IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH `B', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No. 1011/Hyd/2013
Assessment year 2004-05
The Asst. Commissioner of vs. M/s. Mahaveer Co-op. Urban
Income-tax, Circle-7(1) Bank Ltd., Hyderabad
Hyderabad PAN: AACCM7104Q
Appellant Respondent
Appellant by: Sri Bhanu Prasad Reddy
Respondent by: Sri A.V. Raghuram
Date of hearing: 01.10.2013
Date of pronouncement: 01.10.2013
ORDER
PER CHANDRA POOJARI, AM:
This appeal by the Revenue is directed against the order of
the CIT(A), Vijayawada dated 22.03.2013 for A.Y. 2004-05.
2. The Revenue raised the following ground:
(2) The learned CIT(A) erred in allowing the
claim of exemption u/s. 80P(2)(a) of the IT
Act, 1961 on interest income earned on
investment out of SLR/Non SLR surplus
funds which fall under the provisions of
section 80P(2)(d) and not section 80P(2)(a).
3. Brief facts of the case are that with regard to the exemption
u/s. 80P of the Act, the Assessing Officer has found that the assessee
has declared net income of Rs. 35,88,673/- and claimed exemption
u/s. 80P of the Act. The income stated to be interest income is
earned out of the surplus funds beyond the SLR covered funds i.e.,
invested in UTI Mutual funds of Rs. 1,40,00,000/- and Rs.
80,00,000/- invested in fixed deposits. The income claimed
2 ITA No. 1011/Hyd/2013
M/s. Mahaveer Co-op. Urban Bank Ltd.
==============================
exemption of Rs. 35,88,673/- is nothing but the income earned
through the deposits/ investments made in various mutual funds and
concerns but not carrying on the business of banking or providing
credit facilities to its members or as illustrated u/s. 80P(2) of the
Act. As seen from the profit and loss account, the assessee himself
treated the interest income earned on surplus funds as 'other
income'. In the Profit and Loss A/c., the assessee has admitted
income from other sources to the tune of Rs. 40,54,810/- under the
head 'other receipts', which clarifies that the income earned and
admitted under the head 'other receipts' is not from the operations
carried out by the assessee the manner laid down u/s. 80P during
the year 2003-04. Further, it is clear that the income admitted
under the had 'other receipts' of Rs 40,54,810/- does not attract
provisions of section 80P of the Act. Accordingly, the AO has
rejected the claim of the assessee u/s. 80P of the Act. On appeal,
the CIT(A) decided the issue in favour of the assessee. Against this,
the Revenue is in appeal before us.
4. The learned DR submitted that in this case, the issue involved
is whether section 80P(2)(a) or 80P(2)(d) is applicable to the case of
the assessee. The AO held that the profits derived by the assessee
with its deposits under SLR/CRR category only are eligible for
deduction u/s. 80P(2)(a). The assessee had deposited Rs. 1.4 crores
in mutual funds and Rs. 80 lakhs in fixed deposits. The AO held that
the returns on these deposits were not exempt as they had no been
derived from core banking activity. The CIT(A) allowed the plea
taken by the assessee. In the light of the Supreme Court's decision
in the case of CIT vs. Karnataka State Co-operative Apex Bank (251
ITR 194), only interest income on SLR funds has to partake the
character of business income. Thus, the assessee's income by way
of deposit in non-SLR funds in mutual funds and fixed deposits is not
exempt under the provisions of section 80P of the Act.
3 ITA No. 1011/Hyd/2013
M/s. Mahaveer Co-op. Urban Bank Ltd.
==============================
5. On the other hand, the learned AR relied on the judgement of
jurisdictional High Court in the case of CIT vs. Andhra Pradesh State
Co-operative Bank Ltd. (336 ITR 516) (AP).
6. We have heard both the parties and perused the material on
record. We find the same issue was considered by the Andhra
Pradesh High Court in the case of CIT vs. Andhra Pradesh State Co-
operative Bank Ltd. (cited supra) wherein the High Court held as
under:
"The provisions of section 80P of the Income-tax Act,
1961 do not make any distinction between the interest
earned by deposit in a bank and interest earned on the
compulsive deposit made as required under the
relevant statute. All the income from banking business
referred to under section 80P(2)(a)(i) of the Act would
qualify for deduction under the Act. The income earned
by the co-operative bank either by deposit of the
prescribed percentage of its reserves or by deposit of
their surplus funds is exempted. The income from
either category of the deposits is certainly attributable
to the business of banking. As long as the deposit of the
surplus funds in 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. When the reserve
fund of the society exceeds 25 per cent. of its working
capital, the excess could be utilized in the business of
the society with the sanction of the Registrar of Co-
operative Societies. Further, when a society is
prohibited by its bye-laws from borrowing either from
its members or others, the whole of its reserve fund
may be utilized in its business. If a co-operative bank
derives income by lending money to its members, it
being business of banking, is eligible for deduction. The
statutory liquidity ratio, cash reserve or reserve fund
required to be maintained by a scheduled bank or a co-
operative bank under the provisions of the Reserve
Bank of India Act, 1934, or the Banking Regulation Act,
1949, are all activities which are part of the business of
banking. If section 80P(2)(a) of the Act is given a
restrictive meaning as including the interest earned
only on the statutory deposits made by a co-operative
society, it would amount to supplying a casus omissus
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M/s. Mahaveer Co-op. Urban Bank Ltd.
==============================
and has to be avoided by the court. Investment of funds
by banks including the non-reserves is part of banking
activities since no bank: would like its reserve funds to
remain idle and not earn any interest. Therefore, the
interest earned on such deposits is directly attributable
to the business of banking and, therefore, exempt
under section 80P(2)(a)(i) the Act."
7. In view of the above discussion, we are inclined to decide the
issue in favour of the assessee and the order of the CIT(A) is
confirmed.
8. In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 1st October, 2013
Sd/- Sd/-
(SAKTIJIT DEY) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 1st October, 2013
tprao
Copy forwarded to:
nd
1. The Asst. Commissioner of Income-tax, Circle-7(1), 2 Floor,
B-Block, IT Towers, AC Guards, Hyderabad.
2. M/s. Mahaveer Co-op. Urban Bank Ltd., 15-1-503/3,
Feelkhana, Hyderabad.
3. The CIT(A), Vijayawada.
4. The CIT-VI, Hyderabad.
5. The DR 'B' Bench, ITAT, Hyderabad
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