THE C.I.T. CITY-III, MUMBAI. vs. THE MAHARASHTRA STATE CO.OP. BANK LTD.

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ITA/191/2000HC Bombay16 August 2005Bench: HON'BLE SHRI JUSTICE V.C. DAGA, HON'BLE SHRI JUSTICE J.P. DEVADHAR5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court disposed of the application under section 256(2) without issuing directions to the ITAT to state a case. The Court noted that the learned counsel for the revenue fairly brought to its notice the Supreme Court judgment in Commissioner of Income-Tax V/s. Karnataka State Co-operative Apex Bank (2001) 251 I.T.R.194 (S.C.). In this judgment, the Apex Court held that interest arising from investments made in compliance with statutory provisions to enable a co-operative society engaged in banking business to carry on its business, out of a reserve fund, is exempt under section 80P(2)(a)(i) of the Act. In view of this binding precedent, the High Court found no reason to issue directions to the Tribunal to state the case, considering the application to be without merit. The Court also held that the second question regarding the cancellation of interest under section 234B was consequential and would be covered by the Supreme Court's judgment. Therefore, the application was disposed of with no order as to costs.

What were the facts?

The assessee, The Maharashtra State Co-operative Bank Ltd., filed its return for Assessment Year 1994-95, claiming deduction under section 80P(2)(a)(i). The return was processed under section 143(1)(a) and the deduction was allowed. Subsequently, the Assessing Officer (AO) issued a notice under section 148, based on a Supreme Court judgment, and completed reassessment under section 143(3) read with section 148. During reassessment, the deduction for interest received on Government securities earmarked against a statutory reserve fund was disallowed. The Commissioner (Appeals) directed the AO to restrict the disallowance to interest relatable to Government securities forming part of the reserve fund. The assessee appealed to the Income Tax Appellate Tribunal (ITAT), which allowed the appeal, holding the reassessment invalid due to a time-barred notice under section 148 and that the interest was part of the banking business eligible for deduction. The Revenue applied under section 256(1) for a reference, which was rejected by the ITAT. The Revenue then filed an application under section 256(2) seeking directions to the ITAT to state a case.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT was justified in holding that the interest on Government Securities earmarked for the statutory reserve fund was a part of the banking business and accordingly the assessee is eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961? 2. Whether, on the facts and in the circumstances of the case, the ITAT was justified in cancelling the levy of interest under section 234B of the Income Tax Act, 1961? Assessee's contentions: The assessee contended that the reassessment was invalid because the notice under section 148 was issued beyond the prescribed time. The assessee also argued that the interest on Government securities earmarked for the statutory reserve fund was part of its banking business and thus eligible for deduction under section 80P(2)(a)(i). The assessee relied on Rule 54(1) of the Maharashtra Co-operative Societies Rules not applying and being covered under section 70(b) of the Maharashtra Co-operative Societies Act, 1960, and not Rule 54(2). Revenue's contentions: The Revenue sought to refer questions of law to the High Court regarding the ITAT's decision on the eligibility of deduction under section 80P(2)(a)(i) and the cancellation of interest under section 234B. The Revenue did not explicitly record arguments against the ITAT's finding on the invalidity of reassessment or the eligibility for deduction, but rather sought to have these points referred to the High Court.

Which sections of the Income-tax Act were involved?

Section 80P(2)(a)(i),Section 143(1)(a),Section 148,Section 143(3),Section 234B,Section 256(2),Section 256(1)

AI-generated summary — verify with the full judgment below

-= : 1 : =- IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION INCOME TAX APPLICATION NO.191 OF 2000 INCOME TAX APPLICATION NO.191 OF 2000 INCOME TAX APPLICATION NO.191 OF 2000 The Commissioner of Income Tax, Mumbai City III, Mumbai, 3rd Floor, Aayakar Bhavan, M.K. Marg, Mumbai - 400 020. ..Applicant. V/s. The Maharashtra State Co-operative Bank Ltd., C/o. Dalal & Shah, C.A.s 49-55, Mumbai Samachar Marg, Fort, Mumbai - 400 023. ..Respondent. Dr.P.Daniel with A.S.Rao i/b. R.N.Bandopahyay for applicant. CORAM : V.C. DAGA AND CORAM : V.C. DAGA AND CORAM : V.C. DAGA AND J.P.DEVADHAR, JJ. J.P.DEVADHAR, JJ. J.P.DEVADHAR, JJ.

DATED : 16TH AUGUST, 2005. DATED : 16TH AUGUST, 2005. DATED : 16TH AUGUST, 2005. ORAL JUDGMENT (PER V.C.DAGA, J.) ORAL JUDGMENT (PER V.C.DAGA, J.) ORAL JUDGMENT (PER V.C.DAGA, J.) 1. Heard the learned counsel for the applicants. This is application under section 256(2) of the Income Tax Act, 1961 (‘the Act’ for short) for A.Y.1994-95. The return filed by the respondent was processed under section 143(1) (a) and the claim of the respondent in respect of deduction under section 80P (2)(a)(i) was allowed. 2. The assessing officer, subsequent to the above decision, having noticed the Judgment of the Apex Court in the case of Madhya Pradesh Co-op.Bank Ltd. Madhya Pradesh Co-op.Bank Ltd. Madhya Pradesh Co-op.Bank Ltd. CNR No : HCBM020077872000 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:31

-= : 2 : =- [218 I.T.R. 438] [218 I.T.R. 438] [218 I.T.R. 438], issued a notice under section 148 to the respondent-assessee which was served on the respondent-assessee on 16/1/1997. 3. The reassessment pursuant to above notice was completed under section 143(3) read with section 148 on 21/2/1997. The deduction under section 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. 4. The respondent-assessee had impugned the above order of reassessment passed by the assessing officer in appeal filed before the Commissioner of Income Tax (Appeals). The C.I.T.(A) directed the assessing officer to restrict the disallowance only to interest relatable to Government securities which forms part of reserve fund. 5. The respondent-assessee not being satisfied with the above part of the order impugned the order passed by the Commissioner of Income Tax (Appeals) in the appeal being appeal No.7115/Mum/1997 filed before the Income Tax Appellate Tribunal, Mumbai Bench D, Mumbai. 6. The Tribunal by its order dated 12th August, Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:31

-= : 3 : =- 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 under section 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 Co-operative Societies Rules. The Tribunal held that the reassessment is invalid because notice under section 148 of the Act was issued beyond time prescribed under section 148 of the Act. 7. The Revenue not being satisfied with the above order of the Tribunal had moved an application under section 256(1) of the I.T. Act with a prayer to refer question of law for the opinion of this Court. This prayer of the Revenue did not find favour with the Tribunal. 8. The Revenue has now moved this application underm section 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 dated 12th August, 1998 to this Court for decision. That is how the Revenue is now seeking directions against Tribunal. The questions of law raised at the instance of the Revenue are as under :- Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:31

-= : 4 : =- 1. Whether on the facts and in the circumstances of the case, the ITAT 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 I.T. Act, 1961 ? 2. Whether on the facts and in the circumstances of the case, the ITAT was justified in cancelling levy of interest u/s.234B of the I.T. Act, 1961 ? 9. 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 Commissioner of Income Commissioner of Income -Tax V/s. Karnataka State Co-operative Apex Bank -Tax V/s. Karnataka State Co-operative Apex Bank -Tax V/s. Karnataka State Co-operative Apex Bank (2001) 251 I.T.R.194 (S.C.) (2001) 251 I.T.R.194 (S.C.) (2001) 251 I.T.R.194 (S.C.), 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 under section 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. 10. Application stands disposed of accordingly with no order as to costs. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:31

-= : 5 : =- (V.C. DAGA, J.) (V.C. DAGA, J.) (V.C. DAGA, J.) (J.P.DEVADHAR, J.) (J.P.DEVADHAR, J.) (J.P.DEVADHAR, J.)

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