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PETITIONER: THE COMMISSIONER OF INCOME TAX, BANGALORE

       Vs.

RESPONDENT: THE BANGALORE DISTT. COOP., CENTRAL BANK LTD.

DATE OF JUDGMENT:       24/07/1998

BENCH: SUJATA V. MANOHAR, M. SRINIVASAN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T SRINIVASAN, J.      The  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. 2.   On 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 this appeal. 3.   Section 80P(1)  and (2)  (a) (i)  are in  the following terms :      "80P. (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.      (2) The  sums referred  to in  sub-

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    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". 4.   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. 5.   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. 6.   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). 7.   He 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. 8.   On the  fact situation  of the case, we do not find any

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justification to  interfere with  the conclusion of the High Court. The  appeals suffer dismissal. There will be no order as to costs.