Commissioner of Income Tax vs Contain Cooperative Bank Limited

The judgment under challenge by the revenue is dated 13th November, 2009 passed by the learned Income Tax Appellate Tribunal pertaining to the assessment year 2006-2007. The Assessing Officer without spending a word, in the computation made by him in his order under Section 143(3) of the IT Act, deducted the interest earned by the assessee from the non-statutory funds. The aforesaid deduction was made because the Assessing Officer was not inclined to give the benefit under Section 80P(2)(a)(i). Naturally the deduction made by him was taxed in the ordinary manner. Being aggrieved the assessee preferred an appeal. The C.I.T.(A) following an earlier judgment of the Tribunal allowed the contention of the assessee and reversed the order of the Assessing Officer. In an appeal preferred by the revenue, the learned Tribunal upheld the order of the C.I.T.(A) following its earlier judgment. It appears that none of the three authorities discussed the issue.

Mr. Bhowmik, learned Advocate, appearing for the revenue submitted that the business income of the assessee is amenable to the benefit under Section 80P(2)(a)(i) but the income earned from interest from non-statutory funds was not amenable to an identical benefit under the aforesaid section.

Mr. Bharadwaj, learned Advocate, appearing for the assessee submitted that the assessee is a primary cooperative bank and is engaged in the business of banking. He relied upon Clause (b) of Section 5 of The Banking Regulation Act, 1949 in order to show the definition of the expression ''banking'' which provides as follows:

"(b) "banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise."

He also drew our attention to section 56(c) of the Banking Regulation Act, 1949 by which Clause (cci) has been added to Section 5 of the Banking Regulation Act, 1949 which reads as follows;

"(cci) "Co-operative Bank" means a State Co-operative Bank, a Central Co-operative Bank and a primary Co-operative Bank."

Mr. Bharadwaj, contended that the assessee is a primary cooperative bank and is engaged in the business of the banking which includes investments.

The question for consideration before us is whether a voluntary investment made by the assessee and the interest earned from such investment is amenable for the benefit under Section 80P(2)(a)(i). He contended that there is no reason why a separate treatment has to be given. Mr. Bhowmik is unable to refute any of the submissions advanced by Mr. Bharadwaj. He has not disputed the fact that the assessee is a primary cooperative bank. He has also not disputed the fact that the assessee is engaged in banking business. He has also not disputed the fact that the non-statutory fund invested by the assessee is within the activity of the banking business and amounts to an investment. His sole contention is that such a question was raised before the Supreme Court in the Case of Mehsana District Central Co-operative Bank Ltd. Vs. Income Tax Officer, (2001) 170 CTR 169 : (2001) 251 ITR 522 and Their Lordships remanded the matter for further enquiry into the facts. The aforesaid course might have been required in that case. Mr. Bhowmik did not dispute that any further factual enquiry is not required in this case. If any further factual enquiry is not required then the question of remanding this matter would not arise.

The question for consideration is whether the income arising out of interest from non-statutory funds is a business income. As at presently advised, we are of the opinion that the deposit of non-statutory fund made by the assessee amounts to an investment which is one of the activities of a banking company contemplated under Section 5(b) of the Banking Regulation Act, 1949 quoted above.

We find therefore, no reason why the income should not be treated as a business income. It was not disputed by Mr. Bhowmik that if it is the business income then it is amenable to benefit under Section 80P(2)(a)(i).

For the aforesaid reasons, we find no merit in this appeal and is dismissed.