Hon'ble Subhash Chandra Nigam,J.
This is an appeal filed by the Commissioner of Income-Tax, Muzaffar Nagar under Section 260A of the Income Tax Act, 1961 relating to the assessment year 2002-03.
The following question has been raised:-
Whether on the fact and circumstances of the case, the ITAT is legally correct in holding that that the interest earned by the Co-operative Bank on deposits of its non SLR funds qualify for deduction u/s 80 P(2)(a)(i) of I.T.Act 1961 ?
The assessee is a Regional Rural Bank set up under the provisions of Rural Banking Act, 1976. This bank is declared to a Cooperative Society for the purpose of Income Tax Act, 1961 (hereinafter referred to as 'the Act'). For the assessment year under consideration, the assessee filed the return of income on 31.07.2001 and claimed the deduction of its entire income amounting to Rs.65,86/- under Section 80P(2)(a)(i) of the Act. The return was accepted under Section under Section 143(1)(a) of the Act. Subsequently, a notice under Section 148 of the Act was issued and the case was reopened with the view to dis-allow the deduction in respect of the interest income accrued on the investment. According to the assessee, the claim did not qualify for the exemption under Section 80P (2)(a)(i) of the Act. The plea of the assessee was not accepted and the Assessing Authority passed the assessment order and dis-allowed the claim for exemption.
Being aggrieved by the assessment order, the assessee filed the appeal before the Commissioner of Income Tax, (Appeal).,Muzaffar Nagar which was allowed.
Being aggrieved by the order of C.I.T. (Appeal), Addl. CIT.,Range-2, Muzaffar Nagar filed the appeal before the Income Tax Appellate Tribunal which has been dismissed by the impugned order.
The Tribunal has held as follows:-
" We have heard both the parties and carefully considered the rival contentions, examined the facts, evidence and material placed on record. From the facts discussed above, it is obvious that the AO held that interest earned on investment exceeding the percentage required under the Statutory Liquidity Ratio (SL.R) was not entitled to deduction under section 80P(2)(a)(i). For this purpose, the AO has heavily relied on the order of Gujarat High Court in the case of Gujarat State Co-op. Bank Ltd. Vs. CIT 250 ITR 229. He has also referred to the judgment of Hon'ble Supreme Court in the case of Madhya Pradesh Co-op. Bank Ltd. Vs. Addl. CIT reported in 218 ITR 438. This judgment was over-ruled by the Apex Court in the case of CIT Vs. Karnataka Co-op. Apex Bank (Supra), where it was held that interest arising from investment made in compliance with the statutory provisions to enable it to carry on banking business out of reserve funds by a Co-operative Society engaged in Banking business was exempt u/s 80P(2)(a)(i) of the Act. In the case of CIT Vs. Bangalore Distt. Co-op. Central Bank Ltd; reported in 233 ITR 282, the Hon'ble Apex Court held that interest on Govt. Securities and dividends of shares of Industrial Finance Corporation was income from Banking business and hence entitled to deduction u/s 80P(2)(a)(i) of the Act. In the case of Mehsana Distt. Central Co-op. Bank Ltd.; Vs. ITO (Supra), the Hon'ble Apex Court held that interest earned from funds utilized for statutory reserves and income from hiring safe deposits was the income from banking business and hence entitled to deduction u/s 80P(2)(a)(i). Thus, the sum and substance of the aforesaid discussion and legal position is that the intereest earned by the Bank from investment in SLR and other investments forms part of banking business and is entitled to deduction u/s 80P(2)(a)(i) of the Act. As per Banking Regulation Act, the banks are required to keep certain percentage of their total deposits in the statutory liquidity ratio (SLR) and the total deposits accepted from the public vary from year to year. The fact that in a particular year, the amount of investment made in the Govt, Securities or deposits exceeds SLR would not mean that such investments have not been made in the Banking business.Therefore, interest earned on such deposits/investments would form part of Banking business entitled to deduction u/s 80P(2)(a)(i) of the Act. In the light of these facts and circumstances of the case and the legal position discussed above, we are of the considered opinion that the Ld. CIT (A) was justified in allowing deduction u/s 80P(2)(a)
(i) of the Act. We confirm his order and reject the grounds of appeal of the Revenue." Heard Sri R.K.Upadhyay, learned Standing Counsel.
We are of the opinion that the issue involved in the present case is no more rest integral and is covered by the decision of the Apex Court in the case of Commissioner of Income-Tax Vs. Karnataka State Co-Operative Apex Bank reported in 251 ITR 194, Mehsana District Central Co-operative Bank Ltd. Vs. Income Tax Officer, reported in 251 ITR 522 and a recent decision of the Apex Court in the case of Commissioner of Income-Tax Vs. Nawanshahar Central Co-Operative Bank Ltd. reported 289 ITR 6 (SC) wherein in it has been held 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 is attributable thereto is the business of banking and is deductable under section 80P(2)(a)(i) of the Act. In the present case, it is not the case of revenue that the assessee had carried on any other business other than banking business. The deposit exceeding statutorily Liquidity Ratio (SLR) was also in relation to banking activity. Hence, the income accrued out of such deposit also attribute to the banking business and deductable under Section 80P (2)(a)(i) of the Act. The issue involved in the present appeal is also covered by the decision of the Apex Court in the case of M/s Gorakhpur Kshetriya Gramin Bank, Gorakhpur Vs. Commissioner of Income Tax, Allahabad reported in 2007 U.P.T.C.-1466.
In view of the decisions of the Apex Court, we do not find any merit in the present appeal. The appeal is, accordingly, dismissed.
Order Date :- 6.1.2010 kkg