.P.) (2010) 323 ITR 0001 wherein it has been held as under:- “6. However, this judgment only covers the questionrelating to reserves invested by the bank pursuant tothe statutory directions. Shri Vinay Kuthiala, learnedCounsel for the revenue has also placed reliance onthe following portion of the observation made by theApex Court in Mehsana District Central Co-operative BankLtd. v. IncomeTax Officer (2001) Vol.251 ITR 522. Now, as to the second question, we haveheard learned Counsel and been referred tovarious decisions including the decision ofthisCourtinBihar State Co-operative Bank Limited v. CIT : (1960)39 ITR 114. To be able to answer thequestion, it is necessary to ascertain, as afact, whether the income derived by theassessee from the investment of itsvoluntary reserves has been utilized by it inthe course of its ordinary banking business.Though the assessee placed before theassessing authority its books of account andbalance sheets, the fact aforestated was notconsidered at any stage, for one or otherreason on which it is not necessary for us todilate. We think that it is in the interest ofjustice that the assessee should have theopportunity to lead evidence beforethe Commissioner (Appeals) to establishas a fact what is stated above. So far as thesecond question is concerned, therefore, thematterisstandrestoredtothe Commissioner (Appeals) for beingdecided afresh. He shall also decide anyconsequential issue that may arise. 7. On the basis of the aforesaid observation of theApex Court it is contended that we should remand thematter to the Revenue Authorities to permitthe Bank to establish the fact that the interest wasearned on account of banking activities and utilized forsuch activities. We are not inclined to accept thisargument. In the case before the Apex Court,the Bank had lost throughout before the revenueauthorities as well as the High Court. None of theauthorities had considered the question whetherthe income from interest of Non-SLR reserves wasattributable to normal banking activities. It was inthese circumstances that the Supreme Court directedthatthematterberemandedtothe Commissioner (Appeals). In the present case theTribunal has already decided this issue in favour ofthe bank.” 10.2 In CIT vs. Rajasthan State Cooperative Bank (2005) 272 ITR 600, this court held as under:- In Madhya Pradesh Co-operative Bank Ltd. v. Addl.CIT [1996]218ITR438(SC) , their Lordships of the Hon'ble Supreme Court held that the interest onGovernment securities placed with the State Bank orthe Reserve Bank of India would not qualify forexemption under Section 81(now Section80P) of theIT Act, 1961, and such investment could not beregarded as an essential part of banking activitiesinasmuch as that same did not form part of stock-in-trade or the working capital or the circulating capital.However, this view taken by the Hon'ble apex Court inthe judgment aforesaid was not accepted by the-Hon'ble apex Court in CIT v.Karnataka State Cooperative Apex Bank [2001]251ITR194(SC) , whereinit has been held: ITR 600, this court held as under:- In Madhya Pradesh Co-operative Bank Ltd. v. Addl.CIT [1996]218ITR438(SC) , their Lordships of the Hon'ble Supreme Court held that the interest onGovernment securities placed with the State Bank orthe Reserve Bank of India would not qualify forexemption under Section 81(now Section80P) of theIT Act, 1961, and such investment could not beregarded as an essential part of banking activitiesinasmuch as that same did not form part of stock-in-trade or the working capital or the circulating capital.However, this view taken by the Hon'ble apex Court inthe judgment aforesaid was not accepted by the-Hon'ble apex Court in CIT v.Karnataka State Cooperative Apex Bank [2001]251ITR194(SC) , whereinit has been held: "The question is whether we agree with thereasoning in Madhya Pradesh Cooperative BankLtd. [1996]218ITR438(SC) . There is no doubt,and it is not disputed, that the assessee co-operative bank is required to place a part of itsfunds with the State Bank or the Reserve Bank ofIndia to enable it to carry on its banking business.This being so, any income derived from funds soplaced arises from the business carried on by itand the assessee has not, by reason ofSection80P(2)(a)(i), to pay Income Tax thereon.The placement of such funds being imperative forthe purpose of carrying on the banking business,the income derived therefrom would be incomefrom the assessee's business. We are unable totake the view that found favour with the Benchthat decided the case of Madhya Pradesh Co-operative Bank Ltd. (supra) that only incomederived from circulating or working capital wouldfall within Section 80P(2)(a)(i). There is nothing inthe phraseology of that provision which makes itapplicable only to income derived from working orcirculating capital. In the premises, we take the view that the decisionof this Court in the case of Madhya Pradesh Co-operative Bank Ltd. (supra) does not set down thecorrect law and that the law is as we have put itabove." 7. In view of this pronouncement of the Hon'bleapex Court, the contention advanced by thelearned counsel for the Revenue cannot beaccepted. 10.3 In CIT vs. Andhra Pradesh State Cooperative Bank Ltd. (2011) 336 ITR 516, the Andhra Pradesh High Court held as under:- “Section80Pof the Act grants deduction in respectof various categories of income of a cooperativesociety. If any cooperative society carries on thebusiness of banking, the interest income receivedbyacooperativesocietyonitsinvestment/deposits is attributable to bankingbusiness. The provision does not make anydistinction in so far as the interest earned bydeposit in a bank and interest earned on thecompulsive deposit which is made as requiredunder the relevant statute. It is no doubt true thata cooperative society may be required to earmarksome portion of its capital for exclusive deposit inGovernment prescribed securities or banks. Acooperative society may earn profits by way ofinterest by parking their funds in high-yieldingdeposits or may earn income by circulating itscapital among its members in the course of theirbanking business. All the income from bankingbusiness which is referable to Section80P(2)(a)(i)of the Act would qualify for deduction under the Act. Act. The business of banking' is one of manyexpressions not defined in the Act. Which are theactivities that can be considered attributable to thebusiness of banking? Indisputably the Assesses, inthese cases being cooperative banks, are subjectto the regulations under the RBI Act, the BR Actand the Societies Act. There is also no dispute thatall these Assesses, in these cases, obtainedlicences under the BR Act. They are bound tocomply with all the orders, rules and regulationsissued by the RBI while carrying on bankingbusiness. Section5(b)of the BR Act defines"banking" to mean, "accepting for the purpose oflending or investment, of deposits of money fromthe public, repayable on demand or otherwise,and with drawable by cheque, draft, order orotherwise". As per Section 5(c)of the BR Act"banking company" means "any company whichtransacts the business of banking in India".Section6of the BR Act lists 'any one or more' ofthe forms of the business as enumerated inSections6(1)(a)to (o) of the BR Act in addition tothe business of banking. Section 6(1)(a)of the BRAct enumerates every conceivable activity ofbanking including, "the receiving of all kinds ofbonds, scrips or valuables on deposit or for safecustody or otherwise; the providing of safe depositvaults; the collecting and transmitting of money and securities" and under Section 6(1)(n)of theBR Act, the doing of all such other things as areincidental or conducive to the promotion oradvancement of the business of the company.Thus reading of Sections 5(b), (c) and Section6ofthe BR Act along with Section80P(2)(a)of the Act,it becomes clear that the income received by acooperative bank from deposits, whether or notthey are made in discharge of a statutoryobligation or otherwise being income frombanking business, would be eligible for exemptionunder the said provision.Does Section 80P(2)(a)of the Act make adistinction between income received by acooperative bank from statutory deposits andthe income from non-statutory deposit of surplusfunds? The answer must be in the negative.The income earnedbythecooperative bank either by deposit of theprescribed percentage of its reserves or by depositoftheirsurplusfundsisexempted.The income from either category of the depositsis certainly attributable to the business of banking.Indeed as a prudent business practice, no bankingcompany or no entity engaged in the business ofbanking would keep its amount idle. By parkingthe funds, immediately not required for thebusiness in other banks, interest can be earned tothe benefit of the cooperative society. Everycooperative society is expected to make profits forthe benefit of its members. As long as the depositof the surplus funds in the other banks for thepurpose of earning interest is not unauthorized ornot barred by any of the applicable statutes,the income is certainly attributable to thebusiness of banking. There is no concept ofvoluntary or non-statutory reserves as urged bythe Revenue. In so far as the profits and gainsfrom the business of banking by deposit of surplusfunds of the bank is concerned, there cannot beany distinction between SLR reserves and non-SLRreserves although the maintenance of cash reserveand SLR are obligatory under below referredprovisions of the RBI Act and the BR Act.Section45of the Societies Act lays down themethod and manner of disposal of the profitsearned by the cooperative society. UnderSection45(3)(a)of the Societies Act, acooperative society shall transfer not less than25% of net profit to the reserve fund and in casethe total amount transferred becomes equal to theamount of paid up capital, the amount to be transferred can be reduced to a sum not less than10% of such profits. For doing so the priorpermission of the RCS is required. Section 46ofthe Societies Act requires every society to act withdue care and diligence and invest or deposit itsfunds which are not immediately required for thebusiness of the society either in postalsavings banks,securitiesspecifiedinSection20of the Indian Trusts Act, 1382, in theshares and securities of any other society or withany Nationalised Bank or Scheduled Bank or theconcerned District Cooperative Central Bank. Asper Rule 37 of the Societies Rules reserve fund isintended to meet unforeseen losses. When thereserve fund of the society exceeds 25% of itsworking capital, the excess can be utilized in thebusiness of the society with the sanction of theRCS. In other words, a cooperative bank canutilize the reserve fund over and above 25% of theworking capital for the purpose of bankingbusiness which includes the deposits which yieldinterest. Further when a society is prohibited by itsby-laws from borrowing either from its membersor others, the whole of its reserve fund may beutilizedinitsbusiness.Ifacooperative bank derives income bylendingmoney to its members the same being business ofbanking, is eligible for deduction. Therefore, to saythat the income derived from voluntary non-statutory deposits would not be eligible fordeduction is illogical and cannot be sustained. As amatter of fact, in all these cases, a finding wasrecorded that the RCS issued necessarypermission to the Assesses to use the surplusreserve fund for the banking business. Assumingthat there is no such sanction of the RCS forutilization of the reserve fund in the business ofthe society the same will not make any differencein so far as deduction allowed by Section 80P(2)(a)(i)of the Act. TheAssesseecooperative banks arescheduled banks as defined under Section2(e)ofthe RBI Act read with the Second Schedulethereto. As per Section42of the RBI Act, everyschedule bank shall maintain with RBI an averagedaily balance, the amount of which shall not beless than such percentage of the total demand andtime liabilities in India as may be notified by theRBI. In addition to the cash reserve to bemaintained by the RBI, every banking company isrequired to create a reserve fund and, beforedeclaration of dividend, transfer to the reserve fund a sum equivalent not less than 20% of suchprofit. Further, under Section 18of the BR Act,every banking company, not being ascheduled bank, shall maintain cash reserve withitself or by way of balance in a current accountwith the RBI. Such cash reserve shall beequivalent to at least 3% of total of its demandand time liabilities as on the last Friday of the-second preceding fortnight. Under Section 24(2A)of the BR Act in addition to the daily balancerequired to be maintained under Section42of theRBI Act and cash reserve required to bemaintained under Section18of the BR Act, everybanking company shall maintain not less than 25%or such other percentage as prescribed by the RBI,in cash or gold valued at a price not exceeding thecurrent market price or in unencumberedapproved securities. This, in banking parlance, isoften referred to as SLR. The SLR to be maintained by a cooperative bank is dealt with bySection24of the BR Act as modified bySection56of the said Act. The SLR, cash reserveor reserve fund required to be maintained by ascheduled bank or a cooperative bank under theprovisions of the RBI Act or the BR Act as referredto herein above, are all the activities which arepart of business of banking. The non-SLR and non-reservefundisstock-in-tradeforacooperative bank for the business of banking asdefined under Sections 5(b)and (c) read withSection6of the BR Act. In so far asthe income earned from these deposits isconcerned, Section80P(2)(a)(i)of the Act doesnot make any difference nor it is possible to readany such limitation having regard to the languageof the said provision. Every income"attributableto any or more of business of banking" shall bededucted from the gross total income. It is well settled that a provision for deductionor tax relief should be interpreted liberally infavour of the Assessee. Such a provision should beconstrued as to fully achieve the object of thelegislature and not to defeat it see CIT v. SouthArcotDistt.Coop.MarketingSociety Ltd (1990) 176 ITR 117 (SC) : AIR 1990SC 1249, Bajaj Tempo Ltd. Bombay v. CIT :(1992) 196 ITR 188 (SC) : AIR 1992 SC 1622 :(1992) 3 SCC 78 and CIT v. N.C. Budha Raja &Co. : (1993) 204 ITR 412 (SC) : AIR 1993 SC2529 : (1993) 91 STC 450 (SC). Applying thesettled rule of interpretation and liberallyinterpreting Sub-section 2(a)(i) of Section 80Pof the Act, the conclusion is inevitable that whateverbe the amount of profits and gains of business of acooperative society attributable to its bankingtransactions or credit transactions with members isexempt from incometax. If Section 80P(2)(a)ofthe Act is given restrictive meaning as includingthe interest earned only on the statutory depositsmade by a cooperative society, it would amount tosupplying causes omissus and has to be avoidedby the Court.” 10.4 In CIT vs. Kangra Central Cooperative Bank (2012) 83 CCH 37 HPHC wherein it has been held as under:- “The first word used is attributable, which is muchwider in scope than the word derived. The secondphrase used is any one or more of such activities.Any banking business providing credit facilities toits members and investing the sums deposited bythe members of the society is part of bankingbusiness. We are, therefore, of the considered viewthat the investment of the funds bythe banks including the non reserves were part ofthe banking activities since no bank would like itsreserve funds to remain idle and not earn anyinterest. This is not only prudent businessmanagement but is also a part of the activity ofbanking. Therefore, the interest earned on suchdeposits is directly attributable to the business ofbanking. Both the questions are accordinglyanswered in favour of the assessee and against therevenue. The Appeals are accordingly rejected.” 10.5 In CIT vs. Muzaffar Nagar Kshetriya Gramin Bank Ltd.(2010) 323 ITR 202 holding as under:- “We are of the opinion that the issue involved inthe present case is no more res integra and iscovered by the decisions of the apex court in thecase of CIT v. Karnataka State Co-operativeApex Bank reported in : [2001] 251 ITR 194 (SC),Mehsana District Central Co-operative Bank Ltd. v.ITO reported in [2001] 251 ITR 522 (SC) and arecent decision of the apex court in the case of CITv. Naioanshahar Central Co-operative Bank Ltd.reported in [2007] 289 ITR 6 (SC) wherein in ithasbeenheldthatwhereaco-operative bank carrying on business of banking is 10.5 In CIT vs. Muzaffar Nagar Kshetriya Gramin Bank Ltd.(2010) 323 ITR 202 holding as under:- “We are of the opinion that the issue involved inthe present case is no more res integra and iscovered by the decisions of the apex court in thecase of CIT v. Karnataka State Co-operativeApex Bank reported in : [2001] 251 ITR 194 (SC),Mehsana District Central Co-operative Bank Ltd. v.ITO reported in [2001] 251 ITR 522 (SC) and arecent decision of the apex court in the case of CITv. Naioanshahar Central Co-operative Bank Ltd.reported in [2007] 289 ITR 6 (SC) wherein in ithasbeenheldthatwhereaco-operative bank carrying on business of banking is statutorily required to place a part of its funds inapproved securities, the income is attributablethereto is the business of banking and is deductibleunder Section80P(2)(a)(i)of the Act. In thepresent case, it is not the case of Revenue that theassessee had carried on any other business otherthan banking business. The deposit exceedingstatutory liquidity ratio (SLR) was also in relation tobanking activity. Hence, the income accrued out ofsuch deposit also attributable to the bankingbusiness and deductible under Section 80P(2)(a)(i)of the Act. The issue involved in the presentappeal is also covered by the decision of the thisCourtinthecaseofGorakhpurKshetriya Gramin Bank v. CIT reported in [2007]UPTC 1466.” 11.He also relied upon the following decisions:- 1. Commissioner of Income-Tax vs. Bangalore Distt. Co-operative Central Bank Ltd. (1998) 233 ITR 282 (SC) 2. Commissioner of Income-Tax vs. Karnataka State Co-operative Apex Bank (2001) 251 ITR 194 (SC) 3. Mehsana District Central Co-operative Bank Ltd. vs.Income Tax Officer, Gujarat State Co-operative BankLtd. vs. Commissioner of Income-Tax (2001) 251 ITR0522 (SC) 4. Commissioner of Income-Tax vs. Punjab state CO-operative Bank Ltd., 304 ITR 0113 (P&H) (SLP) (2008)306 ITR 0003 of Department dismissed) 5. Commissioner of Income-Tax vs. Baroda Peoples Co-operative Bank Ltd. 280 ITR 0282 (Guj.) 6. Commissioner of Income-Tax vs. Grain Merchants Co-operative Bank Ltd. 267 ITR 742 (kar) 7. Bihar State Co-operative Bank Limited vs. CIT,(1960) 39 ITR 114 (SC) 8. CIT v. Shri Ram Sahakari Bank Limited, (2004) 266ITR 632 (Kar.); CIT v. Ratnagiri District Central Co-operative Bank Limited, (2002) 254 ITR 697 (Bom.) 9. Income Tax Officer vs. Karnataka Central Co-operative Bank Ltd. 266 ITR 635 (Kar.) 10. Bihar State Housing CO-operative Federation Ltd.vs. Commissioner of Income Tax (2009) 315 ITR 0286 (Pat) 11. Commissioner of Income-Tax vs. RamanathapuramDistt. Co-op. Central Bank Ltd. (2002) 255 ITR 423 (SC)12. Commissioner of Income-Tax vs. AhmednagarDistrict Central Co-operative Bank Ltd., Commissioner of Income Tax vs. Osmanabad District Central Co-operative Bank Ltd., Commissioner of Income-Tax vs.Latur District Central Co-operative Bank Ltd. 264 ITR0038 (Bom.) 13. Commissioner of Income-Tax vs. Punjab State Co-operative Bank Ltd. [2008] 300 ITR 0024-[Punjab &Haryana High Court] 14. Commissioner of Income-Tax vs. Ponni Sugars &chemicals Ltd. [2008] 306 ITR 0392-[Supreme Court ofIndia] 15. Commissioner of Income-Tax vs. Haryana State Co-operative Land Development Bank Ltd. [2002] 254 ITR0107-[Punjab and Haryana High Court] 11.1. We have heard counsel for the parties. 11.2. Taking into consideration the very object of deduction inrespect of a cooperative society and more particularly the wordwhich has been used u/s 2P sub clause (i) which reads as under:- “carrying on the business of banking orproviding credit facilities to its members” 12.In our considered opinion, the investment which was madeby the Bank is part of their activity. However an endeavour ismade Mr. Jain to rely upon Section 5 more particularly section 17& 18 of Banking Regulations, Reserve Fund and Cash Reserves, inour view, this is not a reserve fund it is other than reserve fund. 15. Commissioner of Income-Tax vs. Haryana State Co-operative Land Development Bank Ltd. [2002] 254 ITR0107-[Punjab and Haryana High Court] 11.1. We have heard counsel for the parties. 11.2. Taking into consideration the very object of deduction inrespect of a cooperative society and more particularly the wordwhich has been used u/s 2P sub clause (i) which reads as under:- “carrying on the business of banking orproviding credit facilities to its members” 12.In our considered opinion, the investment which was madeby the Bank is part of their activity. However an endeavour ismade Mr. Jain to rely upon Section 5 more particularly section 17& 18 of Banking Regulations, Reserve Fund and Cash Reserves, inour view, this is not a reserve fund it is other than reserve fund. 13.In that view of the matter, in view of the interpretation putforth by this court in the case of Rajasthan State CooperativeBank (supra), we are of the opinion that the issue is required tobe answered in favour of the aseessee since that is bankingactivity otherwise from the banks of granting benefits to acooperative society will be considered if such a narrow compass ofinterpretation is given. 14.In that view of the matter, the issues are answered in favour of the assessee and the against the department. The appeals stand dismissed. A copy of this judgment be placed in each file. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Bm gandhi/261-264