1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.46 OF 2008
The Commissioner of Income Tax-IV,
60/61 Praptikar Sadan Annex
Building, Erandwana, Karve Road,
Pune - 411 004. ..Appellant.
V/s.
The Solapur Nagari Audyogic Sahakari
Bank Ltd. 340A, Sakhar Peth,
Solapur - 413 005. ..Respondent.
ig WITH
INCOME TAX APPEAL (LOD) NO.664 OF 2008
The Commissioner of Income Tax-IV,
60/61 Praptikar Sadan Annex
Building, Erandwana, Karve Road,
Pune - 411 004. ..Appellant.
V/s.
The Vidya Sahakari Bank Ltd.,
596 Sadashiv Peth, Laxmi Road,
Pune - 411 030. ..Respondent.
WITH
INCOME TAX APPEAL NO.157 OF 2009
The Commissioner of Income Tax-IV,
60/61 Praptikar Sadan Annex
Building, Erandwana, Karve Road,
Pune - 411 004. ..Appellant.
V/s.
The Laxmi Co-operative Bank Ltd.,
319, South Kasba, Solapur. ..Respondent.
::: Downloaded on - 09/06/2013 14:40:13 :::
2
WITH
INCOME TAX APPEAL NO.477 OF 2005
WITH
INCOME TAX APPEAL NO.478 OF 2005
WITH
INCOME TAX APPEAL NO.521 OF 2005
The Commissioner of Income Tax-IV,
60/61 Praptikar Sadan Annex
Building, Erandwana, Karve Road,
Pune - 411 004. ..Appellant.
V/s.
The Solapur Janata Sahakari Bank Ltd.,
"Shivsmarak", Gold Finch Peth, Solapur ..Respondent.
ig WITH
INCOME TAX APPEAL NO.560 OF 2005
The Commissioner of Income Tax-IV,
60/61 Praptikar Sadan Annex
Building, Erandwana, Karve Road,
Pune - 411 004. ..Appellant.
V/s.
The Mangalwedha Urban Co-op. Bank Ltd.,
A/p. Mangalwedha, Dist. Solapur. ..Respondent.
WITH
INCOME TAX APPEAL (L) NO.393 OF 2008
The Commissioner of Income Tax-III,
PMT Building, "B" Wing, 3rd Floor,
Shankar Sheth Road Swargate,
Pune - 411 037. ..Appellant.
V/s.
Sadhana Sahakari Bank Ltd.,
Shivsam Complex, Hadapsar,
Pune - 411 028. ..Respondent.
::: Downloaded on - 09/06/2013 14:40:13 :::
3
WITH
INCOME TAX APPEAL (L) NO.212 OF 2008
The Commissioner of Income Tax-IV,
60/61 Praptikar Sadan Annex
Building, Erandwana, Karve Road,
Pune - 411 004. ..Appellant.
V/s.
Swami Samarth Sahakari Bank Ltd.,
Santosh Niwas, A/P. Akkalkot,
Tal. Akkalkot, Dist. Solapur. ..Respondent.
WITH
INCOME TAX APPEAL (L) NO.162 OF 2008
The Commissioner of Income Tax-I,
B-Wing, 1st Floor, PMT Building,
Shankar Sheth Road, Swargate
Pune - 411 037. ..Appellant.
V/s.
The Mangalwedha Urban Co-op. Bank Ltd.,
A/p. Mangalwedha, Dist. Solapur. ..Respondent.
WITH
INCOME TAX APPEAL (L)No.211 OF 2008
The Commissioner of Income Tax-IV,
60/61 Praptikar Sadan Annex
Building, Erandwana, Karve Road,
Pune - 411 004. ..Appellant.
V/s.
Shivshakti Urban Co-op. Bank Ltd.,
739, Karmveer Nagar, A/p. Barshi,
Tal. Barshi, Dist. Solapur. ..Respondent.
::: Downloaded on - 09/06/2013 14:40:13 :::
4
WITH
INCOME TAX APPEAL NO.526 OF 2006
The Commissioner of Income Tax-II ..Appellant.
V/s.
Shri Mahavir Co-op. Bank Ltd. ..Respondent.
WITH
INCOME TAX APPEAL NO.19 OF 2007
The Commissioner of Income Tax,
Kolhapur, Ayakar Bhavan, 31, C/2,
Tarabai Park, Kolhapur-416 003. ..Appellant.
V/s.
Shri Mahalaxmi Co-op. Bank Ltd.,
'Shree Bhavan', 167-B, Mangalwar
Peth, Kolhapur. ..Respondent.
WITH
INCOME TAX APPEAL NO.29 OF 2007
The Commissioner of Income Tax-IV,
60/61 Praptikar Sadan Annex
Building, Erandwana, Karve Road,
Pune - 411 004. ..Appellant.
V/s.
The Solapur District Industrial
Co-op. Ltd., 29/30, Raviwar Peth,
Solapur. ..Respondent.
WITH
INCOME TAX APPEAL NO.44 OF 2007
WITH
INCOME TAX APPEAL NO.465 OF 2007
WITH
::: Downloaded on - 09/06/2013 14:40:13 :::
5
INCOME TAX APPEAL NO.469 OF 2007
WITH
INCOME TAX APPEAL NO.470 OF 2009
The Commissioner of Income Tax,
Kolhapur, Aayakar Bhavan, 31,C/2,
Tarabai, Kolhapur - 416 003. ..Appellant.
V/s.
The Ajara Urban Co-op. Bank Ltd.
At Post & Tal. Ajara, Dist. Kolhapu. ..Respondent.
WITH
INCOME TAX APPEAL NO.163 OF 2007
The Commissioner of Income Tax,
Kolhapur, Aayakar Bhavan, 31,C/2,
Tarabai, Kolhapur - 416 003. ..Appellant.
V/s.
Youth Development Co-op. Bank Ltd.,
'Poornima' F-2, First flor,
Near Sambhaji Bridge, Kolhapur. ..Respondent.
WITH
INCOME TAX APPEAL NO.166 OF 2007
The Commissioner of Income Tax-II,
9th Floor, MIDC Bldg., Road No.16,
Wagle Estate, Thane (W). ..Appellant.
V/s.
Parsik Janata Sahakari Bank Ltd. ..Respondent.
WITH
INCOME TAX APPEAL NO.435 OF 2007
::: Downloaded on - 09/06/2013 14:40:13 :::
6
The Commissioner of Income Tax-I,
Aayakar Bhavan, 31-C/2, 'E' Ward,
Tarabai Park, Kolhapur-416 003. ..Appellant.
V/s.
Vasantdada Shetkari Sahakar Sakhari
Karkhana Ltd., Sangli, Dist. Sangli. ..Respondent.
WITH
INCOME TAX APPEAL NO.777 OF 2007
The Commissioner of Income Tax-I,
B-Wing, 1st floor, PMT Building,
Shankarsheth Road, Swargate,
Pune - 411 037.
V/s.
ig ..Appellant.
Pune District Centra Co-op. Bank Ltd. ..Respondent.
WITH
INCOME TAX APPEAL NO.50 OF 2008
The Commissioner of Income Tax-IV,
60/61 Praptikar Sadan Annex
Building, Erandwana, Karve Road,
Pune - 411 004. ..Appellant.
V/s.
The Solapur Nagar Audyogik Sahakari
Bank Ltd., 340A, Sakhar Peth,
Solapur - 413 005. ..Respondent.
WITH
INCOME TAX APPEAL (LOD) NO.1320 OF 2007
The Commissioner of Income Tax-IV,
60/61 Praptikar Sadan Annex
Building, Erandwana, Karve Road,
Pune - 411 004. ..Appellant.
::: Downloaded on - 09/06/2013 14:40:13 :::
7
V/s.
Solapur District Central Co-op.
Bank Ltd., 207, Gold Finch Peth,
Solapur. ..Respondent.
Mr.Vimal Gupta for appellant.
Mr.S.N.Inamdar with Ms.Aasifa Khan for respondent.
CORAM : V.C.DAGA AND
J.P.DEVADHAR, JJ.
ig DATED : 16TH JUNE, 2009.
JUDGMENT (PER J.P.DEVADHAR, J.)
1. The common question of law raised in all these
appeals is,
” Whether the interest income received by a Co-
operative Bank from investments made in Kisan Vikas
Patra (‘KVP’ for short) and Indira Vikas Patra
(‘IVP’ for short) out of voluntary reserves is
income from banking business exempt under section
80P(2)(a)(i)of the Income Tax Act, 1961 ? ”
2. Mr.Gupta, learned counsel appearing on behalf
of the revenue fairly stated that, the interest income
earned by a co-operative bank from KVP / IVP, where
investments in KVP / IVP are made from statutory reserves
in compliance of any statutory provision would be income
from banking business exempt under section 80P(2)(a)(i),
::: Downloaded on – 09/06/2013 14:40:13 :::
8
in the light of the decision of this Court in the case of
CIT V/s. Ratnagiri District Central Co-operative Bank
Ltd. reported in 254 I.T.R. 697 and several decisions of
the Apex Court including the decision in the case of CIT
V/s. Karnataka State Co-operative Bank reported in 251
I.T.R. 194(S.C.).
3. Mr.Gupta, however submits that the aforesaid
decisions would not apply to the facts of the present
case, because in the present case, the investments in KVP
/ IVP are
made out of voluntary reserves and the
investments are not made out of statutory reserves in
compliance of any statutory provision.
4. The basic argument of Mr.Gupta is that the
Tribunal committed an error in relying upon the decision
of the Apex Court in the case of C.I.T. V/s. Nawanshahar
Central Coop. Bank Limited (289 ITR 6), C.I.T. V/s.
Ramanathapuram Dist. Coop. Central Bank Limited (255 ITR
423) and C.I.T. V/s. Karnataka State Coop. Apex Bank (251
ITR 194), because in all those cases, the Apex Court was
concerned with the income arising from investments made
by co-operative banks in Government approved securities
from the statutory reserves and the investments were made
in compliance with the statutory provisions. Facts in the
present case being altogether different, the Tribunal
committed an error in upholding the contention of the
::: Downloaded on – 09/06/2013 14:40:13 :::
9
assessee by relying upon the aforesaid decisions of the
Apex Court which are wholly distinguishable on facts.
5. Relying upon the decision of the Apex Court in
the case of Mehsana District Central Coop. Bank Limited
V/s. I.T.O. reported in 251 ITR 522 (S.C.), Mr.Gupta
submitted that since the Tribunal has not considered the
question as to whether the voluntary reserves were
utilized in the course of the ordinary banking business,
it is just and proper to set aside the decisions of the
Tribunal and remand the matter for denovo consideration.
6. We see no merit in the above contentions. This
Court in the case of Ratnagiri District Central
Cooperative Bank Limited (supra) after considering
various provisions of the Maharashtra Cooperative
Societies Act, 1960 and the Banking Regulation Act, 1949
has held that the investments made by a Cooperative Bank
in IVP out of the funds generated from the banking
business would have direct and proximate connection with
or nexus with the earning from banking business and
attract the provisions of Section 80P(2)(a)(i) of the
Act. In other words, this Court in the above case has
held that the interest income earned by a Cooperative
Bank from IVP would be income from banking business, if
the investment in IVP represented the funds generated
from the banking business. The said decision has been
::: Downloaded on – 09/06/2013 14:40:13 :::
10
upheld by the Apex Court by dismissing the Special Leave
Petition filed by the revenue [see 256 ITR (St) 48 (S.C.)
and 260 ITR (St) 272 (S.C.)].
7. Thus, it is clear that investment in KVP / IVP
by a co-operative bank is a permissible banking business
and for availing deduction under section 80P(2)(a)(i) of
the Act, the co-operative bank has only to show that the
investment in KVP / IVP have been made from the funds
generated from the banking business. Whether the
investments in KVP / IVP have been made out of statutory
reserves or non statutory reserves is wholly irrelevant,
so long as the funds in the statutory reserves or the
non-statutory reserves are the funds generated from the
banking business.
8. In all these cases, it is not the case of the
revenue that the amounts in the non statutory reserves of
the co-operative banks were not the amounts generated
from the banking business. In fact, the specific case of
the revenue is that in all these cases, the surplus funds
available with the bank which were not immediately needed
for the banking activity were set apart in the voluntary
reserves. Thus, in all these cases, deduction under
section 80P(2)(a)(i) is sought to be denied not on the
ground that the funds for investment in KVP / IVP were
not generated from the banking business, but the
::: Downloaded on – 09/06/2013 14:40:13 :::
11
deduction is being denied solely on the ground that the
investment in KVP / IVP have been made from the funds
lying in the voluntary reserves.
9. As rightly contended by Mr.Inamdar, learned
counsel for the assessee, the ratio laid down by this
Court in the case of Ratnagiri Dist. Central Co-op. Bank
Ltd. (supra) as well as the Apex Court in the cases
relied upon by the Tribunal is that making investments
by a bank is part of the business of banking. Therefore,
to
avail deduction on income from investments in KVP /
IVP under section 80P(2)(a)(i) of the Act, what is
relevant is that the investments in KVP / IVP are made by
the co-operative banks from the funds generated from the
banking business. In all the cases in hand, it is not the
case of the revenue that the amounts in the voluntary
reserves did not represent the funds generated from the
banking business. In these circumstances, the decision of
the the Tribunal in holding that the interest income from
KVP / IVP was from the business of banking eligible for
deduction under section 80P(2)(a)(i) of the Act cannot be
faulted.
10. Strong reliance was placed by the counsel for
the revenue on the decision of the Apex Court in the case
of Mehsana District Central Co-op. Bank Ltd. (supra).
That decision has no relevance to the facts of the
::: Downloaded on – 09/06/2013 14:40:13 :::
12
present case. In that case, there was dispute as to
whether the voluntary reserves were utlised in the course
of the ordinary banking business and, therefore, the
matter was remanded back to ascertain as to whether the
voluntary reserves were utilised in the course of its
ordinary banking business. In the present case, there is
no dispute that the voluntary reserves have been utilised
to purchase KVP / IVP and this Court in the case of
Ratnagiri District Central Co-op. Bank Ltd. (supra) has
held that the investment in KVP / IVP by a bank is
attributable to banking business. Therefore, the decision
of the Apex Court in the case of Mehsana Dist. Central
Co-op. Bank Ltd. (supra) does not support the case of the
revenue.
11. It was contended that where the co-operative
banks withdraw the surplus amount from the circulating or
working capital and keep them in voluntary reserves, then
it would mean that these surplus amounts are not
immediately needed for the banking business. In such a
case, it is contended that investing the surplus amounts
in the voluntary reserves in KVP / IVP for a long period
of 5 years cannot be said to be during the course of
banking business. There is no merit in the above
argument, because, the very same argument advanced by the
revenue in the case of Karnataka State Co-operative Apex
::: Downloaded on – 09/06/2013 14:40:13 :::
13
Bank (supra) have been rejected by the Apex Court by
holding that there is nothing in the phraseology of
section 80P(2)(a)(i) which makes it applicable only to
income derived from working or circulating capital.
12. Therefore, in all these cases, where the
surplus funds not immediately required for day to day
banking were kept in voluntary reserves and invested in
KVP / IVP, the interest income received from KVP / IVP
would be income from banking business eligible for
deduction under section 80P(2)(a)(i) of the Act.
13. In the result, there being no dispute that the
funds in the voluntary reserves which were utilised for
investment in KVP / IVP by the co-operative banks were
the funds generated from the banking business, we hold
that in all these cases the Tribunal was justified in
holding that the interest income received by the co-
operative banks from the investments in KVP / IVP made
out of the funds in the voluntary reserves were eligible
for deduction under section 80P(2)(a)(i) of the Act.
14. All the appeals are disposed of accordingly
with order as to costs.
(V.C.DAGA, J.)
(J.P.DEVADHAR, J.)
::: Downloaded on – 09/06/2013 14:40:13 :::