Commissioner of Income Tax vs Maharashtra State Co-operative Bank Ltd.

V.C. Daga, J.—Heard the learned Counsel for the applicant. This is application u/s 256(2) of the IT Act, 1961 (''the Act'' for short). The year relevant is 1992-93. The returns filed by the respondent were processed u/s 143(1)(a) and the claim of the respondent in respect of deduction u/s 80P(2)(a)(i) was allowed.

The AO, subsequent to the above decision, having noticed the judgment of the apex Court in the case of M.P. Cooperative Bank Ltd., Jabalpur Vs. Addl. Commissioner of Income Tax, M.P. Bhopal, , issued a notice u/s 148 to the respondent-assessee which was served on the respondent-assessee on 16th Jan., 1997.

The reassessment pursuant to above notice was completed u/s 143(3) r/w Section 148 on 21st Feb., 1997. The deduction u/s 80P(2)(a)(i) claimed by the assessee with respect to interest received on Government securities earmarked against statutory reserve fund came to be disallowed.

The respondent-assessee had impugned the above order of reassessment passed by the AO in appeal filed before the CIT(A). The CIT(A) directed the AO to restrict the disallowance only to interest relatable to Government securities which forms part of reserve fund.

The respondent-assessee not being satisfied with the above part of the order, impugned the order passed by the CIT(A) in, the appeal being appeal No. 7115/Mum/1997 filed before the Tribunal, Mumbai Bench ''D'', Mumbai.

The Tribunal by its order dt. 12th Aug., 1998, allowed the above appeal holding that Rule 54(1) of the Maharashtra Co-operative Societies Rules, does not apply in the case of the respondent as the assessee is covered u/s 70(b) of the Maharashtra Co-operative Societies Act, 1960. The Tribunal held that the respondent-assessee is not within the scope of Rule 54(2) of the Maharashtra Cooperative Societies Rules. The Tribunal held that the reassessment is invalid because notice u/s 148 of the Act was issued beyond time prescribed u/s 148 of the Act.

The Revenue not being satisfied with the above order of the Tribunal had moved an application u/s 256(1) of the IT Act with a prayer to refer question of law for the opinion of this Court. This prayer of the Revenue met with little success.

The Revenue has now moved this application u/s 256(2) with a prayer that the Tribunal be directed to state the case and refer the question of law arising out of the order of the Tribunal dt. 12th Aug., 1998, to this Court for decision. That is how, the Revenue is seeking directions against Tribunal. The questions of law raised at the instance of the Revenue are as under :

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the interest on Government securities earmarked for statutory reserve fund was a part of banking business and accordingly the assessee is eligible for deduction u/s 80P(2)(a)(i) of the IT Act, 1961 ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling levy of interest u/s 234B of the IT Act, 1961 ?

The learned Counsel appearing for the Revenue fairly brought to our notice that the judgment of the apex Court in the case of Commissioner of Income Tax Vs. KARNATAKA STATE CO-OPERATIVE APEX BANK, , wherein the apex Court held that interest arising from investment made in compliance with statutory provisions to enable it to carry on banking business, out of reserve fund by a co-operative society engaged in banking business, is exempt u/s 80P(2)(a)(i) of the Act. In this view of the judgment of the apex Court, we do not see any reason to issue directions to the Tribunal to set out the case. The application is without any merits. So far as the second question is concerned it being consequential, the same will be covered by the judgment of the apex Court.

Application stands disposed of accordingly with no order as to costs.