- (1.) HEARD Sri Dhananjai Awasthi, for the appellant.
(2.) THIS Income Tax Appeal under Section 260 -A of the Income Tax Act, 1961 (in short the Act) arises out the judgment dated 21.07.2008 passed by the Income Tax Appellate Tribunal, Lucknow Bench 'B', Lucknow in ITA No. 502/LUC/2008, relating to the assessment year 2005 -06. The income tax department, preferred the Appeal on the following substantial questions of law: - "(1). Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that interest earned by the assessee, which is a Cooperative Bank on the deposits of its non -SLR funds is income from Banking Business and consequently exempt u/s 80 -P (2) (a) (i) of the I.T. Act, 1961? (2) Whether on the facts and in the circumstances of the case, the Tribunal is erred in law in holding that interest earned on deposits of its non -SLR funds are also covered within the meaning of Section 80 -P (2) (a) (i) of the Act? (3) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that interest on Non -SLR investment is exempt under section 80 -P (2) (a) (i) of the Act, ignoring that the definition of financing Bank or Central Bank in U.P. Cooperative Society Act does not refer to Section 5 or 6 of Banking Regulation Act and restrict banking business to only members of the co -operative societies of the assessee's bank? (4). Whether deduction u/s 80 -P (2) (a) (i) of the Act is allowable on the income earned from voluntary reserves by the Cooperative Society engaged in Banking Business or not, in case asseessee is not able to explain the utilization of such income for the purpose of banking business -
(3.) THE respondent assessee is a Cooperative Society, engaged in banking business. The assessee filed its return on 27.10.2005, declaring 'nil' income. It computed net profit at Rs.1,16,24,896/ -, and claimed deduction of total income under Section 80 P (2) (a) (i) of the Act. The AO found that the assessee has earned income on investment including interest & discount; commission, exchange & brokerage and other receipts - totaling Rs.8,63,80,488/ -. On its long term investment, as on 31.03.2003, in Government securities; share in co -operative institutions; FDRs in U.P. Cooperative Bank and FDRs in Punjab National Bank aggregating to Rs.22,34,10,316/ -, it earned interest income of Rs.1,71,72,035. The assessee's income was worked out by multiplying net profit and FDRs interest divided by gross receipts at Rs.20,01,240/ -.;