VISHWANATHA SHETTY, J. - (1.) IN these appeals, the appellants have called in question the correctness of the order dated 15 -1 -2001, made in ITA Nos. 761, 762 and 763/Bang/1993 by the Income Tax Appellate Tribunal, Bangalore Bench (hereinafter referred to as the Tribunal) holding that -(1) the income received by the respondent by letting out the premises belonging to it; and (2) the interest received out of the funds deposited in Reserve Bank and other banks are exempted from payment of tax in terms of section 80P(2)(a)(i) of the Income Tax Act, 1961 (hereinafter referred to as the Act'). The assessments relate to the years 1989 -90, 1990 -91 and 1991 -92.
(2.) FACTS in brief, which may be relevant for disposal of these appeals, may be stated as follows : The respondent is the Grain Merchant Co -operative Bank (hereinafter referred to as the assessee), engaged in banking activity. The assessee filed its return for the assessment years 1989 -90, 1990 -91 and 1991 -92. The assessing officer, while completing the assessment, took the view that the rental income received by the assessee in letting out the portion of the building partly occupied by it; and the interest received from setting apart certain funds as reserved fund, does not come within the purview of section 80P(2)(a)(i) of the Act and as such are not deductible while computing the income of the assessee. Aggrieved by the said assessment order, the assessee preferred an appeal to the Commissioner (Appeals) -II (hereinafter referred to as the Appellate Commissioner). The Appellate Commissioner, by means of his order dated 16 -3 -1993, allowed the appeals accepting the contention of the assessee that the rental income received by it as well as the interest received on reserve fund are exempted from payment of tax under section 80P(2)(a)(i) of the Act. Aggrieved by the said order of the Appellate Commissioner, the revenue took up the matter in appeal to the Tribunal. The Tribunal, as noticed by us earlier, in the impugned order affirmed the order passed by the Appellate Commissioner. Sri M.V. Sesachala, learned counsel appearing for the revenue, challenging the correctness of the orders impugned, made two submissions. Firstly, he submitted that the Tribunal as well as the Appellate Commissioner have seriously erred in law in taking the view that the interest derived out of the income from funds maintained as reserve funds is also an income derived by the assessee on account of the banking activities carried on by the assessee and as such the same is deductible under section 80P(2)(a)(i) of the Act while computing the income of the assessee. Elaborating this submission, the learned counsel pointed out that the Tribunal as well as the Appellate Commissioner have failed to consider that the funds maintained as reserve funds have not been utilised by the assessee for its business activities. Secondly, he submitted that the Tribunal as well as the Appellate Commissioner have also seriously erred in law in taking the view that the rental income received by the assessee is an income received by it carrying on business of banking and as such is entitled for exemption under section 80P(2)(a)(i) of the Act. It is also his submission that the letting out of premises by the assessee and receiving rent out of it cannot be considered as carrying on business of banking activity or providing credit facilities by the assessee to its members., and hence the income received by the assessee by way of rent in respect of the premises let out must be treated as an income which is liable for payment of tax under section 22 of the Act. In support of this submission, he referred to us clauses (a) to (f) of sub -section (2) of section 80P of the Act. It is also pointed out by him that clause (f) of sub -section (2) of section 80P of the Act clearly spells out that in the case of a co -operative society, not being a housing society or an urban consumers society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, wherein the gross total income does not exceed Rs. 20,000, the amount earned by way of interest on securities on any income from certain property is chargeable under section 22 of the Act. He pointed out that clause (f) of sub -section (2) of section 80P of the Act should be understood as making an exception to clause (a)(i) of sub -section (2) of section 80P of the Act wherein it is provided that if a co -operative society carrying on banking business receives income from the house property, such an income is liable to be taxed under section 22 of the Act. It is his submission that when the Parliament had made a distinction between the income received from banking business and the income received from non -banking business by way of rental income on account of letting out of premises belonging to the assessee, it is not permissible for the assessee to claim exemption relying upon clause (a)(i) of sub -section (2) of section 80P of the Act. It is also his submission that the assessee cannot derive any assistance from clauses (k) and (1) of sub -section (1) of section 6 of the Banking Regulation Act, 1949 (hereinafter referred to as the Regulation Act), as according to the learned counsel the said provision only empowers the banking institution to carry on certain activities which are not considered as a banking business. In this connection he referred to us the language employed in section 6 of the Regulation Act wherein it is referred that in addition to the business of banking, a banking company may engage in any of the businesses referred to in the said section.
(3.) HOWEVER , Sri K.R. Prasad, learned senior counsel appearing for the assessee in this appeal, and Sri G. Sarangan, learned senior counsel appearing for assessee in other connected matters strongly supported the impugned orders. So far as the first contention of Sri Sesachala is concerned, they pointed out that the contention urged by Sri Sesachala is covered against the revenue by our earlier decision rendered in the case of ITO Vs. Karnataka Central Co -operative Bank Ltd., in ITA No. 183 of 2003 disposed of on 7 -8 -2003. Therefore, they pointed out that for the very reason assigned by us in the said decision, the first contention urged by Sri Sesachala is required to be held against the revenue. Further, Sri Prasad also relied upon the decision of the Honble Supreme Court in the case of Gujarat State Co -operative Bank Ltd. Vs. Commissioner of Income Tax, (2001) 251 ITR 522 SC . With regard to the second contention of Sri Sesachala, they pointed out that in view of clauses (k) and (1) of sub -section (1) of section 6 of the Regulation Act, 1949 which provides that the acquisition, construction of a building and leasing of building belonging to a banking company as a banking business, the income received by the assessee by way of rent in respect of premises let out by it must be treated as an income received by the assessee by way of profit and gains and the business attributable to the banking activities of the assessee. It is their further submission that clauses (a) to (f) of sub -section (2) of section 80P of the Act are mutually exclusive and independent of each other. It is also their submission that so far as clause (a)(i) of sub -section (2) of section 80P is concerned, it is only controlled by clause (c) of sub -section (2) of section 80P of the Act. In support of their submission that clause (1) of sub -section (1) of section 6 of the Regulation Act must be understood as banking business, they referred to us the decision of the Honble Supreme Court in the case of Gujarat State Co -operative Bank Ltd. v. CIT (supra) and referred to us the observation made at p. 524 of the judgment., and the judgment of the Honble Supreme Court in the case of Kerala State Co -operative Marketing Federation Ltd. and Others Vs. Commissioner of Income Tax, (1998) 4 AD SC 479 and referred to us the observation made at p. 819 of the judgment. They also relied upon the judgment of the Honble Supreme Court in the case of Commissioner of Income Tax Vs. Ramanathapuram Distt. Co -op. Central Bank Ltd., (2002) 255 ITR 423 SC and drew our attention to pp. 424 and 425 of the judgment.;