COMMISSIONER OF INCOME TAX JAI vs. M/S SHEKHAWATI GRAMIN BANK FAT

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR 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 _____________________________________________________

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HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 11/04/2017 1. Since all these appeals involve common question of law and facts, hence, they are decided by this common judgment. 2. By way of these appeals, the department has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeals preferred by the department and confirmed the order of the CIT(A) which has reversed the order of AO. 3. This court while admitting the appeals framed following substantial questions of law:- Appeal No. 396/2009 “ (I) Whether, on the facts and in the circumstances of the case, the learned I.T.A.T. was right in law in holding that the interest income arising from the investment made by the assesses from fund other than the reserve fund is exempt under Section 80 p (2) (a) (i) ? (ii) Whether, on the facts and in the circumstances of the case, the learned I.T.A.T. was legally justified in holding that the interest income, arising from the investment made by the assessee voluntarily and without any statutory requirement of RBI or government , is exempt under section 80 p(2) (a) (i) by placing reliance on the decision of the Hon’ble Surpreme Court 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 of the case, the learned I.T.A.T. was legally justified in holding that the interest income, arising from the loan advanced to the employees of the bank is exempt under section 80p (2) (a) (i) by placing reliance on the decision of the Hon’ble punjab & Haryana High Court in the case of CIT Vs. H. State Co-op Land Dev. Bank [254 ITR 107]?”

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Appeal No. 103/2010 “ (i) Whether, on the facts and in the circumstances of the case, the learned I.T.A.T. was right in law in holding that the interest income arising from the investment made by the assesses from fund other than the reserve fund is exempt under Section 80 p (2) (a) (i) ? (ii) Whether, on the facts and in the circumstances of the case, the learned I.T.A.T was legally justified in holding that the interest income, arising from the investment made by the assessee voluntarily and without any statutory requirement of RBI or government, is exempt under section 80 p (2) (a) (i) by placing reliance on the decision of the Hon’ble Supreme Court 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 of the case, the learned I.T.A.T. was legally justified in holding that the interest income, arising from the loan advanced to the employees of the bank is exempt under Section 80p (2) (a) (i) by placing reliance on the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. H. State Co-Op Land Dev. Bank [254 ITR 107]?” Appeal No. 164/2010 “(i) Whether, on the facts and circumstances of the case, the interest income, arising from the investment made by the assessee voluntarily and without any statutory requirement of RBI or government is exempt under section 80 p 92) (a) (i)? (ii) Whether on the facts and circumstances of the case the allowing of deduction u/s 80 p (2) (a) (1) of the Income Tax Act 1961 on the interest income earned from investments in IDBI Bond made out of the funds which were neither statutory reserves nor rotational working capital of assesses and therefore were not part of banking business?” Appeal No. 489/2011 (i) “Whether Tribunal was justified in holding that the interest income arising from the investment made by the assessee from fund other than the reserve fund is exempt under Section 80 P (2) (a) (i)? (ii) “Whether Tribunal was justified in holding that the interest income, arising from the loan advanced to the employees of the bank is exempt under Section

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80 P (2) (a) (I)? 3.1. In all these appeals different question were framed, however issue no.3 in appeal no.396/2009 which is question no.2 & 3 and other 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. Bank Ltd. Decided on 24.9.2008 where the interest income which was paid in advance held to be not admissible and therefore the issues was decided in favour of the department. Hence, the issue no.3 is decided in favour of the department. 4. The other two issues are interconnected regarding the investment which are made arising out of by the funds other than the reserve funds exempted under Section 80P (2)(a)(i) of the Act, 1961. Section 80P (2)(a)(i) of the Act, 1961 is reproduced as under:- “80P. Deduction in respect of income of co- operative societies (1) Where, in the case of an assessee being a co- operative society, the gross total income includes any income referred to in sub- section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub- section (2), in computing the total income of the assessee. (2) The sums referred to in sub- section (1) shall be the following, namely:- (a) in the case of a co- operative society engaged in- (i) 3 carrying on the business of banking or providing 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 of this court in the case of CIT Vs. Rajasthan State Cooperative Bank

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reported in (1997) 223 ITR 55 holding as under:- “In Reference No. 49 of 1987, a question has been referred on the basis of reserve fund and other funds. While in Reference No. 80 of 1986, the reference is on the basis that it is income from investment of reserve fund. The findings with regard to investment of reserve funds have already been given. The details of other funds were not stated either in the order of the Income Tax Appellate Tribunal or in the statement of case and, therefore, it would be open to the assessee to satisfy the Tribunal as to whether the said investment was in accordance with the provisions of Section 63 read with Rule 54 or in accordance with Rules 55 and 56 and whether the investment should be considered as stock- in-trade or circulating capital. If it is found that the said investment 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-operative Apex Bank (2001) 251 ITR 194 wherein it has been held as under:- “The question is whether we agree with the reasoning in M.P. Co-operative Bank Ltd. There is no doubt, and it is not disputed, that the assessee-Co-operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80-P(2)(a)(i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, the income derived therefrom would be income from the assessees business. We are unable to take the view that found favour with the Bench that decided the case of Madhya Pradesh Co-operative Bank Ltd. (supra) that only income derived from circulating or working capital would fall within section 80-P(2)(a)(i). There is nothing in the phraseology of that provision which makes it applicable only to income derived from working or circulating capital. In the premises, we take the view that the decision of this court in the case Madhya Pradesh Co-operative Bank Ltd. (supra) does not set down the correct law and that the law is as we have put it above. The

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question, accordingly, is answered in the affirmative and in favour of the assessee.” 7. He contended that the income which has been received is other than SLR and CCR. In that view of the matter, the judgment of the Supreme Court is distinguishable and MP judgment which is sought to be relied by the Tribunal and CIT(A) is impliedly overruled. He has also relied upon the decision of the Supreme Court 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 immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression "profits and gains of business". Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under Section 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as "investment". 8. Taking into consideration, he contended that the deduction could not be allowed u/s 80P(2)(a)(i) and the issue is required to be answered in favour of the department. 9. Counsel for the respondent Mr. Pathak appearing for the asseesse has contended that the first decision which has been followed in the subsequent year wherein CIT(A) has held as under:-

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“From the above it can be noted that the scope of banking business is very wide and the word “accepting for the purpose of lending or investment” is broad enough to cover the activities of making investment in bonds and providing loan to employees. These are part and parcel of banking business. The observation of the A.O. the investment in bonds are not to meet SLR/CRR ration and these are long term investment are therefore of no relevance. The Banking Regulation Act 1949 nowhere places any restriction that investment in bonds/securities can be only for a short duration or for increasing SLR/CRR ratio. Once the bank accept a deposit (which it cant otherwise refuse) it has to deploy the funds in best possible manner & therefore the Banking Regulation Act 1949 provides that deposits accepted from public can be used for the purpose of lending or investment. In this connection RBI has issued circular dt. 13/12/1996 which is modified by circular dt. 23/02/2004 to provide for prudential guidelines on investment in Non SLR debt securities. These guidelines itself proves that a Regional Rural Bank as a part of banking business can make investment in bonds/debentures etc. The investment of Rs. 58.65 crores in bonds of various public financial institutions or public sector undertaking or nationalized bank is therefore a part of banking business and interest earned in these investment are part of income from banking business entitled for deduction u/s 80P(2)(a)(i).” 10. He contended that in view of the detail reasoning which has been subsequently followed and the following decisions which are rendered 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 question relating to reserves invested by the bank pursuant to the statutory directions. Shri Vinay Kuthiala, learned Counsel for the revenue has also placed reliance on the following portion of the observation made by the Apex Court in Mehsana District Central Co- operative BankLtd. v. Income Tax Officer (2001) Vol. 251 ITR 522.

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Now, as to the second question, we have heard learned Counsel and been referred to various decisions including the decision of this

Court

Bihar State Co- operative Bank Limited v. CIT : (1960) 39 ITR 114. To be able to answer the question, it is necessary to ascertain, as a fact, whether the income derived by the assessee from the investment of its voluntary reserves has been utilized by it in the course of its ordinary banking business. Though the assessee placed before the assessing authority its books of account and balance sheets, the fact aforestated was not considered at any stage, for one or other reason on which it is not necessary for us to dilate. We think that it is in the interest of justice that the assessee should have the opportunity to lead evidence before the Commissioner (Appeals) to establish as a fact what is stated above. So far as the second question is concerned, therefore, the matter

stand

restored

to the Commissioner (Appeals) for being decided afresh. He shall also decide any consequential issue that may arise. 7. On the basis of the aforesaid observation of the Apex Court it is contended that we should remand the matter to the Revenue Authorities to permit the Bank to establish the fact that the interest was earned on account of banking activities and utilized for such activities. We are not inclined to accept this argument. In the case before the Apex Court, the Bank had lost throughout before the revenue authorities as well as the High Court. None of the authorities had considered the question whether the income from interest of Non-SLR reserves was attributable to normal banking activities. It was in these circumstances that the Supreme Court directed that

the

matter

remanded

to the Commissioner (Appeals). In the present case the Tribunal has already decided this issue in favour of the 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

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Hon'ble Supreme Court held that the interest on Government securities placed with the State Bank or the Reserve Bank of India would not qualify for exemption under Section 81 (now Section 80P) of the IT Act, 1961, and such investment could not be regarded as an essential part of banking activities inasmuch 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 in the judgment aforesaid was not accepted by the Hon'ble apex Court in CIT v. Karnataka State Co- operative Apex Bank [2001]251ITR194(SC) , wherein it has been held: "The question is whether we agree with the reasoning in Madhya Pradesh Cooperative Bank Ltd. [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 its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of Section 80P(2)(a)(i), to pay Income Tax thereon. The placement of such funds being imperative for the purpose of carrying on the banking business, the income derived therefrom would be income from the assessee's business. We are unable to take the view that found favour with the Bench that decided the case of Madhya Pradesh Co- operative Bank Ltd. (supra) that only income derived from circulating or working capital would fall within Section 80P(2)(a)(i). There is nothing in the phraseology of that provision which makes it applicable only to income derived from working or circulating capital. In the premises, we take the view that the decision of this Court in the case of Madhya Pradesh Co- operative Bank Ltd. (supra) does not set down the correct law and that the law is as we have put it above." 7. In view of this pronouncement of the Hon'ble apex Court, the contention advanced by the learned counsel for the Revenue cannot be accepted. 10.3 In CIT vs. Andhra Pradesh State Cooperative Bank Ltd. (2011) 336 ITR 516, the Andhra Pradesh High Court held as

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under:- “Section 80P of the Act grants deduction in respect of various categories of income of a cooperative society. If any cooperative society carries on the business of banking, the interest income received by

cooperative

society

its investment/deposits is attributable to banking business. The provision does not make any distinction in so far as the interest earned by deposit in a bank and interest earned on the compulsive deposit which is made as required under the relevant statute. It is no doubt true that a cooperative society may be required to earmark some portion of its capital for exclusive deposit in Government prescribed securities or banks. A cooperative society may earn profits by way of interest by parking their funds in high-yielding deposits or may earn income by circulating its capital among its members in the course of their banking business. All the income from banking business which is referable to Section 80P(2)(a) (i) of the Act would qualify for deduction under the Act. The business of banking' is one of many expressions not defined in the Act. Which are the activities that can be considered attributable to the business of banking? Indisputably the Assesses, in these cases being cooperative banks, are subject to the regulations under the RBI Act, the BR Act and the Societies Act. There is also no dispute that all these Assesses, in these cases, obtained licences under the BR Act. They are bound to comply with all the orders, rules and regulations issued by the RBI while carrying on banking business. Section 5(b) of the BR Act defines "banking" to mean, "accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and with drawable by cheque, draft, order or otherwise". As per Section 5(c) of the BR Act "banking company" means "any company which transacts the business of banking in India". Section 6 of the BR Act lists 'any one or more' of the forms of the business as enumerated in Sections 6(1)(a) to (o) of the BR Act in addition to the business of banking. Section 6(1)(a) of the BR Act enumerates every conceivable activity of banking including, "the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money

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and securities" and under Section 6(1)(n) of the BR Act, the doing of all such other things as are incidental or conducive to the promotion or advancement of the business of the company. Thus reading of Sections 5(b), (c) and Section 6 of the BR Act along with Section 80P(2)(a) of the Act, it becomes clear that the income received by a cooperative bank from deposits, whether or not they are made in discharge of a statutory obligation or otherwise being income from banking business, would be eligible for exemption under the said provision. Does Section 80P(2)(a) of the Act make a distinction between income received by a cooperative bank from statutory deposits and the income from non-statutory deposit of surplus funds? The answer must be in the negative. The income earned

the cooperative bank either by deposit of the prescribed percentage of its reserves or by deposit of

their

surplus

funds

exempted. The income from either category of the deposits is certainly attributable to the business of banking. Indeed as a prudent business practice, no banking company or no entity engaged in the business of banking would keep its amount idle. By parking the funds, immediately not required for the business in other banks, interest can be earned to the benefit of the cooperative society. Every cooperative society is expected to make profits for the benefit of its members. As long as the deposit of the surplus funds in the other banks for the purpose of earning interest is not unauthorized or not barred by any of the applicable statutes, the income is certainly attributable to the business of banking. There is no concept of voluntary or non-statutory reserves as urged by the Revenue. In so far as the profits and gains from the business of banking by deposit of surplus funds of the bank is concerned, there cannot be any distinction between SLR reserves and non-SLR reserves although the maintenance of cash reserve and SLR are obligatory under below referred provisions of the RBI Act and the BR Act. Section 45 of the Societies Act lays down the method and manner of disposal of the profits earned by the cooperative society. Under Section 45(3)(a) of the Societies Act, a cooperative society shall transfer not less than 25% of net profit to the reserve fund and in case the total amount transferred becomes equal to the amount of paid up capital, the amount to be

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transferred can be reduced to a sum not less than 10% of such profits. For doing so the prior permission of the RCS is required. Section 46 of the Societies Act requires every society to act with due care and diligence and invest or deposit its funds which are not immediately required for the business of the society either in postal savings banks,

securities

specified

in Section 20 of the Indian Trusts Act, 1382, in the shares and securities of any other society or with any Nationalised Bank or Scheduled Bank or the concerned District Cooperative Central Bank. As per Rule 37 of the Societies Rules reserve fund is intended to meet unforeseen losses. When the reserve fund of the society exceeds 25% of its working capital, the excess can be utilized in the business of the society with the sanction of the RCS. In other words, a cooperative bank can utilize the reserve fund over and above 25% of the working capital for the purpose of banking business which includes the deposits which yield interest. Further when a society is prohibited by its by-laws from borrowing either from its members or others, the whole of its reserve fund may be utilized

its

business.

a cooperative bank derives income by

lending money to its members the same being business of banking, is eligible for deduction. Therefore, to say that the income derived from voluntary non- statutory deposits would not be eligible for deduction is illogical and cannot be sustained. As a matter of fact, in all these cases, a finding was recorded that the RCS issued necessary permission to the Assesses to use the surplus reserve fund for the banking business. Assuming that there is no such sanction of the RCS for utilization of the reserve fund in the business of the society the same will not make any difference in so far as deduction allowed by Section 80P(2) (a)(i) of the Act. The

Assessee

cooperative banks are scheduled banks as defined under Section 2(e) of the RBI Act read with the Second Schedule thereto. As per Section 42 of the RBI Act, every schedule bank shall maintain with RBI an average daily balance, the amount of which shall not be less than such percentage of the total demand and time liabilities in India as may be notified by the RBI. In addition to the cash reserve to be maintained by the RBI, every banking company is required to create a reserve fund and, before declaration of dividend, transfer to the reserve

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fund a sum equivalent not less than 20% of such profit. Further, under Section 18 of the BR Act, every banking company, not being a scheduled bank, shall maintain cash reserve with itself or by way of balance in a current account with the RBI. Such cash reserve shall be equivalent to at least 3% of total of its demand and time liabilities as on the last Friday of the second preceding fortnight. Under Section 24(2- A) of the BR Act in addition to the daily balance required to be maintained under Section 42 of the RBI Act and cash reserve required to be maintained under Section 18 of the BR Act, every banking 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 the current market price or in unencumbered approved securities. This, in banking parlance, is often referred to as SLR. The SLR to be maintained by a cooperative bank is dealt with by Section 24 of the BR Act as modified by Section 56 of the said Act. The SLR, cash reserve or reserve fund required to be maintained by a scheduled bank or a cooperative bank under the provisions of the RBI Act or the BR Act as referred to herein above, are all the activities which are part of business of banking. The non-SLR and non- reserve

fund

stock-in-trade

for

a cooperative bank for the business of banking as defined under Sections 5(b) and (c) read with Section 6 of the BR Act. In so far as the income earned from these deposits is concerned, Section 80P(2)(a)(i) of the Act does not make any difference nor it is possible to read any such limitation having regard to the language of the said provision. Every income "attributable to any or more of business of banking" shall be deducted from the gross total income. It is well settled that a provision for deduction or tax relief should be interpreted liberally in favour of the Assessee. Such a provision should be construed as to fully achieve the object of the legislature and not to defeat it see CIT v. South Arcot

Distt.

Coop.

Marketing Society Ltd (1990) 176 ITR 117 (SC) : AIR 1990 SC 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 SC 2529 : (1993) 91 STC 450 (SC). Applying the settled rule of interpretation and liberally interpreting Sub-section 2(a)(i) of Section 80P of

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the Act, the conclusion is inevitable that whatever be the amount of profits and gains of business of a cooperative society attributable to its banking transactions or credit transactions with members is exempt from income tax. If Section 80P(2)(a) of the Act is given restrictive meaning as including the interest earned only on the statutory deposits made by a cooperative society, it would amount to supplying causes omissus and has to be avoided by 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 much wider in scope than the word derived. The second phrase used is any one or more of such activities. Any banking business providing credit facilities to its members and investing the sums deposited by the members of the society is part of banking business. We are, therefore, of the considered view that the investment of the funds by the banks including the non reserves were part of the banking activities since no bank would like its reserve funds to remain idle and not earn any interest. This is not only prudent business management but is also a part of the activity of banking. Therefore, the interest earned on such deposits is directly attributable to the business of banking. Both the questions are accordingly answered in favour of the assessee and against the revenue. 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 in the present case is no more res integra and is covered by the decisions of the apex court in the case of CIT v. Karnataka State Co-operative Apex 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 a recent decision of the apex court in the case of CIT v. Naioanshahar Central Co-operative Bank Ltd. reported in [2007] 289 ITR 6 (SC) wherein in it has

been

held

that

where

co- operative bank carrying on business of banking is

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statutorily required to place a part of its funds in approved securities, the income is attributable thereto is the business of banking and is deductible 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 statutory liquidity ratio (SLR) was also in relation to banking activity. Hence, the income accrued out of such deposit also attributable to the banking business and deductible under Section 80P(2)(a) (i) of the Act. The issue involved in the present appeal is also covered by the decision of the this Court

the

case

Gorakhpur Kshetriya 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 Bank Ltd. vs. Commissioner of Income-Tax (2001) 251 ITR 0522 (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) 266 ITR 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. Ramanathapuram Distt. Co-op. Central Bank Ltd. (2002) 255 ITR 423 (SC) 12. Commissioner of Income-Tax vs. Ahmednagar District Central Co-operative Bank Ltd., Commissioner of

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Income Tax vs. Osmanabad District Central Co- operative Bank Ltd., Commissioner of Income-Tax vs. Latur District Central Co-operative Bank Ltd. 264 ITR 0038 (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 of India] 15. Commissioner of Income-Tax vs. Haryana State Co- operative Land Development Bank Ltd. [2002] 254 ITR 0107-[Punjab and Haryana High Court] 11.1. We have heard counsel for the parties. 11.2. Taking into consideration the very object of deduction in respect of a cooperative society and more particularly the word which has been used u/s 2P sub clause (i) which reads as under:- “carrying on the business of banking or providing credit facilities to its members” 12. In our considered opinion, the investment which was made by the Bank is part of their activity. However an endeavour is made Mr. Jain to rely upon Section 5 more particularly section 17 & 18 of Banking Regulations, Reserve Fund and Cash Reserves, in our 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 put forth by this court in the case of Rajasthan State Cooperative Bank (supra), we are of the opinion that the issue is required to be answered in favour of the aseessee since that is banking activity otherwise from the banks of granting benefits to a cooperative society will be considered if such a narrow compass of interpretation is given.

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