V.K.SINGHAL, J. - (1.) IN Income -tax Reference No. 80 of 1986, the Income -tax Appellate Tribunal has referred the following questions of law arising out of its order dated August 13, 1985, in respect of the assessment year 1980 -81, under Section 256(1) of the Income -tax Act, 1961 : '(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income of Rs. 35,69,868 from investment of reserve funds is exempt under Section 80P of the Income -tax Act, 1961 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not holding that the reserve and other funds invested in the modes prescribed under Section 63 of the Co -operative Societies Act, was investment of non -banking nature, particularly when no permission of the Registrar to utilise the same for banking business has been obtained by the assessee and that income arising therefrom was income from non -banking assets not liable for deduction under Section 80P(2)(a)(i) of the Income -tax Act, 1961 ?'
(2.) THE assessee is a co -operative bank and was formed as a co -operative society under the Rajasthan Co -operative Societies Act for carrying on the business of the activity of borrowing and lending money and it had invested money in Government securities both in Central as well as State. According to the Department, the investment of the reserve and the other funds would have to be governed by the provisions contained in Section 63 of the Rajasthan Co -operative Societies Act. The total investment which was made by the assessee was to the tune of Rs. 4.83 crores. According to the Department, this investment was considered to have been made in contravention of the provisions of Section 63 of the Rajasthan Co -operative Societies Act without permission of the Registrar, Co -operative societies, and, therefore, it was considered that the income earned on such investments cannot be said to be related to the banking business and, therefore, cannot be exempt under Section 80P(2)(a)(i) of the Income -tax Act. The income of Rs. 35.70 lakhs was accordingly taxed.
(3.) THE appeal was preferred to the Commissioner of Income -tax (Appeals) who has considered that the investment of the bank's funds is also a banking business and, therefore, the income from such investment is attributable to the banking business and, therefore, exempt under Section80P(2)(a)(i). It was considered that merely because the permission was not taken from the Registrar of Co -operative Societies the investment would not have the character of non -banking assessee.;