Commissioner of Income Tax, Bangalore Vs. The
Bangalore Distt. Coop., Central Bank Ltd.
 INSC 360 (24
V. Manohar, M. Srinivasan Srinivasan, J.
respondent hereinafter referred to as the `assessee' is a Cooperative Society
engaged in banking business. For the assessment years 197778, 1978-79 and 1979-
80, the assessee claimed deduction under Section 80P (2) (a) (i) of the Income
Tax Act, 1961 on the income by way of interest on Government Securities and
Dividends on shares of Industrial Financial Corporation. The Income Tax Officer
held that the investments were made out of reserves and disallowed the claim.
On appeal, the Appellate Assistant Commissioner observed in his order that the
Reserve Fund of the Assessee was about Rs. 33 lakhs and the circulating capital
was about Rs.. 22 lakhs and held that the investment was out of the Reserve
Fund. Consequently, he confirmed the order of the I.T.O.
further appeal, the Tribunal accepted the contention of the assessee that
interest income was attributable to the asseessee's business income. The
Tribunal followed its earlier order in I.T.A. Nos. 665 to 668/bang./1981 dated 30th July 1982. Consequently the appeal was
allowed and the matter was remitted to the I.T.O. to determine the deduction
available to the assessee under Section 80P (2)(a)(i). On a reference under
Section 255(2), the High Court of Karnataka agreed with the Tribunal and
answered the question in favour of the assessee. The aggrieved Revenue has preferred
Section 80P(1) and (2) (a) (i) are in the following terms :
(1) Where, in the case of an assessee being a cooperative 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.
The sums referred to in sub- section (1) shall be the following, namely :- (a)
in the case of a cooperative society engaged in - (i) carrying on the business
of banking or providing credit facilities to its members, or (ii)
***************** (iii) ****************** (iv) ********************* (v)
********************** (vi) ********************** (vii) *********************
the whole of the amount of profits and gains of business attributable to any
one or more of such activities".
There is no dispute that the assessee is a cooperative society carrying on the
business of banking. If the income in question is attributable to the said
activity, there is no doubt that the same is to be deducted from the gross
total income. The Tribunal has found in this case that the interest income is
attributable to the business of the assessee. That finding has not been
challenged on factual basis by the Revenue. No materials have been placed
before us to upset the factual conclusion of the Tribunal.
Learned counsel for the appellant places reliance n the decision of this Court
in Madhya Pradesh Cooperative Bank Ltd. Versus Additional Commissioner of
Income Tax etc. etc. 218 I.T.R. 438 wherein the decision of the Madhya Pradesh
High Court in Madhya Pradesh State Cooperative Bank Ltd. Versus Addl.
Commissioner of Income Tax 119 ITR 327 was affirmed. The Bench held that circulating
capital was that which was put into circulation or turned over to earn profits
and Government securities coming out of the reserve fund which could not be
easily encashed and which could be utilised only when contingencies arose could
not be considered to be circulating capital or stock-in-trade. It was therefore
held that interest on Government securities placed with the State Bank of India or the Reserve Bank of India could not qualify for exemption
under Section 81 (now Section 80P) of the Income Tax Act. The decision was
rendered n the facts of that case and it is not applicable in the present case
in view of the finding of the Tribunal that the income in question is
attributable to the business of the assessee.
Learned counsel for the assessee has invited our attention to Section 24 and 55
of the Banking Regulation Act, 1949 as well as Section 57(2) of the Karnataka
Cooperative Societies Act, 1959 and Rule 23 (3) of the Karnataka Cooperative
Societies Rules, 1960 in support of his contention that the investments have
been made by the assessee in compliance with the statutory provisions and in
order to carry n the business of banking the same was necessary and
consequently such investments were part of the business activities falling
within the scope of Section 80P (2)(a)(i).
has also referred to the rulings in Bihar State Cooperative Bank Ltd. Versus
Commissioner of Income Tax. 39 I.T.R. 114. Cambay Electric Supply Industrial C.
Ltd. versus Commissioner of Income Tax. Gujarat-II. 113 ITR 84 in support f his
contentions that the expression `attributable to' is f very wide import. It is
unnecessary in this case to consider the same in detail.
the fact situation of the case, we do not find any justification to interfere
with the conclusion of the High Court. The appeals suffer dismissal. There will
be no order as to costs.