Income-tax---

----Cooperative society---Special deduction---Cooperative society engaged it, banking business----Interest earned from funds utilized for statutory reserves---Income from hiring safe deposit vaults---Deductible- Interest from utilization of voluntary reserves---Deductible if funds utilized in course of ordinary banking business---Indian Income Tax Act, 1961, S.80P(2)(a)(i)---Indian Gujarat Cooperative Societies Act, 1961, S.67(2)---Indian Banking Regulation Act, 1949, S.6(1)(a)---[Gujarat State Cooperative Batik Ltd. v. CIT (2001) 250 ITR 229 and Mehsana District Cooperative Bank Ltd. v. ITO (2001) 251 ITR 520 reversed in part].

Where the assessee, a cooperative bank, derived (i) income from utilization of its funds for statutory reserves under section 67(2) of the Gujarat Cooperative Societies Act, 1961, and (ii) income from hiring out of safe deposit vaults:

Held, (i) that the assessee was entitled to deduction under section 80(2)(a)(i) of the Income Tax Act, 1961, in respect of the interest earned from funds utilized for the statutory reserves.

CIT v. Karnataka State Cooperative Apex Bank (2001) 251 ITR 194 (SC) fol.

(ii) That provision of safe deposit vaults was part of the ordinary banking business of a bank as shown by section 6(1)(a) of the Banking Regulation Act, 1949, and, therefore, income derived by the assessee from the hiring out of safe deposit vaults was income from the business of banking and deductible under section 80P(2)(a)(i).

Gujarat State Cooperative Bank Ltd. v. CIT (2001) 250 ITR 229 reversed.

Held, also, that the question whether income derived by the assessee cooperative bank from the investment of its voluntary reserves other than statutory reserves is exempt under section. 80P(2)(a)(i) depended upon whether the voluntary reserves were utilized in the course of its ordinary banking business.

From the decision of the High Court to the effect that interest income of the assessee, a cooperative bank, from investments from its total reserves did not qualify for deduction under section 80P(a)(i) (see (2001) 251 ITR 520) appeals were preferred to the Supreme Court

Held, (i) that interest on investments from statutory reserves was eligible for deduction under section 80P(2)(a)(i):

CIT v. Karnataka State Cooperative Apex Bank (2001 ) 251 ITR 194 SC) fol.

(ii) That, however, insofar as interest on investments from non -statutory reserves was concerned, the matter lead (o be decided afresh by the Commissioner (Appeals) after giving the assessee, in the interest of justice, opportunity to lead evidence on the aspect whether the voluntary reserves were utilized in the course of its ordinary banking business.

Mehsana District Cooperative Bank Ltd. v. ITO (2001) 251 ITR 520 reversed.

The Supreme Court, accordingly, remanded the matters to the Commissioner (Appeals) for deciding the question relating to interest income from investments out of non-statutory reserves afresh. after giving the assesses, in the interests of justice, opportunity to lead evidence on the aspect which was not considered earlier.

Bihar State Cooperative Bank Ltd. v. CIT (1960) 39 I'm 114 (SC) ref.

Ashok II. Desai, Senior Advocate (P.H. Parekh and Ms. Ruchi Khurana, Advocates with him) for Appellant (in C.As. Nos.7448 and 7449 of 2000).

Anil B. Divan, Senior Advocate (K.H. Kaji, Manish K. Kaji and Ms. Indoo Verma, Advocates with him) for Appellant (in C.As. Nos.292 to 298 of 2001).

M.L. Verma, Senior Advocate (K.C. Kaushik, Ms. Neera Gupta and B. V. Balaram Das, Advocates with him) for Respondent (in all Appeals).

ORDER

Civil Appeals Nos. 292--298 of 2001:

We are concerned in these appeals with the assessment year;

The High Court (see (2001) 250 ITR 229) reframed the questions that arise in these appeals thus (page 249):

"(1) Whether, the Tribunal was right in law in disallowing the claim of the assessee-bank for deduction under section 80P(2)(a)(i.) in respect of income earned from utilization of its reserve funds being statutory reserves under section 67(2) of the Gujarat Cooperative.-Societies Act, 1961?

(2) Whether, the assessee-bank is entitled to claim deduction under section 80P(2)(a)(i) in respect of income earned from utilization of its voluntary reserves other than the statutory reserves mentioned above?

(3) Whether the Tribunal was right in law in holding that the locker rent is not deductible under section 80P(2)(a)(i)?"

In so far as the first question is concerned, it is covered against Revenue by the judgment delivered by this Court on August 22, 2001, in CIT v. Karnataka State Cooperative Apex Bank (2001) 251 ITR 194 (Civil Appeals Nos. 4646 to 4648 of 2000). The first question, therefore, is answered in the negative and in favour of the assessee.

In so far as the third question is concerned, it is clear that the provision of safe deposit vaults is part of the ordinary banking business of a bank; this is shown by section 6(1)(a) of the Banking Regulation Act, 1949. Therefore, the income derived by the assessee from the hiring out of safe deposit vaults is income from the business of banking and, therefore, deductible under section 80P(2)(a)(i) of the Income Tax Act, 1961. Accordingly, the third question is answered in the negative and in favour of the assessee.

Now, as to the second question, we have heard learned counsel and been referred to various decisions, including the decision of this Court in Bihar State Cooperative Bank Limited v. CIT (1960) 39 ITR 114. To be able to answer the question, it is necessary to ascertain, as a fact, whether the income derived by the assessee from the investment of its voluntary reserves has been utilized by it in the course of its ordinary banking business. Though the assessee placed before the assessing authority its books of account and balance-sheets, the fact afore stated was not, considered at any stage, for one or other reason on which it is not necessary for us to dilate. We think that it is in the interests of justice that the assessee should have the opportunity to lead evidence before the Commissioner (Appeals) to establish as a fact what is stated above. So far as the second question is concerned, therefore, the matter is stand restored to the Commissioner (Appeals) for being decided afresh. He shall also decide any consequential issue that may arise.

Order on the appeals accordingly.

No order as to costs.

Civil Appeals Nos. 7448 and 7449 of 2000

The only question in these appeals reads thus:

"Whether, in the facts and circumstances of the case, the Income-tax Appellate Tribunal, was right in law in holding that the assessee is not eligible for deduction under section 80P in respect of interest income on its total reserve, and in holding so, ignoring its own decision as also the judgments of the Rajasthan High Court and the Supreme Court?"

In so far as the interest income upon statutory reserves is concerned, the question must be answered in favour of the assessee, in the light of the judgment delivered by us in CIT v. Karnataka State Cooperative Apex Bank (2001) 251 ITR 194 (Civil Appeals Nos. 4646 to 4648 of 2000). As far as the interest income on non-statutory reserves is concerned, the matter is remanded to the Commissioner (Appeals) for being decided afresh in the light of the decision that we have just rendered in Civil Appeals Nos.292 to 298 of 2001.

Accordingly, the civil appeals are allowed and the judgment under appeals is set aside.

No order as to costs.

M.B.A./1083/FC Appeals allowed.