- (1.) These aforesaid Income-tax Appeals are being disposed of by a common judgement since the following identical question of law is involved in all these cases: Whether on the facts and in the circumstances of the case the Hon'ble ITAT was right in law in holding that the assessee bank was entitled to deduction under Section 80P(2)(a)(i) in respect of interest earned on deposits made even out of the non-SLR funds whereas the income so earned cannot be said to be earned from the normal banking business/activities.
(2.) To appreciate the rival contentions of the parties, it would be appropriate to quote the relevant provisions of Section 80P(2)(a)(i) of the Income-tax Act, 1961 (here-in-after referred to as the Act, which reads as follows: 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-section (1) shall be the following, namely: (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or the whole of the amount of profits and gains of business attributable to any one or more of such activities.
(3.) The facts necessary for determination of the case are that the assessee is a Cooperative Society carrying on banking business. It is registered under the H.P. Cooperative Societies Act and is governed by the Banking Regulation Act, 1949. The assessee in terms of the provisions of the Cooperative Societies Act and the Banking Regulation Act is bound to invest certain amounts in the manner prescribed under the aforesaid Acts. These are known as statutory reserves (SLR). The Bank has also made certain investments out of its reserves funds not on the basis of any statutory directions but as investment per-se. These are termed as non SLR investments. The question that arises is whether the interest earned on deposits made out of non SLR funds can be said to be attributable to normal banking business/activities and therefore eligible for deduction under Section 80P(2)(a)(i) referred to above.;