ITO-1(1)-3, MUMBAI v. M/S. APEX URBAN COOPERATIVE BANK OF MAHARASHTRA & GOA LTD., MUMBAI

ITA 6514/MUM/2008 | 2005-2006
Pronouncement Date: 30-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 651419914 RSA 2008
Assessee PAN TANOS6061A
Bench Mumbai
Appeal Number ITA 6514/MUM/2008
Duration Of Justice 3 year(s) 20 day(s)
Appellant ITO-1(1)-3, MUMBAI
Respondent M/S. APEX URBAN COOPERATIVE BANK OF MAHARASHTRA & GOA LTD., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 30-11-2011
Date Of Final Hearing 10-10-2011
Next Hearing Date 10-10-2011
Assessment Year 2005-2006
Appeal Filed On 10-11-2008
Judgment Text
ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 1 OF 32 IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH MUMBAI BEFORE SHRI D. MANMOHAN VICE-PRESIDENT AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 6061/MUM/2008 (ASSESSMENT YEAR: 2005-06) APEX URBAN COOPERATIVE BANK OF VS INCOME TAX OFFICER-1(1)3 MAHARASHTRA & GOA LTD. 1 SHARDA AAYAKAR BHAVAN SADAN S.A.BRELVI ROAD OPP.FORT MAHARSHI KARVE ROA D FIRE STATION FORT MUMBAI 400001 MUMBAI 400 020 PAN AAAJA 0013 B APPELLANT RESPONDENT ITA NO. 6514/MUM/2008 (ASSESSMENT YEAR: 2005-06) INCOME TAX OFFICER-1(1)3 VS APEX URBAN COOP. BANK OF AAYAKAR BHAVAN MAHARASHTRA & GOA LTD MAHARSHI KARVE ROAD 1 SHARDA SADAN SA BRELVI MUMBAI 400 020 ROAD OPP:FORT FIRE STATION INCOME TAX OFFICER-1(1)3 FORT MUMBAI 400001 PAN AAAJA 0013 B APPELLANT RESP ONDENT REVENUE BY: MRS. USHA NAIR CIT DR ASSESSEE BY: MR.ARUN SATHE & MS.AARTI SATHE DATE OF HEARING: 10/10/2011 DATE OF PRONOUNCEMENT: 30/11/2011 O R D E R PER B. RAMAKOTAIAH A.M. THESE TWO APPEALS ARE BY THE ASSESSEE AND REVENUE C ONTESTING VARIOUS ISSUES CENTERED AROUND THE QUESTION WHETHE R THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80P ON BANKING BUSINE SS. 2. THE GROUNDS OF REVENUE ARE AS UNDER: ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 2 OF 32 1. WHETHER ON FACTS AND CIRCUMSTANCES AND IN LAW THE CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT HOL DING THAT THE CANCELLATION OF ASSESSEES BANKING LICENSE WILL NOT HAVE ANY EFFECT ON THE ADMISSIBILITY OF DEDUCTION U NDER SECTION 80-P IN RESPECT OF THE INCOME FROM ALLEGED BANKING BUSINESS. 2. WHETHER ON FACTS AND CIRCUMSTANCES AND IN LAW TH E CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION UNDER SECTION 80-P(2)(A) IN RESPECT OF TH E INCOME OF ` 10 07 82 579/- BEING INCOME ON INVESTMENT. 3.(A) WHETHER ON FACTS AND CIRCUMSTANCES AND IN LAW THE CIT (A) ERRED IN TREATING THE INVESTMENTS IN GOVT. SECURITIES AS LONG TERM CAPITAL ASSETS AND TREATING THE INCOME ARISING ON THE SALE OF THESE INVESTMENTS AS LONG TE RM CAPITAL GAIN THEREBY ALLOWING INDEXATION IN THE COMMUTATION OF CAPITAL GAINS. 3(B) WHILE DECIDING SO THE CIT (A) HAS FAILED TO AP PRECIATE THAT THESE INVESTMENTS ARE DEPRECIABLE ASSETS IN VI EW OF THE GUIDELINES OF THE RBI AND ACCORDINGLY ASSESSEE HAS MAINTAINED INVESTMENT FLUCTUATION RESERVE FUND/INVESTMENT DEPRECIATION FUND. 4. WHETHER ON FACTS AND CIRCUMSTANCES AND IN LAW TH E CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE THE WRITE OFF OF UNCLAIMED DIVIDEND OF ` 1 90 88 857/- FROM THE TAXABLE INCOME THOUGH ASSESSEE HAS CREDITED THI S INCOME IN THE P&L ASSESSEE COMPANY. GROUND NOS.5 & 6 ARE GENERAL IN NATURE. 3. THE ASSESSEE RAISED THE FOLLOWING GROUNDS IN ITS APPEAL: GROUND I: THE CIT (A) ERRED IN DENYING DEDUCTION UNDER SECTIO N 80(P)(2)(A)(I) IN RESPECT OF GAINS REALIZED BY SALE OF SECURITIES HELD IN COMPLIANCE WITH THE PROVISIONS O F SECTION.24 OF THE B.R.ACT 1949 WHEN THE SAID SECTIO N WAS APPLICABLE TO THE APPELLANT AT THE RELEVANT POI NT OF TIME (PARA 5.4 PAGE 9). THE APPELLANT SUBMITS THAT I) THE LEARNED CIT (A) CORRECTLY NARRATED ALL THE FACT S AND RIGHTLY CAME TO A CONCLUSION THAT NOTWITHSTANDING THE CANCELLATION OF ITS LICENSE TO CARRY ON BANKING BUSINESS ITS ACTIVITY TO PROVIDE CREDIT FACILITIES TO ITS MEMBER COOPERATIVES IS DUL Y ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 3 OF 32 COVERED BY THE SECOND LIMB OF CLAUSE (A)(I) OF SECTION.80(P)(2) AND THUS IS ENTITLED TO THE DEDUCTION PROVIDED THEREIN (PARA 3.10 PAGE-6). II) IN AS MUCH AS THE SUPREME COURT HELD THAT IN (251 ITR 194 HEAD NOTE) THAT PLACEMENT OF FUNDS BEING IMPERATIVE UNDER SECTION 24 OF THE B.R. ACT GIVES RISE TO BUSINESS INCOME INCOME REALIZED FROM HOLDING AND OR DISPOSING OF SUCH SECURITIES FORM INTEGRAL PART OF PROFITS OF BUSINESS. III) THE EXPRESSION ATTRIBUTABLE TO OCCURRING AT THE END OF CLAUSE (A) QUALIFIED THE TERM THE WHOLE OF PROFITS & GAINS OF BUSINESS OF SUCH ACTIVITIES IS MUCH WIDER IN ITS IMPORT AND COVERS ALL THE INCIDENTS OF THE CONDUCT OF SUCH ACTIVITIES. DEALIN G IN SECURITIES IS ONE SUCH INCIDENT OF THE BUSINESS OF THE APPELLANT AND THEREFORE PROPERLY FALLS WITHIN THE MEANING OF THE TERM THE WHOLE OF PROFITS AND GAINS OF BUSINESS. IV) THE CIT (A) FAILED TO APPRECIATE THAT A) INCENTIVE DEDUCTIONS OF THE NATURE MENTIONED IN SECTION.80P NEED TO BE INTERPRETED LIBERALLY TO PROMOTE THE PURPOSE AND NOT TO DEFEAT IT. B) THERE IS NOTHING IN THE PROVISIONS OF CLAUSE 9A) OF SECTION 9-P (2) WHICH RESTRICTS THE SCOPE OF DEDUCTION SO AS TO DENY DEDUCTION IN RESPECT OF PROFITS REALIZED ON SALE OF SECURITIES. C) THERE IS A COMPLETE INTERLACING INTER CONNECTION INTERDEPENDENCE AND ABSOLUTE NEXUS AND LIVE LINK BETWEEN THE ACTIVITIES OF PROVIDING CREDIT FACILITIES AND RECOVERIES OF ADVANCES AS ALSO FUNDS REALIZED BY SALE OF SECURITIES SO AS TO MAKE IT THE SAME BUSINESS GIVING RISE TO WHOLE OF PROFITS. D) THE QUALIFYING TERM WHOLE MUST RECEIVE FULL EFFECT SO AS TO ENCOMPASS ALL TYPES OF PROFITS RELATED TO A BUSINESS. THE APPELLANT THEREFORE CONTENDS THAT THE TERM WHOLE OF THE PROFITS ATTRIBUTABLE TO WHICH INCLUDES GAINS REALIZED IN RESPECT OF SECURITIES IS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I). GROUND II THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR AMEN D ANY OR ALL THE ABOVE GROUND OF APPEAL. ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 4 OF 32 4. BRIEFLY STATED ASSESSEE WAS REGISTERED UN DER MULTI STATE COOPERATIVE SOCIETIES ACT 1984 AND WAS SUBSEQUENTLY NOTIFIED BY GOVT. OF MAHARASHTRA AS A STATE COOPERATIVE BANK. T HE RESERVE BANK OF INDIA ALSO GAVE THE ASSESSEE LICENSE UNDER THE BANKING REGULATIONS ACT 1949. THE MAHARASHTRA STATE GOVT. S NOTIFICATION AND THE LICENSE BY THE RESERVE BANK OF INDIA WERE C HALLENGED BY THE MAHARASHTRA STATE COOPERATIVE BANK LTD BY A WRIT PE TITION BEFORE THE HONBLE BOMBAY HIGH COURT. THE BOMBAY HIGH COUR T QUASHED THE NOTIFICATION OF THE GOVERNMENT AND DIRECTED THE RBI TO REVIEW ITS DECISION GRANTING LICENSE TO ASSESSEE. THE ASSESSEE CHALLENGED THIS DECISION BEFORE THE HONBLE SUPREME COURT. THE SUPR EME COURT UPHELD THE ORDER OF THE BOMBAY HIGH COURT. 5. THE ASSESSING OFFICER FOUND THAT THE RBI CANC ELLED THE ASSESSEES LICENSE W.E.F. 30.10.2003. IN VIEW OF TH E FACT THAT ASSESSEE WAS NOT PERMITTED TO CARRY ON BANKING BUSI NESS UNDER SECTION 5(B) OF BANKING REGULATION ACT (B.R ACT) 19 49 THE ASSESSING OFFICER PROPOSED WHY THE CLAIM OF DEDUCTION UNDER S ECTION 80P(2)(A)(I) SHOULD NOT BE DISALLOWED. 6. THE ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFI CER THAT BANKING BUSINESS WAS CARRIED ON SPECIAL CIRCUMSTANC ES I.E. IN THE PROCESS OF WINDING UP THE BANK. THE BANK WHICH CARR IED BANKING BUSINESS TILL 29.10.2003 CANNOT BE SUDDENLY SAID TO BE NOT CARRYING BANKING BUSINESS ON 30.10.2003. THE BUSINESS IS TO BE CARRIED ON FOR SOME TIME FOR THE SAKE OF CLOSURE OF THE ACTIVI TY. THE NATURE OF BUSINESS I.E. BANKING CANNOT CHANGE BY MERE CANCELL ATION OF LICENSE BY THE RBI. THE PROCESS OF CLOSING DOWN OR LIQUIDAT ING OF BUSINESS IS NATURAL TO A DELICENCED ORGANIZATION. THE BANK CANN OT STOP MAKING INCOME WHICH WILL CONTINUE TO COME BY WAY OF INTERE ST ON INVESTMENT ALREADY MADE OR INTEREST ON LOAN/ADVANCE S ALREADY GIVEN AND OUTSTANDING AS ON THE DATE OF CANCELLATION OF T HE LICENSE. THE ASSESSEE FURTHER SUBMITTED THAT THE RBI CANCELLED T HE LICENSE AND ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 5 OF 32 ONLY DENIED THE ASSESSEE FROM TRANSACTING BUSINESS AS MENTIONED UNDER SECTION 5(B) OF THE B.R. ACT. THE ASSESSEE WA S NOT BARRED FROM DOING ANY FORM OF BUSINESS ACTIVITIES AS MENTIONED IN SECTION.6 OF THE B.R. ACT. 7. THE ASSESSING OFFICER HELD THAT THE ACTIVITIES U NDER SECTION 6 OF THE B.R. ACT CAN BE CARRIED ON IN ADDITION TO TH E BUSINESS OF BANKING MENTIONED IN SECTION 5(B). THE ESSENTIAL CO NDITION IS THAT THE ASSESSEE SHOULD BE A BANKING COMPANY UNDER SECT ION 5(B) OF THE B.R. ACT. THE TERM BANKING COMPANY MEANS ANY COMP ANY WHICH TRANSACTS THE BUSINESS OF BANKING IN INDIA. SINCE T HE ASSESSEE HAS BEEN BARRED FROM TRANSACTING BANKING BUSINESS BENE FIT UNDER SECTION 5(B) IS NOT AVAILABLE AND AS SUCH BENEFIT U NDER SECTION 6 WILL ALSO NOT BE AVAILABLE. 8. HE FURTHER OBSERVED THAT SECTION 22 OF THE B.R. ACT STATES THAT NO COMPANY SHALL CARRY ON A BANKING BUSINESS IN IND IA UNLESS IT HOLDS A LICENSE ISSUED ON THAT BEHALF BY THE RBI. T HE RIGHT TO CARRY ON ACTIVITIES MENTIONED IN SECTION 6(A) TO 6(O) OF THE B.R. ACT 1949 FLOWS FROM THE ISSUE OF LICENSE TO ANY COMPANY. SEC TION 80P OF THE I.T. ACT STATES THAT THE INCOME EARNED FROM THE BAN KING BUSINESS BY COOPERATIVE SOCIETY WILL QUALIFY FOR DEDUCTION. SIN CE THE ASSESSEE IS NOT A BANKING COMPANY DURING THE YEAR UNDER CONSIDE RATION INCOME EARNED FROM SUCH ACTIVITY WILL NOT QUALIFY F OR EXEMPTION UNDER SECTION 80P(2)(A)(I). THE ASSESSING OFFICER F URTHER OBSERVED THAT THE ASSESSEES EXISTENCE AS A STATE CO-OPERATI VE BANK HAS ENDED AS THE RELEVANT NOTIFICATION HAS BEEN ALREADY STRUCK DOWN BY THE BOMBAY HIGH COURT. SINCE THE ASSESSEE IS NOT A BANKING COMPANY AND ALSO NOT A COOPERATIVE BANK THE INCOME EARNED FROM CERTAIN ACTIVITIES DO NOT QUALIFY FOR DEDUCTION UND ER SECTION 80(P)(2)(A)(I). ACCORDINGLY HE HELD THE FOLLOWING I NCOME OF THE ASSESSEE AS TAXABLE. ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 6 OF 32 S.NO NAME AMOUNT ( ` `` ` ) 1 INCOME ON INVESTMENTS 10 07 82 579 2 INTEREST ON BALANCES WITH RBI AND OTHER BANK FUNDS 27 19 052 3 COMMISSION EXCHANGE AND BROKERAGE 3 11 942 4 PROFIT ON SALE OF INVESTMENTS 86 69 70 200 5 MISCELLANEOUS INCOME 1 97 09 871 9. THE ASSESSING OFFICER HOWEVER ACCEPTED ASSESSEE S PLEA THAT IT IS A COOPERATIVE SOCIETY UNDERTAKING ACTIVITY OF PR OVIDING CREDIT FACILITIES TO ITS MEMBERS. HE HELD THAT THIS STATUS OF THE ASSESSEE CONTINUED TO REMAIN EVEN AFTER ITS LICENSE TO TRANS ACT BANKING ACTIVITY WAS CANCELLED. THEREFORE HE ACCEPTED THAT INCOME EARNED FROM PROVIDING CREDIT FACILITIES TO ITS MEMBERS QUA LIFIES FOR DEDUCTION UNDER SECTION 80P(2)(A)(I). ACCORDINGLY HE ALLOWED DEDUCTION ON AN INCOME OF ` 1 26 03 473/- BEING INTEREST ON ADVANCE TO ITS MEMBERS UNDER SECTION 80P(2)(A)(I). 10. BEFORE THE CIT (A) IT WAS CONTENDED THAT THE A SSESSEE WAS A COOPERATIVE BANK CARRYING ON ITS BANKING ACTIVITIES IN ACCORDANCE WITH A VALIDLY GRANTED LICENSE WHICH WAS IN OPERATI ON AND THE ACTIVITIES WERE CARRIED ON VALIDLY PURSUANT TO THE LICENSE ISSUED BY THE RBI AND AS SUCH THE ASSESSEE WAS ENTITLED TO EX EMPTION UNDER SECTION 80P(2)(A)(I). IT WAS FURTHER CONTENDED THA T THE ASSESSEE BEING A COOPERATIVE SOCIETY IS ALSO INVOLVED IN PRO VIDING CREDIT FACILITIES TO ITS MEMBERS. THEREFORE THE CLAIM IS ALLOWABLE ON EITHER OF THE ACTIVITY I.E. BANKING OR PROVIDING CREDIT FA CILITIES. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE IS A COOPERATIV E SOCIETY INVOLVED IN EITHER OF THE TWO ACTIVITIES INCOME FROM OTHER SOURCES ARE ALSO EXEMPTED FOLLOWING THE DECISION OF THE HON'BLE SUPR EME COURT IN THE CASE OF CIT VS. KARNATAKA STATE COOPERATIVE APE X BANK 251 ITR 194. ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 7 OF 32 11. CONSIDERING THE SUBMISSIONS OF THE ASSESSEE TH E CIT GAVE RELIEF BY HOLDING AS UNDER: 3.9. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE LEARNED AUTHORIZED REPRESENTATIVE AND GONE THROUGH THE ASSESSMENT ORDER AND THE JUDICIAL DECISIONS CITED. SECTION 80P PRIMARILY REFERS TO A COOPERATIVE SOCIE TY. SECTION 80P(2)(A)(I) SPECIFICALLY SPEAKS ABOUT THE COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSI NESS OF THE BANKING OR PROVIDING CREDIT FACILITIES TO IT S MEMBERS. THE APPELLANT WAS REGISTERED AS A STATE COOPERATIVE BANK BY THE NOTIFICATION OF GOVT. OF MAHARASHTRA. IN HIS ASSESSMENT ORDER AT PAGE 7 THE ASSESSING OFFICER HAS ACCEPTED THAT IT IS A COOPERA TIVE SOCIETY WHICH HAS GRANTED LOANS TO VARIOUS MEMBER COOPERATIVE SOCIETIES FROM WHICH IT WAS EARNING INC OME. THE RELEVANT PORTION OF THE ASSESSMENT ORDER IS AS UNDER: AS REGARDS THE ALTERNATIVE CONTENTION THAT THE PROVISIONS OF SECTION 36(VIIA) APPLY TO THE ASSESSEE AS IT IS A NON-SCHEDULED BANK IT IS TO BE STATED THAT THE ASSESSEES LICENSE TO CONDUCT BANKING BUSINESS WAS CANCELLED AND THE ASSESSEE DID NOT HOLD ANY LICENSE DURING THE FINANCIAL YEAR UNDER CONSIDERATION. THEREFORE QUESTION OF APPLICATION OF PROVISIONS OF SECTION 36(1)(VIIA) TO THE CASE OF THE ASSESSEE DOES NOT ARISE. AS REGARDS THE CONTENTION THAT THE ASSESSEE BEING A COOPERATIVE SOCIETY IT WAS UNDERTAKING THE ACTIVITY OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS THERE IS MERIT IN IT. AS STATED EARLIER T HE ASSESSEE WAS REGISTERED UNDER THE MULTI STATE COOPERATIVE SOCIETIES ACT 1984 AS A COOPERATIVE SOCIETY. THIS STATUS OF THE AS CONTINUES TO REMAIN EVEN AFTER ITS LICENSE TO TRANSACT BANKING ACTIVITI ES WAS CANCELLED. IT IS SEEN THAT THE ASSESSEE HAS GRANTED LOANS TO VARIOUS COOPERATIVE SOCIETIES FROM WHICH IT WAS EARNING INCOME. THEREFORE THE INCOME EARNED FROM PROVIDING CREDIT FACILITIES TO I TS MEMBERS QUALIFIES FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE I.T. ACT 1961. AS PER DETAILS FILED THE ASSESSEE HAS EARNED A SUM OF ` 1 26 03 473/- AS INTEREST ON ADVANCES TO ITS MEMBERS. THIS IS ALLOWED AS DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE I.T. ACT. 3.10. SINCE THE APPELLANT IS A COOPERATIVE SOCIETY AND HAS ADVANCED LOANS TO ITS MEMBERS IT IS ENTITLED T O DEDUCTION UNDER SECTION 80P(2)(A)(I). CANCELLATION OF ITS ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 8 OF 32 BANKING LICENSE AND ITS STATUS AS A COOPERATIVE BAN K BY ORDER OF HIGH COURT AND SUPREME COURT WILL NOT HAVE ANY EFFECT ON THE ADMISSIBILITY OF DEDUCTION UNDER SECTION 80P OF THE ACT. IN VIEW OF THIS THE AO IS D IRECTED TO ALLOW DEDUCTION UNDER SECTION 80P(2)(A)(I) AS CL AIMED. 12. CONSEQUENT TO ABOVE FINDINGS THE CIT (A) VIDE PARA NO.4.4 ALLOWED DEDUCTION IN RESPECT OF INCOME ARISI NG OUT OF INVESTMENTS WITH RBI HOLDING THAT THE RECEIPTS ARE FROM INVESTMENTS IN GOVERNMENT SECURITIES COMPULSORILY M ADE BY THE BANKING COMPANY. PARA NO.4.4 IS AS UNDER: 4.4. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE LEARNED AR AND GONE THROUGH THE FACTS OF THE CASE. THE AO HAS ALREADY GRANTED DEDUCTION UNDER SECTION 80P IN RESPECT OF ` 1 26 03 473/- AS INCOME ARISING OUT OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. IN VIEW OF THE DECISION OF THE SUPREME COURT AND THE DECISION OF T HE ITAT CITED BY THE LEARNED AR THE BALANCE SUM OF ` 10 07 85 279/- WILL ALSO BE ENTITLED TO DEDUCTION U NDER SECTION 80P(2)(A) A THE RECEIPTS ARE FROM THE INVES TMENTS IN GOVT. SECURITIES COMPULSORILY MADE BY THE BANKIN G COMPANY. THE AO IS DIRECTED TO ALLOW THE DEDUCTION IN RESPECT OF THIS INCOME. 13. SIMILARLY THE CIT (A) ACCEPTED THAT THE ASSESSE E IS A BANKING COMPANY AND ALLOWED THE DEDUCTION UNDER SECTION 80P ON THE INCOMES DISALLOWED BY THE ASSESSING OFFICER EXCEPT GAINS FROM SALE OF SECURITIES WHICH HE TREATED AS LONG TERM CAPITAL GAIN VIDE THE FINDINGS IN PARA 5.4. THEREFORE BOTH THE ASSESSEE AND REVENUE ARE CONTESTING THE ISSUE ON THE DIRECTIONS OF THE CIT I N THIS REGARD. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE IN HER SUBMISSIONS ARGUED THAT THE ASSESSEE COMPANY HAVING BEEN DEBARR ED FROM THE BUSINESS OF BANKING CANNOT BE SAID TO BE INVOLVED I N THE BUSINESS OF BANKING. THEREFORE THE INCOMES CAN NOT BE CONSIDER ED AS INCOMES FROM BANKING BUSINESS. ON THE INCOMES EARNED IN THE COURSE OF PROVIDING CREDIT FACILITIES TO THE MEMBERS ASSESSI NG OFFICER HIMSELF ALLOWED DEDUCTION. IT WAS HER CONTENTION THAT THE C IT (A) WITHOUT ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 9 OF 32 EXAMINING THE NATURE OF THE INCOME ALLOWED DEDUCTIO N UNDER SECTION 80P(2)(A)(I) ON THE REASON THAT THE ASSESSE E IS A COOPERATIVE SOCIETY EVEN THOUGH THE ASSESSEE IS NOT A COOPERAT IVE BANK TO BE ALLOWED DEDUCTION ON BANKING BUSINESS. SHE RELIED O N THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TOTGARS COOPERATIVE SALES SOCIETY LTD VS. INCOME TAX OFFICER 322 ITR 28 3 (SC). IT WAS THE SUBMISSION THAT SINCE THE ASSESSEE IS A COOPERA TIVE SOCIETY THE INCOMES FROM THE SO CALLED BANKING ACTIVITIES CANNO T BE ALLOWED AS A DEDUCTION WITHOUT THERE BEING ANY BANKING BUSINES S. 15. THE LEARNED COUNSEL HOWEVER REITERATED THE SUB MISSIONS MADE BEFORE THE CIT (A) THAT THE ASSESSEE CONTINUED TO HAVE INCOME FROM BUSINESS OF BANKING EVEN THOUGH THE LICENSES WERE CANCELLED AS IT IS IN THE PROCESS OF WINDING UP AND THE INCOM ES EARNED ON THE SURPLUS OF SALE OF INVESTMENT SHOULD ALSO BE CONSID ERED AS INCOME ARISING IN THE COURSE OF BUSINESS OF BANKING. TO TH AT EXTENT IT WAS SUBMITTED THAT THE CIT (A) HAS ERRED IN TREATING TH E SAID GAINS FROM SALE OF SECURITIES UNDER THE HEAD CAPITAL GAIN INST EAD OF BUSINESS INCOME. TO BUTTRESS HIS ARGUMENTS THE LEARNED COUN SEL REFERRED TO THE PROVISIONS OF SECTION 176(3A) TO SUBMIT THAT WH ERE ANY BUSINESS IS DISCONTINUED IN ANY YEAR ANY SUM RECEIV ED AFTER THE DISCONTINUANCE SHALL BE DEEMED TO BE THE INCOME OF THE RECIPIENT AND CHARGED TO TAX ACCORDINGLY IN THE YEAR OF RECE IPT IF SUCH SUM WOULD HAVE BEEN INCLUDED IN THE TOTAL INCOME OF THE PERSON WHO CARRIED ON THE BUSINESS HAD SUCH BEING RECEIVED BEF ORE SUCH DISCONTINUANCE. IT WAS HIS SUBMISSION THAT THE SURP LUS ARISING ON DISCONTINUATION OF BUSINESS OF BANKING IS ALSO TO B E TREATED AS BUSINESS OF BANKING AND SO TO THAT EXTENT SUPPORTED THE ORDER OF THE CIT (A) IN ALLOWING DEDUCTION OUT OF THE INCOME S EARNED FROM BUSINESS OF BANKING UNDER SEC.80P. HE ALSO RELIED O N THE VARIOUS ORDERS OF THE BOMBAY HIGH COURT TO SUPPORT HIS ARGU MENTS: ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 10 OF 32 A) IN THE CASE OF CIT VS. STAR ANDHERI ESTATES 208 ITR 573 FOR THE PROPOSITION THAT THE AMOUNT IS ASSESSABLE ON THE AM OUNT DUE TO FIRM PRIOR TO THE DISSOLUTION RECEIVED AFTER THE DI SSOLUTION. B) IN THE CASE OF UNITED CONSTRUCTION CONTRACTORS VS. CIT KERALA 208 ITR 915 WHERE SCOPE OF SECTION. 176 WAS CONSIDE RED AND AMOUNT RECEIVED AFTER DISCONTINUANCE OF BUSINESS WA S HELD ASSESSABLE WHILE INTEREST PAID/EXPENDITURE INCURRED IN EARNING THE INCOME WAS HELD DEDUCTIBLE. C) IN THE CASE OF CIT VS. VOCKHARDT (P) LTD 215 ITR 79 3 (BOM.) FOR RELYING ON THE PROVISIONS OF 176(3A). D) ON THE DECISION OF ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. A.P. STATE COOPERATIVE BANK LTD 60 DTR 281 WIT H REFERENCE TO THE BUSINESS OF BANKING AND CONSIDERING THE INCO MES EARNED ON DEPOSITS MADE WITH REFERENCE TO SECTION.5(B) (C) AND SECTION.6 OF THE BANKING REGULATION ACT ALONG WITH SECTION.80 P(2)(A) TO HOLD THAT WHETHER OR NOT THE DEPOSITS ARE MADE IN D ISCHARGING STATUTORY OBLIGATIONS OR OTHERWISE BEING INCOME FR OM BANKING BUSINESS WOULD BE ELIGIBLE FOR EXEMPTION UNDER THE SAID PROVISIONS. E) ON THE DECISION OF THE INCOME TAX OFFICER VS. MAHAR ASHTRA STATE COOPERATIVE BANK LTD IN ITA NO.123 OF 2010 OF HON'B LE BOMBAY HIGH COURT DATED 28.7.2011 TO SUBMIT THAT INTEREST ON FIXED DEPOSITS PLACED WITH OTHER BANKS OTHER THAN COOPERA TIVE BANKS QUALIFIED FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) DISTINGUISHING JUDGMENT OF THE APEX COURT IN THE CASE OF TOTGARS C OOPERATIVE SOCIETY LTD 322 ITR 283. F) THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF CIT VS. KARNATAKA STATE COOPERATIVE APEX BANK FOR THE PROPO SITION THAT INTEREST ARISING FROM INVESTMENT MADE IN COMPLIANCE WITH THE STATUTORY PROVISIONS TO ENABLE IT TO CARRY ON BANKI NG BUSINESS IS ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 11 OF 32 EXEMPT UNDER SECTION 80P(2)(A)(I) OF THE INCOME TAX ACT. THE PLACEMENT OF SUCH FUNDS BEING FOR THE PURPOSE OF CA RRYING ON BANKING BUSINESS THE INCOME THERE FROM WOULD BE TH E INCOME FROM THE ASSESSEES BUSINESS. THERE IS NOTHING IN T HE PHRASEOLOGY OF SECTION 80P(2)(A)(I) WHICH MAKES IT APPLICABLE ONLY TO THE INCOME DERIVED FROM WORKING OR CIRCULATING C APITAL. THE LEARNED COUNSEL ALSO PLACED THE LIST OF CHRONOL OGICAL DATES AND EVENTS FROM 10.10.1994 TO 2.12.2005 I.E. FROM REGIS TRATION OF THE ASSESSEE AS A MULTI STATE COOPERATIVE SOCIETY UNDER THE MULTI STATE COOPERATIVE SOCIETIES ACT 1984 TO ORDER OF WINDING UP OF THE ASSESSEE AND APPOINTMENT OF LIQUIDATOR ON 02.12.200 5. IT WAS THE LEARNED COUNSELS SUBMISSION THAT THE ASSESSEE HAVI NG BEEN PERMITTED TO DO THE BANKING BUSINESS CANNOT BE SAID TO BE OUT OF BANKING BUSINESS JUST BECAUSE THE LICENSE WAS CANCE LLED AND THE INCOMES ARISING CONSEQUENT TO THE CANCELLATION OF B ANKING LICENSE ALSO ARE TO BE CONSIDERED AS INCOME FROM BANKING BU SINESS INVOKING THE PROVISIONS OF SECTION 176(3A) AND SO T HE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A) APPL ICABLE TO THE BANKING BUSINESS. 16. WE HAVE CONSIDERED THE SUBMISSIONS AND RIVAL CO NTENTIONS PURSUED THE ORDERS OF THE ASSESSING OFFICER AND CIT (A) AND VARIOUS CASE LAW RELIED UPON BY THE PARTIES BEFORE US. THER E IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ASSESSEES LICENSE WAS CANCELLED CONSEQUENT TO THE DECISION OF THE HON'BLE SUPREME C OURT THAT THE ASSESSEE IS NOT ELIGIBLE TO BE CONSIDERED AS A STA TE COOPERATIVE BANK. THE INCOMES UNDER CONSIDERATION ARE ARISING IN THE FINANCIAL YEAR 2004-05 I.E. FROM 1.4.2004 TO 31.3.2005. DURIN G THIS PERIOD THE ASSESSEE COULD NOT ENGAGE ITSELF IN ANY BANKING ACTIVITY AS THE LICENSE WAS CANCELLED. AS SUBMITTED THE ASSESSEE WA S IN THE PROCESS OF WINDING UP AND MOST OF THE INCOMES WERE EARNED B Y WAY OF INTEREST ON THE DEPOSITS MADE EARLIER WHEN THE ASSE SSEE WAS ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 12 OF 32 UNDERTAKING THE BUSINESS OF BANKING FOR THE PURPOSE OF SLR CRR PURPOSES AND ALSO IN THE COURSE OF BUSINESS WITH VA RIOUS OTHER ORGANIZATIONS. SUBSTANTIAL INCOMES AROSE DUE TO SAL E OF INVESTMENTS AS GAINS. THE NATURE OF INCOME AS EARNED BY ASSESSE E IS AS UNDER: A) INTEREST EARNED ON LOANS AND ADVANCES ` 1 26 03 473 B) INTEREST ON INVESTMENTS ` 10 07 02 579 C) INTEREST EARNED ON BALANCE WITH RBI AND OTHER INTER BANK FUNDS `27 19 052 D) COMMISSION EXCHANGE AND BROKERAGE `3 11 942 E) PROFIT ON SALE OF INVESTMENT `86 69 70 200 F) MISCELLANEOUS INCOMES `1 97 09 071 17. THUS THE INCOME EARNED BY THE ASSESSEE DURING T HE FINANCIAL YEAR 2004-05 IS TO THE TUNE OF ` 100.30 CRORES. OUT OF THIS AMOUNT OF ` 1.26 CRORES ON INTEREST ON LOANS AND ADVANCES WAS A LLOWED BY THE ASSESSING OFFICER AS DEDUCTION UNDER SECTION 80P(2) (A)(I) BEING INCOME FROM PROVIDING CREDIT FACILITIES TO ITS MEMB ERS. AN AMOUNT OF ` 1.97 CRORE AS THE MISCELLANEOUS INCOME IS NOTHING B UT CREDITING THE UNCLAIMED DIVIDEND PROVIDED EARLIER. THE ASSESS ING OFFICER NOT ONLY DISALLOWED THE CLAIM U/S 80P ON THE BALANCE OF INCOMES BUT ALSO BROUGHT TO TAX THE MISCELLANEOUS INCOME PERTAI NING TO REVERSAL OF UNCLAIMED DIVIDEND. AS BRIEFLY STATED EARLIER T HE CIT (A) ALLOWED DEDUCTION OF THE INCOMES PERTAINING TO INTEREST ON INVESTMENT AS INCOME EARNED IN BANKING BUSINESS AND PROFIT ON SAL E OF INVESTMENT TREATED AS CAPITAL GAINS WHILE DELETING THE MISCELL ANEOUS INCOMES. THE ISSUES BEFORE US FOR CONSIDERATION AS CONTESTED IN GROUND 1 & 2 ARE WHETHER (A) THE INCOMES EARNED ON INTEREST ON I NVESTMENT CAN BE CONSIDERED AS INCOME FROM BANKING BUSINESS AND ( B) IF SO WHETHER DEDUCTION UNDER SECTION 80P(2)(A) ON THE AB OVE INCOMES IS ELIGIBLE FOR DEDUCTION UNDER 80P(2)(A)(I). ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 13 OF 32 18. AS STATED ABOVE THE ASSESSEE WAS IN THE BUSINE SS OF BANKING TILL THE LICENSE WAS CANCELLED BY THE RBI IN THE PR EVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2004-05. IT WAS THE CONTENTION OF THE ASSESSING OFFICER AFTER ANALYZING THE PROVISIO NS OF SECTION 5A AND 6A OF THE BANKING REGULATION ACT THAT THE ASSE SSEE IS NOT IN THE BUSINESS OF BANKING AS THE ASSESSEE WAS NOT A S TATE COOPERATIVE BANK AND IT COULD NOT DO BANKING BUSINE SS IN THE STATE OF MAHARASHTRA. FURTHER TO THE ABOVE THE LEARNED AS SESSING OFFICER ALSO EXTRACTED THE LAST PARA OF THE APEX COURT ORDE R WHEREIN IT WAS HELD THAT THE ASSESSEE CANNOT BE ALLOWED TO CONTINU E TO OPERATE AS STATE COOPERATIVE BANK. IN VIEW OF THE CLEAR FINDIN GS OF THE HON'BLE SUPREME COURT AND CONSIDERING THE FACT THAT THE LIC ENSE WAS CANCELLED BY THE RBI ON 30/10/2003 THE ASSESSING O FFICER WAS OF THE OPINION THAT THE ASSESSEE CANNOT BE CONSIDERED AS A STATE COOPERATIVE BANK AND SO THE INCOMES ARISING CANNOT BE CONSIDERED AS BUSINESS OF BANKING. 19. THE CIT (A) IN OUR OPINION DID NOT CONSIDER TH E ISSUE IN ITS CORRECT PERSPECTIVE WHILE ALLOWING THE DEDUCTION TO THE ASSESSEE ON THE INCOMES ARISING FROM THE INVESTMENTS MADE IN ER STWHILE BANKING BUSINESS. IT IS TO BE NOTED THAT THE MAIN R EASON FOR ALLOWING DEDUCTION BY HIM UNDER SECTION 80P(2)(A)(I ) IS PRIMARILY BASED ON THE FACT THAT THE ASSESSING OFFICER HIMSEL F ALLOWED THE DEDUCTION TO THE COOPERATIVE SOCIETY ON CERTAIN INC OMES AND AS EXTRACTED ABOVE VIDE PARA NO.3.9 OF THE CIT(A) ORD ER THE FINDINGS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS TH E BASIS FOR GIVING RELIEF TO THE ASSESSEE. THE TONE AND TENOR OF THE O RDER WAS IN ALLOWING THE DEDUCTION AS A COOPERATIVE SOCIETY UND ER SECTION 80P(2)(A)(I). 20. BEFORE ANALYZING THE ISSUE IT IS NECESSARY TO EXTRACT THE PROVISIONS OF SECTION 80P(2)(A)(I): ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 14 OF 32 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 TOTA L INCOME OF THE ASSESSEE. (2). THE SUMS REFERRED TO IN SUB-SECTION(1) SHALL B E THE FOLLOWING NAMELY:- A) IN THE CASE OF A COOPERATIVE SOCIETY ENGAGED IN- I) CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR II) A COTTAGE INDUSTRY OR III) THE MARKETING OF AGRICULTURAL PRODUCE GROWN BY ITS MEMBERS OR IV) THE PURCHASE OF AGRICULTURAL IMPLEMENTS SEEDS LIVESTOCK OR OTHER ARTICLES INTENDED FOR AGRICULTURE FOR THE PURPOSE OF SUPPLYING THEM TO ITS MEMBERS OR V) THE PROCESSING WITHOUT THE AID OF POWER OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS OR VI) THE COLLECTIVE DISPOSAL OF THE LABOUR OF ITS MEMBERS OR VII) FISHING OR ALLIED ACTIVITIES THAT IS TO SAY THE CATCHING CURING PROCESSING PRESERVING STORING OR MARKETING OF FISH OR THE PURCHASE OF MATERIALS AND EQUIPMENT IN CONNECTION THEREWITH FOR THE PURPOSE OF SUPPLYING THEM TO ITS MEMBERS THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES: PROVIDED THAT IN THE CASE OF A CO-OPERATIVE SOCIETY FALLING UNDER SUB-CLAUSE (VI) OR SUB- CLAUSE (VII) THE RULES AND BYE-LAWS OF THE SOCIETY RESTRICT THE VOTING RIGHTS TO THE FOLLOWING CLASSES OF ITS MEMBERS NAMELY:- 1) THE INDIVIDUALS WHO CONTRIBUTE THEIR LABOUR OR AS THE CASE MAY BE CARRY ON THE FISHING OR ALLIED ACTIVITIES; ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 15 OF 32 2) THE CO-OPERATIVE CREDIT SOCIETIES WHICH PROVIDE FINANCIAL ASSISTANCE TO THE SOCIETY; 3) THE STATE GOVERNMENT;. AS CAN BE SEEN FROM THE ABOVE THE DEDUCTION IS ELI GIBLE FOR A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSI NESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE USE OF WORD OR IN SECTION 80P(2)(A)(I) INDICATE THAT THESE TWO ARE MU TUALLY EXCLUSIVE DEDUCTIONS. EITHER A COOPERATIVE SOCIETY IS ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR IT IS ENGAGED IN PROVIDI NG CREDIT FACILITIES TO ITS MEMBERS IT CANNOT BE CONSIDERED THAT A COOP ERATIVE SOCIETY IS ENGAGED IN CARRYING ON BUSINESS OF BANKING AS WELL AS PROVIDING CREDIT FACILITIES TO MEMBERS. THEREFORE IN OUR OPI NION A COOPERATIVE SOCIETY ENGAGED IN PROVIDING CREDIT FACILITIES TO I TS MEMBERS CANNOT BE CONSIDERED AS A COOPERATIVE SOCIETY ENGAGED IN C ARRYING ON IN THE BUSINESS OF BANKING. THE PROVISIONS OF BR ACT DO PR OHIBIT DOING ANY OTHER ACTIVITY OTHER THAN BANKING BUSINESS. LIKEWIS E NO PERSON CAN CARRY ON BUSINESS OF BANKING WITHOUT ANY LICENSE. T HERE IS NO DOUBT THAT THE ASSESSEE ADMITS AND ASSESSING OFFICER ALSO ACCEPTS THAT THE ASSESSEE COOPERATIVE SOCIETY IS PROVIDING CREDIT FA CILITIES TO ITS MEMBERS AND AN AMOUNT OF ` 1.26 CRORES WAS ALREADY ALLOWED AS DEDUCTION. THEREFORE THE INCOMES THAT WILL NOT FOR M PART OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS CANNOT BE ALLOWED AS A DEDUCTION UNDER SECTION 80P(2)(A)(I). WE ALSO NOTIC E THAT SECTION 80P ALSO ALLOWS DEDUCTION OF INCOMES OF ONE OR MORE ACT IVITIES OF COOPERATIVE SOCIETY STATED IN CLAUSE 2(A). HOWEVER THIS SHOULD BE FOR ACTIVITIES SEPARATELY MENTIONED FROM SUB CLAUSE (I) TO (VII ) AS THE WORD OR AT THE END OF EACH SUB CLAUSE IS PRECEDED BY A COMMA WHICH IS NOT THE CASE IN SUB CLAUSE (I) WHERE THE W ORD OR HAS NO (COMMA) PRECEDING IT. THIS INDICATE THE LEGISLAT IVE INTENTION OF ALLOWING DEDUCTION ON ANY ONE OR MORE ACTIVITIES ST ATED FROM SUB CLAUSE (I) TO (VII ) BUT NOT WITH THE ACTIVITY SPEC IFIED IN SUB CLAUSE (I) ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 16 OF 32 ITSELF. WE ARE OF THE CONSIDERED OPINION THAT ASSES SEE CAN BE ALLOWED ONLY ONE OF THE DEDUCTION UNDER SUB CLAUSE (I) I.E . EITHER OF INCOMES FROM BANKING BUSINESS OR INCOMES FROM PROVIDING CRE DIT FACILITIES TO ITS MEMBERS AND NOT BOTH. 21. THE ASSESSEES INCOME CAN NOT BE CONSIDERED AS FROM THE BUSINESS OF BANKING ON THE REASON THAT THE ASSESSEE IS NOT HAVING ANY LICENSE TO DO THE BUSINESS OF BANKING. IT WAS H ELD BY THE HON'BLE SUPREME COURT IN ASSESSEES OWN CASE THAT T HE ASSESSEE STATUS CANNOT BE CONSIDERED AS A STATE COOPERATIVE BANK AT THE FIRST INSTANCE AND THEREFORE THE RBI COULD NOT HAVE GRAN TED A LICENSE TO THE ASSESSEE. WHILE ADMITTING THE ASSESSEE IS NOT P ERMITTED TO DO THE BUSINESS OF BANKING IT WAS THE CONTENTION OF T HE ASSESSEE BEFORE THE ASSESSING OFFICER CIT (A) AND BEFORE US THAT THE ACTIVITY PERMITTED BY THE SECTION 6 OF BANKING REGULATION AC T 1949 PERMITS A BANKING COMPANY IN ENGAGING IN OR MORE OF THE FOL LOWING FORMS OF BUSINESS LISTED FROM A TO O IN THE SECTION. THOSE ACTIVITIES ARE AS UNDER: 6. FORMS OF BUSINESS IN WHICH BANKING COMPANIES MAY ENGAGE:- (1) IN ADDITION TO THE BUSINESS OF BANKING A BANKING COMPANY MAY ENGAGE IN ANY ONE OR MORE OF THE FOLLOWING FORMS OF BUSINESS NAMELY:- (A) THE BORROWING RAISING OR TAKING UP OF MONEY; THE LENDING OR ADVANCING OF MONEY EITHER UPON OR WITHOU T SECURITY; THE DRAWING MAKING ACCEPTING DISCOUNTING BUYING SELLING COLLECTING AND DEALIN G IN BILLS OF EXCHANGE HOONDEES PROMISSORY NOTES COUPONS DRAFTS BILLS OF LADING RAILWAY RECEIPTS WARRANTS DEBENTURES CERTIFICATES SCRIPS AND OTHE R INSTRUMENTS AND SECURITIES WHETHER TRANSFERABLE OR NEGOTIABLE OR NOT; THE GRANTING AND ISSUING OF LETT ERS OF CREDIT TRAVELLERS CHEQUES AND CIRCULAR NOTES; THE BUYING SELLING AND DEALING IN BULLION AND SPECIE; THE BUYING AND SELLING OF FOREIGN EXCHANGE INCLUDING FOREIGN BANK NOTES; THE ACQUIRING HOLDING ISSUING ON COMMISSION UNDERWRITING AND DEALING IN STOCK FUNDS SHARES DEBENTURES DEBENTURE STOCK BONDS OBLIGATIONS SECURITIES AND INVESTMENTS OF ALL KIND S; ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 17 OF 32 THE PURCHASING AND SELLING OF BONDS SCRIPS OR OTHE R FORMS OF SECURITIES ON BEHALF OF CONSTITUENTS OR OT HERS THE NEGOTIATING OF LOANS AND ADVANCES THE RECEIVIN G OF ALL KINDS OF BONDS SCRIPS OR VALUABLES ON DEPOS IT OR FOR SAFE CUSTODY OR OTHERWISE; THE PROVIDING OF SAF E DEPOSIT VAULTS; THE COLLECTING AND TRANSMITTING OF MONEY AND SECURITIES; (B) ACTING AS AGENTS FOR ANY GOVERNMENT OR LOCAL AUTHORITY OR ANY OTHER PERSON OR PERSONS; THE CARRY ING ON OF AGENCY BUSINESS OF ANY DESCRIPTION INCLUDING THE CLEARING AND FORWARDING OF GOODS GIVING OF RECEIPTS AND DISCHARGES AND OTHERWISE ACTING AS AN ATTORNEY ON BEHALF OF CUSTOMERS BUT EXCLUDING THE BUSINESS OF A (MANAGING AGENT OR SECRETARY AND TREASURER) OF A COMPANY. (C) CONTRACTING FOR PUBLIC AND PRIVATE LOANS AND NEGOTIATING AND ISSUING THE SAME; (D) THE EFFECTING INSURING GUARANTEEING UNDERWRITING PARTICIPATING IN MANAGING AND CARRYING OUT OF ANY ISSUE PUBLIC OR PRIVATE OF STATE MUNICIPAL OR OTH ER LOANS OR OF SHARES STOCK DEBENTURES OR DEBENTURE STOCK OF ANY COMPANY CORPORATION OR ASSOCIATION AN D THE LENDING OF MONEY FOR THE PURPOSE OF ANY SUCH ISSUE; (E) CARRYING ON AND TRANSACTING EVERY KIND OF GUARANTEE AND INDEMNITY BUSINESS; (F) MANAGING SELLING AND REALIZING ANY PROPERTY WHICH MAY COME INTO THE POSSESSION OF THE COMPANY IN SATISFACTION OR PART SATISFACTION OF ANY OF ITS CLA IMS; (G) ACQUIRING AND HOLDING AND GENERALLY DEALING WITH AN Y PROPERTY OR ANY RIGHT TITLE OR INTEREST IN ANY SUC H PROPERTY WHICH MAY FORM THE SECURITY OR PART OF THE SECURITY FOR ANY LOANS OR ADVANCES OR WHICH MAY BE CONNECTED WITH ANY SUCH SECURITY; (H) UNDERTAKING AND EXECUTING TRUSTS; (I) UNDERTAKING AND ADMINISTRATION OF ESTATES AS EXECUTOR TRUSTEE OR OTHERWISE; (J) ESTABLISHING AND SUPPORTING OR AIDING IN THE ESTABLISHMENT AND SUPPORT OF ASSOCIATIONS INSTITUTIONS FUNDS TRUSTS AND CONVENIENCES CALCULATED TO BENEFIT EMPLOYEES OR EX-EMPLOYEES OF THE COMPANY OR THE DEPENDENTS OR CONNECTIONS OF SUCH PERSONS; GRANTING PENSIONS AND ALLOWANCES AND ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 18 OF 32 MAKING PAYMENTS TOWARDS INSURANCE; SUBSCRIBING TO OR GUARANTEEING MONEYS FOR CHARITABLE OR BENEVOLENT OBJECTS OR FOR ANY EXHIBITION OR FOR ANY PUBLIC GE NERAL OR USEFUL OBJECT; (K) THE ACQUISITION CONSTRUCTION MAINTENANCE AND ALTERATION OF ANY BUILDING OR WORKS NECESSARY OR CONVENIENT FOR THE PURPOSES OF THE COMPANY; (L) SELLING IMPROVING MANAGING DEVELOPING EXCHANGING LEASING MORTGAGING DISPOSING OF OR TURNING INTO ACCOUNT OR OTHERWISE DEALING WITH ALL OR ANY PART OF THE PROPERTY AND RIGHTS OF THE COMPANY; (M) ACQUIRING AND UNDERTAKING THE WHOLE OR ANY PART OF THE BUSINESS OF ANY PERSON OR COMPANY WHEN SUCH BUSINESS IS OF A NATURE ENUMERATED OR DESCRIBED IN THIS SUB-SECTION; (N) DOING ALL SUCH OTHER THINGS AS ARE INCIDENTAL OR CONDUCIVE TO THE PROMOTION OR ADVANCEMENT OF THE BUSINESS OF THE COMPANY; (O) ANY OTHER FORM OF BUSINESS WHICH THE CENTRAL GOVERNMENT MAY BY NOTIFICATION IN THE OFFICIAL GAZETTE SPECIFY AS A FORM OF BUSINESS IN WHICH IT IS LAWFUL FOR A BANKING COMPANY TO ENGAGE. 22. AS CAN BE SEEN FROM THE SUB-SECTION (1) OF SECT ION (6) OF THE BANKING REGULATION ACT IN ADDITION TO BUSINESS OF BANKING A BANKING COMPANY MAY ENGAGE IN ANY ONE OR MORE OF THE LISTED FORMS OF BUSINESS. THIS MEANS THAT THE ASSESSEE SHO ULD BE IN THE BUSINESS OF BANKING TO ENGAGE IN ANY ONE OR MORE OF THE FORMS OF BUSINESS LISTED ABOVE. THE BANKING COMPANY HAS BE EN DEFINED UNDER SECTION 5 AS UNDER: 5 (C) BANKING COMPANY MEANS ANY COMPANY WHICH TRANSACTS THE BUSINESS OF BANKING IN INDIA EXPLANATION: ANY COMPANY WHICH IS ENGAGED IN THE MANUFACTURE OF GOODS OR CARRIES ON ANY TRADE AND WH ICH ACCEPTS DEPOSITS OF MONEY FROM THE PUBLIC MERELY FO R THE PURPOSE OF FINANCING ITS BUSINESS AS SUCH MANUFACTU RER OR TRADER SHALL NOT BE DEEMED TO TRANSACT THE BUSIN ESS OF BANKING WITHIN THE MEANING OF THIS CLAUSE;.. 5 (D) COMPANY MEANS ANY COMPANY AS DEFINED IN SECTION 3 OF THE COMPANIES ACT 1956 (1 OF 1956); A ND ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 19 OF 32 INCLUDES A FOREIGN COMPANY WITHIN THE MEANING OF SECTION 591 OF THAT ACT. 23. COMBINED READING OF ABOVE PROVISIONS INDICATE T HAT THE BANKING COMPANY MEANS A COMPANY DEFINED UNDER SEC TION 3 OF THE COMPANIES ACT DOING TRANSACTION OF BUSINESS OF BANK ING IN INDIA. HOWEVER THIS BENEFIT WAS EXTENDED TO THE COOPERATI VE BANK BY VIRTUE OF PART V INSERTED BY ACT 23 OF 1965 W.E.F. 1.3.1966. SECTION 56 OF THE BANKING REGULATION ACT MODIFIES THE PROVI SIONS OF THE BANKING REGULATION ACT AS UNDER: 56. ACT TO APPLY TO COOPERATIVE SOCIETIES SUBJECT TO MODIFICATIONS :- THE PROVISIONS OF THIS ACT AS IN FORCE FOR THE TIME BEING SHALL APPLY TO OR IN RELATION TO COOPERATIVE SOCIETIES AS THEY APPLY TO OR IN RELAT ION TO BANKING COMPANIES SUBJECT TO THE FOLLOWING MODIFICATIONS NAMELY:- (A) THROUGHOUT THIS ACT UNLESS THE CONTEXT OTHERWISE REQUIRES:- (I) REFERENCES TO A BANKING COMPANY OR THE COMPANY OR SUCH COMPANY SHALL BE CONSTRUED AS REFERENCES TO A COOPERATIVE BANK: (II) REFERENCES TO COMMENCEMENT OF THIS ACT SHALL BE CONSTRUED AS REFERENCES TO COMMENCEMENT OF THE BANKING LAWS (APPLICABLE TO COOPERATIVE SOCIETIES) ACT 1965 (23 OF 1965); (B) IN SECTION 2 THE WORDS AND FIGURES THE COMPANIES AT 1956 (1 OF 1956) AND SHALL BE OMITTED; (C) IN SECTION 5- (I) AFTER CLAUSE (CC) THE FOLLOWING CLAUSES SHALL BE INSERTED NAMELY:- (CCI) COOPERATIVE BANK MEANS A STATE COOPERATIVE BANK A CENTRAL COOPERATIVE BANK AND A PRIMARY COOPERATIVE BANK; (CCII) COOPERATIVE CREDIT SOCIETY MEANS A SOCIETY REGISTERED OR DEEMED TO HAVE BEEN REGISTERED UNDER ANY CENTRAL ACT FOR THE TIME BEING IN FORCE RELATING TO THE MULTI-STATE COOPERATIVE SOCIETIES OR ANY OTHER CENTRAL OR STATE LAW ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 20 OF 32 RELATING TO COOPERATIVE SOCIETIES FOR THE TIME BEING IN FORCE ; (CCIII) DIRECTOR IN RELATION TO A COOPERATIVE SOC IETY INCLUDES A MEMBER OF ANY COMMITTEE OR BODY FOR THE TIME BEING VESTED WITH THE MANAGEMENT OF THE AFFAIR S OF THAT SOCIETY; (CCIII-A) MULTI STATE COOPERATIVE BANK MEANS A MU LTI- STATE COOPERATIVE SOCIETY WHICH IS A PRIMARY COOPERATIVE BANK; (CCIII-B) MULTI STATE COOPERATIVE SOCIETY MEANS A MULTI STATE COOPERATIVE SOCIETY REGISTERED AS SUCH UNDER ANY CENTRAL ACT FOR THE TIME BEING IN FORCE RELATING TO THE MULTI-STATE COOPERATIVE SOCIETIES BUT DOES NOT INCLUDE A NATIONAL COOPERATIVE SOCIETY AND A FEDERAL COOPERATIVE; (CCIV) PRIMARY AGRICULTURAL CREDIT SOCIETY MEANS A COOPERATIVE SOCIETY- (I) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULTURAL PURPOSES OR FOR PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES (INCLUDING THE MARKETING OF CROPS) AND (II) THE BYE-LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER COOPERATIVE SOCIETY AS A MEMBER; PROVIDED THAT THIS SUB-CLAUSE SHALL NOT APPLY TO TH E ADMISSION OF A COOPERATIVE BANK AS A MEMBER BY REASON OF SUCH COOPERATIVE BANK SUBSCRIBING TO THE SHARE CAPITAL OF SUCH COOPERATIVE SOCIETY OUT OF FUNDS PROVIDED BY THE STATE GOVERNMENT FOR THE PURPOSE; (CCV) PRIMARY COOPERATIVE BANK MEANS A CO- OPERATIVE SOCIETY OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY- (I) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF BANKING BUSINESS; (II) THE PAID-UP SHARE CAPITAL AND RESERVES OF WHICH ARE NOT LESS THAN ONE LAKH OF RUPEES; AND ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 21 OF 32 (III) THE BYE-LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER COOPERATIVE SOCIETY AS A MEMBER; PROVIDED THAT THIS SUB-CLAUSE SHALL NOT APPLY TO TH E ADMISSION OF A COOPERATIVE BANK AS A MEMBER BY REASON OF SUCH COOPERATIVE BANK SUBSCRIBING TO THE SHARE CAPITAL OF SUCH COOPERATIVE SOCIETY OUT OF FUNDS PROVIDED BY THE STATE GOVERNMENT FOR THE PURPOSE; (CCVI) PRIMARY CREDIT SOCIETY MEANS A COOPERATIVE SOCIETY OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY:- (I) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF BANKING BUSINESS; (II) THE PAID-UP SHARE CAPITAL AND RESERVES OF WHICH ARE LESS THAN ONE LAKH OF RUPEES; AND (III) THE BYE-LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER COOPERATIVE SOCIETY AS A MEMBER: PROVIDED THAT THIS SUB-CLAUSE SHALL NOT APPLY TO TH E ADMISSION OF A COOPERATIVE BANK AS A MEMBER BY REASON OF SUCH COOPERATIVE BANK SUBSCRIBING TO THE SHARE CAPITAL OF SUCH COOPERATIVE SOCIETY OUT OF FUNDS PROVIDED BY THE STATE GOVERNMENT FOR THE PURPOSE. EXPLANATION:- IF ANY DISPUTE ARISES AS TO THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF ANY COOPERATIVE SOCIETY REFERRED TO IN CLAUSES (CCIV) (CCV) AND (CCVI) A DETERMINATION THEREOF BY THE RESERVE BANK SHALL BE FINAL; (CCVII) CENTRAL COOPERATIVE BANK PRIMARY RURAL CREDIT SOCIETY AND STATE COOPERATIVE BANK SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN THE NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT ACT 1981 (61 OF 1981). (EMPH ASIS SUPPLIED) 24. IT CAN BE SEEN FROM THE ABOVE THAT SECTION 56 M ODIFIES BANKING COMPANY OR A COMPANY WHICH SHALL BE CON STRUED AS REFERRING TO COOPERATIVE BANK. A COOPERATIVE BAN K MEANS A STATE COOPERATIVE BANK A CENTRAL COOPERATIVE BANK AND PR IMARY ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 22 OF 32 COOPERATIVE BANK. AS HELD BY THE HON'BLE SUPREME CO URT IN THE ASSESSEES OWN CASE ASSESSEE COOPERATIVE SOCIETY C ANNOT BE HELD AS A STATE COOPERATIVE BANK. THEREFORE APPLICATION OF PROVISIONS OF BANKING REGULATION ACT TO THE MULTI STATE COOPERATI VE SOCIETY WHICH DID NOT HAVE A LICENSE TO ACT AS A COOPERATI VE BANK CANNOT BE CONSIDERED. UNLESS IT IS A COOPERATIVE BANK IT CANNOT BE SAID TO BE COVERED BY THE PROVISIONS OF SECTION 5 AND 6 OF THE BANKING REGULATION ACT. THE DEFINITIONS STATED IN SECTION 5 6 DEFINE A COOPERATIVE BANK A COOPERATIVE CREDIT SOCIETY THE MULTI-STATE COOPERATIVE BANK AND A MULTI-STATE COOPERATIVE SOCI ETY SEPARATELY. THE ASSESSEE BEING A MULTI-STATE COOPERATIVE SOCIET Y CANNOT FALL UNDER THE DEFINITION OF THE COOPERATIVE BANK. THERE FORE REFERENCES TO BANKING COMPANY OR THE COMPANY OR SUCH COMP ANY IN THE BANK REGULATIONS ACT CANNOT BE MADE APPLICABLE TO T HE ASSESSEE SOCIETY. THEREFORE THE CONTENTION THAT THE ASSESSE E WAS INDULGING IN OTHER ACTIVITIES PERMITTED BY SECTION 6 OF THE B ANKING REGULATIONS ACT 1949 CANNOT BE ACCEPTED AS THE SA ID PROVISIONS IS NOT APPLICABLE TO COOPERATIVE SOCIETY WHICH IS NO T A COOPERATIVE BANK. THEREFORE THE INCOMES ARISING TO THE ASSESSE E CONSEQUENT TO THE CANCELLATION OF THE BANKING LICENSE CANNOT BE C ONSIDERED AS INCOMES FROM THE BUSINESS OF BANKING ON THE REASON THAT THE ASSESSEE IS NOT A STATE COOPERATIVE BANK. SUCH INC OMES CANNOT BE ALLOWED DEDUCTION UNDER 80P(A)(I). 25. HON'BLE SUPREME COURT IN THE CASE OF TOTGARS CO OPERATIVE SALE SOCIETY (322 ITR 283) HAD AN OCCASION TO ANALY SE VARIOUS INCOMES ARISING TO COOPERATIVE SOCIETY. IN THE ABOV E REFERRED CASE THE ISSUE IS WHETHER THE INTEREST INCOME ARISING ON SHORT TERM DEPOSIT ON SECURITY WHICH ARE NOT REQUIRED IMMEDIAT ELY FOR THE PURPOSE OF BUSINESS CAN BE CONSIDERED AS AMOUNT OF PROFITS AND GAINS OF BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECT ION 80P(2)(A)(I). CONSIDERING THE ISSUE THE HON'BLE SUPREME COURT HEL D AS UNDER: ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 23 OF 32 THE WORDS THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS IN SECTION 80P(2) OF THE INCOME TAX ACT 1961 EMPHASIZE THAT THE INCOME IN RESPECT OF WHICH DEDUCTION IS SOUGHT BY A COOPERATIVE SOCIETY MUST CONSTITUTE THE OPERATIONAL INCOME AND NOT THE OTHER INCOME WHICH ACCRUES TO THE SOCIETY. THE INTEREST INCOME ARISING TO A COOPERATIVE SOCIET Y CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILI TIES TO ITS MEMBERS OR MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS ON THE SURPLUS WHICH IS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES FROM INVESTMENT IN SHORT-TERM DEPOSITS AND SECURITIES HAS TO BE TAXED AS INCOME FROM OTHER SOURCES UNDER SECTION 56 OF THE INCOME-TAX ACT 1961. SUCH INTEREST CANNOT BE SAID TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY VIZ CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO I TS MEMBERS OR MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS. INTEREST INCOME OF SUCH SOCIETY FROM AMOUN TS RETAINED BY IT CANNOT BE SAID TO BE ATTRIBUTABLE EI THER TO THE ACTIVITY MENTIONED IN SECTION 80P(2)(A)(I) OR S ECTION 80P(2)(A)(III) OF THE ACT. SECTION 80P(2)(A)(I) CANNOT BE PLACED ON A PAR WITH EXPLANATION (BAA) TO SECTION HHC SECTION HHD(3) AN D SECTION 80HHE(5). DECISION OF THE KARNATAKA HIGH COURT IN TOTGARS CO- OPEATIVE SALE SOCIETY LTD V. INCOME TAX OFFICER (20 10) 322 ITR 272 AFFIRMED. 26. IN THE ABOVE SAID DECISION THE HON'BLE SUPREME COURT ALSO OBSERVED THAT: A NUMBER OF JUDGMENTS WERE CITED ON BEHALF OF THE ASSESSEE(S) IN SUPPORT OF ITS CONTENTION THAT THE S OURCE WAS IRRELEVANT WHILE CONSTRUING THE PROVISIONS OF S ECTION 80P OF THE ACT. WE FIND NO MERIT BECAUSE ALL THE JUDGMENTS CITED WERE CASES RELATING TO CO-OPERATIVE BANKS AND THE ASSESSEE SOCIETY IS NOT CARRYING ON BANKING BUSINESS. WE ARE CONFINING THIS JUDGMENT TO THE FACTS OF THE PRESENT CASE. TO SAY THAT THE SOURCE O F INCOME IS NOT RELEVANT FOR DECIDING THE APPLICABILI TY OF SECTION 80P OF THE ACT WOULD NOT BE CORRECT BECAUSE WE NEED TO GIVE WEIGHTAGE TO THE WORDS THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTA BLE TO ONE OF THE ACTIVITIES SPECIFIED IN SECTION 80P(2)(A ) OF THE ACT. AN IMPORTANT POINT NEEDS TO BE MENTIONED. THE WORDS THE WHOLE OF THE AMOUNT OF PROFITS AND ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 24 OF 32 GAINS OF BUSINESS EMPHASIZE THAT THE INCOME IN RESPECT OF WHICH DEDUCTION IS SOUGHT MUST CONSTITUTE THE OPERATIONAL INCOME AND NOT THE OTHER INCOME WHICH ACCRUES TO THE SOCIETY. IN THIS PARTICULAR CASE THE EVIDENCE SHOWS THAT THE ASSESS EE SOCIETY EARNS INTEREST ON FUNDS WHICH ARE NOT REQUI RED FOR BUSINESS PURPOSES AT THE GIVEN POINT OF TIME. THEREFORE ON THE FACTS AND CIRCUMSTANCES OF THIS C ASE IN OUR VIEW SUCH INTEREST INCOME FALLS IN THE CATEGOR Y OF OTHER INCOME WHICH HAS BEEN RIGHTLY TAXED BY THE DEPARTMENT UNDER SECTION 56 OF THE ACT. 27. THEREFORE THE INCOMES ON WHICH DEDUCTION WAS C LAIMED UNDER 80P SHOULD BE OPERATIONAL INCOME ATTRIBUTABLE TO ONE OF THE ACTIVITY OF SOCIETY. ON THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF TOTGARS COOPERATIVE SO CIETY LTD( SUPRA) IT IS TO BE HELD THAT THE INCOME EARNED IN THE CASE OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS RIGHT LY ALLOWED AS DEDUCTION UNDER SECTION 80P(2)(A)(I) BY THE ASSESSI NG OFFICER AND THE CIT (A) WAS WRONG IN ALLOWING THE DEDUCTION ON THE INTEREST INCOME EARNED FROM THE INVESTMENTS WITH THE RBI. SI NCE THESE FUNDS ARE NOT UTILIZED IN THE ACTIVITY OF PROVIDING CREDIT FACILITIES TO THE MEMBERS THESE INCOMES CANNOT BE ALLOWED AS DED UCTION UNDER SECTION 80P(2)(A)(I). IT IS ALREADY CONSIDERED THAT THE ASSESSEE IS NOT IN THE BANKING BUSINESS. THEREFORE THESE INCOMES C ANNOT BE ALLOWED AS DEDUCTION AS INCOME ARISING OUT OF PROVI DING CREDIT FACILITY TO ITS MEMBERS. 28. DECISIONS RENDERED IN THE CONTEXT OF COOPERATIV E BANK DID NOT APPLY TO THE COOPERATIVE SOCIETY. IN THE COURSE OF ARGUMENTS THE LEARNED COUNSEL RELIED ON VARIOUS JUDGMENTS GIVEN I N THE CONTEXT OF COOPERATIVE BANK. SINCE THE ASSESSEE IS NOT A COOPE RATIVE BANK THOSE CASES ARE NOT APPLICABLE TO THE FACTS OF THE CASE AND HENCE NO RELIANCE CAN BE PLACED ON THE JUDGMENTS GIVEN IN TH E CONTEXT OF BUSINESS OF BANKING/COOPERATIVE BANK. RELIANCE WA S PLACED ON THE PROVISIONS OF SECTION 176(3A) BY THE LD. COUNSEL TH AT THE INCOME ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 25 OF 32 ARISING OUT OF THE DISCONTINUED BUSINESS SHOULD ALS O BE BROUGHT TO TAX. PROVISIONS OF SECTION 176(3)A ARE AS UNDER:- 176(3)A. WHERE ANY BUSINESS IS DISCONTINUED IN ANY YEAR ANY SUM RECEIVED AFTER THE DISCONTINUANCE SHA LL BE DEEMED TO BE THE INCOME OF THE RECIPIENT AND CHARGE D TO TAX ACCORDINGLY IN THE YEAR OF RECEIPT IF SUCH SUM WOULD HAVE BEEN INCLUDED IN THE TOTAL INCOME OF THE PERSO N WHO CARRIED ON THE BUSINESS HAD SUCH SUM BEEN RECEIVED BEFORE SUCH DISCONTINUANCE. 29. THERE IS NO DOUBT ON PROVISIONS OF SECTION 176 ARE APPLICABLE TO A DISCONTINUED BUSINESS AND SUB-SECTION 3A PROVI DES FOR TAXING THE SUMS RECEIVED AFTER DISCONTINUANCE AS INCOME OF THE YEAR OF THE RECEIPT. IN OUR OPINION RELIANCE PLACED ON THE ABOV E PROVISION IS MIS-PLACED AS THE ASSESSEE HAS NOT DISCONTINUED THE BUSINESS. DURING THE YEAR THE ASSESSEE IS IN THE BUSINESS AND HAS OFFERED INCOME FROM INTEREST ON ADVANCES TO THE MEMBERS AS BUSINESS INCOME ONLY. THEREFORE THE QUESTION OF CONSIDERING THE DISCONTINUATION OF BUSINESS DOES NOT ARISE. WHAT HA PPENED IN THE ASSESSEES CASE IS ONLY CANCELLATION OF LICENSE TO DO THE BANKING BUSINESS BUT THE ASSESSEE IS NOT PREVENTED IN DOIN G ANY OTHER BUSINESS BY THE COOPERATIVE SOCIETY. ONLY THE ACTIV ITY OF BANKING WAS PROHIBITED. EVEN OTHERWISE THE ISSUE IS NOT WH ETHER THE INCOME IS TO BE BROUGHT TO TAX AS BUSINESS INCOME OR NOT. THE ISSUE IS WHETHER THE INCOMES ARISING OUT OF INVESTMENT IS EL IGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) AS OF BANKING BUSINESS. THEREFORE WE ARE OF THE OPINION THAT PROVISIONS OF SECTION 176(3)A DOES NOT HELP THE CASE OF ASSESSEE. 30. WE HAVE ALREADY CONSIDERED PART V OF THE BANKIN G REGULATIONS ACT WHILE CONSIDERING THE PROVISIONS O F SECTION 56 APPLICABLE TO COOPERATIVE BANK. PROVISIONS OF SECTI ON 22A WERE INTRODUCED IN THE BANKING REGULATIONS ACT 1949 BY THE ACT 24 OF 2004 W.E.F. 24.09.2004 WHICH ARE AS UNDER: ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 26 OF 32 22A. VALIDATION OF LICENSES GRANTED BY RESERVE BANK TO MULTI-STATE COOPERATIVE SOCIETIES - NOTWITHSTANDING ANYTHING CONTAINED IN ANY LAW OR JUDGMENT DELIVERED OR DECREE OR ORDER OF ANY COURT MADE:- (A) NO LICENSE GRANTED TO A MULTI-STATE COOPERATIVE SOCIETY BY THE RESERVE BANK UNDER SECTION 22 WHICH WAS SUBSISTING ON THE DATE OF COMMENCEMENT OF THE BANKING REGULATION (AMENDMENT) AND MISCELLANEOUS PROVISIONS ACT 2004 SHALL BE INVALID OR BE DEEMED EVER TO HAVE BEEN INVALID MERELY BY THE REASON OF SUCH JUDGMENT DECREE OR ORDER; (B) EVERY LICENSE GRANTED TO A MULTI-STATE COOPERATIVE SOCIETY BY THE RESERVE BANK UNDER SECTION 22 WHICH WAS SUBSISTING ON THE DATE OF COMMENCEMENT OF THE BANKING REGULATION (AMENDMENT) AND MISCELLANEOUS PROVISIONS ACT 2004 SHALL BE VALID AND BE DEEMED ALWAYS TO HAVE BEEN VALIDLY GRANTED IN ACCORDANCE WITH LAW; (C) A MULTI-STATE COOPERATIVE SOCIETY WHOSE APPLICATION FOR GRANT OF LICENSE FOR CARRYING ON BANKING BUSINE SS WAS PENDING WITH THE RESERVE BANK ON THE DATE OF COMMENCEMENT OF THE BANKING REGULATION (AMENDMENT) AND MISCELLANEOUS PROVISIONS ACT 2004 SHALL BE ELIGIBLE TO CARRY ON BANKING BUSINESS UNTI L IT IS GRANTED A LICENSE IN PURSUANCE OF SECTION 22 OR IS BY A NOTICE IN WRITING NOTIFIED BY THE RESERVE BANK THAT THE LICENSE CANNOT BE GRANTED TO IT 31. THE REASON FOR INTRODUCTION OF THE ABOVE PROVIS ION WAS STATED AS UNDER:- AMENDMENT ACT 24 OF 2004-STATEMENT OF OBJECTS AND REASONS:- IN VIEW OF LARGE DEPOSITS AND WORKING FU NDS OF COOPERATIVE BANKS CERTAIN PROVISIONS OF THE BAN KING REGULATION ACT 1949 WERE MADE APPLICABLE BY THE BANKING LAWS (APPLICATION TO COOPERATIVE SOCIETIES) ACT 1965 TO THE STATE COOPERATIVE BANKS THE CENTRAL COOPERATIVE BANKS AND PRIMARY NON-AGRICULTURAL BANK S. 2. THE HON'BLE SUPREME COURT IN THE APEX CO-OPERATI VE BANK OF URBAN BANK OF MAHARASHTRA & GOA LTD VS. MAHARASHTRA STATE CO-OPERATIVE BANK LTD. AND OTHER S HELD THAT THE RESERVE BANK OF INDIA (RBI) BY VIRTUE OF ITS POWER UNDER SECTION 22 OF THE BANKING REGULATION AC T 1949 CANNOT GRANT A LICENSE TO ASSESSMENT YEAR CO- OPERATIVE BANK UNLESS IT IS A STATE CO-OPERATIVE BA NK OR ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 27 OF 32 A CENTRAL CO-OPERATIVE BANK OR A PRIMARY CO-OPERATI VE BANK AND IT WOULD BE NECESSARY THAT A DECLARATION U NDER THE NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOP MENT ACT 1981 BE FIRST OBTAINED. IT FURTHER HELD THAT T HE STATE GOVT. COULD NOT HAVE DECLARED THE APPELLANT I.E. TH E APEX CO-OPERATIVE BANK OF URBAN BANK OF MAHARASHTRA & GO A LTD. BEING A CO-OPERATIVE SOCIETY REGISTERED UNDER THE MULTI STATE COOPERATIVE SOCIETIES ACT 1984 AS A ST ATE COOPERATIVE BANK. THEREFORE THE HON'BLE SUPREME CO URT ALSO DIRECTED RESERVE BANK OF INDIA TO FORTHWITH RE VOKE THE BANKING LICENSE GRANTED TO THE APPELLANT. 3. IN VIEW OF THE SPECIFIC DIRECTIONS GIVEN BY THE HON'BLE SUPREME COURT IN THE AFORESAID CASE THE RBI CANCEL LED WITH EFFECT FROM 30 TH OCTOBER 2003 THE LICENSE ISSUED TO THE APEX CO-OPERATIVE BANK OF URBAN BANK OF MAHARASHTRA & GOA LTD. THERE ARE THIRTY-FOUR OTHER MULTI-STATE CO-OPERATIVE BANKS (MSCBS) WHICH HAVE BEEN GRANTED LICENSE UNDER THE PROVISIONS OF BANKIN G REGULATION ACT 1949. IN VIEW OF THE JUDGMENT IN TH E ABOVE CASE DOUBTS HAVE BEEN EXPRESSED ABOUT THE LEGALITY OF THE LICENSE ISSUED TO OTHER MSCBS. 4. IN ORDER TO REMOVE THE DOUBTS ABOUT THE LEGALITY OF THE LICENSES ISSUED TO OTHER MSCBS AND TO RESOLVE ANY DIFFICULTIES WHICH MIGHT ARISE IN THE FUTURE IT HA D THEREFORE BECOME NECESSARY TO URGENTLY CARRY OUT NECESSARY AMENDMENTS IN THE BANKING REGULATION ACT 1949 AND THE DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION ACT 1961 (DICGC ACT) TO MAKE SPECIFIC LEGAL PROVISION WITH RETROSPECTIVE EFFECT FOR THE VALIDI TY OF THE LICENSES ISSUED TO OTHER MSCBS BY THE RBI AND ALSO TO ENABLE THE RBI TO ISSUE IN FUTURE THE LICENSES TO T HE MULTI- STATE COOPERATIVE SOCIETIES TO CARRY ON BANKING BUS INESS AND MAKE THE MULTI-STATE COOPERATIVE BANKS ELIGIBLE FOR INSURANCE OF THEIR DEPOSITS UNDER THE DEPOSIT INSUR ANCE CREDIT GUARANTEE CORPORATION ACT 1961. THIS WILL P ROTECT THE INTERESTS OF SMALL DEPOSITORS. 5. SINCE PARLIAMENT WAS NOT IN SESSION AND IT HAD BECOME NECESSARY TO TAKE IMMEDIATE ACTION TO PROVID E FOR THE ABOVE MATTERS THE BANKING REGULATION (AMENDMENT) AND MISCELLANEOUS PROVISIONS ORDINANCE 2004 WAS PROMULGATED BY THE PRESIDENT ON THE 24 TH SEPTEMBER 2004 INTER ALIA TO- (A) PROVIDE THAT THE LICENSES GRANTED TO THE EXISTI NG MULTI-STATE CO-OPEATIVE BANKS BY THE RBI SHALL BE DEEMED TO HAVE BEEN VALIDLY GRANTED. ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 28 OF 32 (B) ENABLE THE RBI TO ISSUE IN FUTURE THE LICENSES TO CO- OPERATIVE SOCIETIES REGISTERED UNDER THE MULTI-STAT E CO-OPERATIVE SOCIETIES ACT 2002 TO CARRY ON THE BANKING BUSINESS; (C) MAKE PROVISIONS FOR SUPERSESSION OF BOARD OF DIRECTORS OF A MULTI-STATE COOPERATIVE BANK IN CERTAIN CASES; (D) PROVIDE THAT AN ORDER SANCTIONING A SCHEME OF COMPROMISE AND ARRANGEMENT OR REORGANIZATION OR RECONSTRUCTION OR WINDING UP OR SUPERSESSION OF THE BOARD OF WINDING UP OF MULTI-STATE CO-OPERATIVE BANK IN CERTAIN CASES. (E) MAKE THESE MULTI-STATE CO-OPERATIVE BANKS AS ELIGIBLE CO-OPERATIVE BANK UNDER SECTION 2(GG) OF THE DICGC ACT SO THAT THEIR DEPOSITS CAN BE INSURED BY THE DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION ESTABLISHED UNDER SECTION 3 OF THAT ACT; (F) MAKE PROVISION FOR REIMBURSEMENT TO THE DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION BY LIQUIDATOR OR TRANSFEREE BANK TO THE EXTENT AND IN THE MANNER PROVIDED IN SECTION 21 O DICGC ACT . 32. THEREFORE THE AMENDMENT BROUGHT OUT TO THE ACT WAS MADE APPLICABLE TO ALL THE LICENSES GRANTED TO A MULTI-S TATE CO-OPERATIVE SOCIETY WHICH WAS SUBSISTING ON THE DATE OF COMMENC EMENT OF THE AMENDMENT. SINCE THE LICENSE OF THE ASSESSEE WAS AL READY CANCELLED BY THE RBI THE ABOVE PROVISIONS COULD NOT COME TO THE HELP OF THE ASSESSEE IN RESTORING THE BANKING LICENSE OR PROTEC TING BANKING ACTIVITY. ONCE THE LICENSE WAS WITHDRAWN PROVISION S OF SECTION 36A OF B.R. ACT AUTOMATICALLY GET APPLIED. ACCORDINGLY AS PROVIDED IN (ZA) OF SECTION.56 THE PROVISIONS OF SECTION.11 AP PLICABLE TO THE REQUIREMENTS AS TO MINIMUM PAID UP CAPITAL AND RESE RVES AND SECTION.18 REGARDING CASH RESERVES AND SECTION 24 R EGARDING MAINTENANCE OF PERCENTAGE OF ASSETS AS PROVIDED IN THE ACT SHALL NOT APPLY TO A COOPERATIVE BANK WHICH HAS BEEN REFUSED LICENSE UNDER SECTION 22 OR WHOSE LICENSE HAS BEEN CANCELLED UNDE R THAT SECTION OR HAS BEEN PROHIBITED FROM ACCEPTING DEPOSITS BY V IRTUE OF ANY ORDER MADE UNDER THIS ACT OR OF ANY ALTERATION MADE IN ITS BYE-LAWS. ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 29 OF 32 IN VIEW OF THESE PROVISIONS THE ASSESSEE SOCIETYS DEPOSITS/ INVESTMENTS WITH RBI STATED TO BE FOR THE FULFILLI NG OF THE CONDITIONS UNDER SLR/CRR REGULATIONS GO OUT OF THE PURVIEW OF BR ACT. IN VIEW OF THAT REASON ALSO THE INCOMES ARISING FROM I NVESTMENT FROM RBI CAN NOT BE CONSIDERED AS ARISING FROM THE BUSIN ESS OF BANKING. SINCE THE INCOMES ARE NOT ARISING FROM THE BUSINESS OF BANKING SUCH INCOMES CANNOT BE ALLOWED AS DEDUCTION UNDER S ECTION 80P(2)(A)(I) AS THE SAME ALSO CAN NOT BE CONSIDERED AS OPERATIONAL INCOME OF PROVIDING CREDIT FACILITIES TO ITS MEMBER S. 33. IN VIEW OF THIS WE ARE NOT IN A POSITION TO U PHOLD THE ORDERS OF THE CIT (A) IN GRANTING DEDUCTION TO THE ASSESSE E UNDER SECTION 80P(2)(A)(I) ON THE REASON THAT THE ASSESSEE IS A C OOPERATIVE SOCIETY. THEREFORE THE REVENUES APPEAL CONTESTING GRANTING OF DEDUCTION UNDER SECTION 80P(2)(A)(I) TO INCOME OF ` 10 07 82 579/- BEING THE AMOUNT CONTESTED IN GROUND NO.1 AND 2 IS TO BE UPHE LD. WE REVERSE THE ORDERS OF THE CIT (A) ON THIS ISSUE AND UPHOLD THE ACTION OF THE ASSESSING OFFICER IN THIS REGARD. 34. THE NEXT ISSUE FOR CONSIDERATION IS WHETHER THE CIT (A) IS RIGHT IN TREATING THE GAIN ON SALE OF INVESTMENTS IN GOVT . SECURITIES AS CAPITAL GAIN. AS BRIEFLY STATED THE ASSESSEE EARNE D GAINS ON SALE OF SECURITIES. THE ASSESSEE HAD AN INVESTMENT OF ` 433.55 CRORES AS ON 31.03.2004 WHICH HAS BECOME NIL AS ON 31.03.2005. A LL THE ABOVE INVESTMENTS WERE SOLD TO MEET ITS LIABILITIES CONSE QUENT TO THE CANCELLATION OF THE BANKING LICENSE. THE ASSESSEE G OT A GAIN OF ` 81 36 13 690/- ON SALE OF SECURITIES HELD FOR MORE THAN A YEAR AND ` 5 33 56 510/- IN RESPECT OF SECURITIES HELD FOR LES S THAN ONE YEAR. IT WAS THE ASSESSEES CONTENTION THAT THE TOTAL AMO UNT OF ` 86 69 70 200/-SHOULD GET THE DEDUCTION UNDER SECTIO N 80P(2)(A)(I). IT HAS PLACED RELIANCE ON THE DECISION OF BARODA PE OPLES COOPERATIVE BANK (280 ITR 282) AND ELECTRA URBAN CR EDIT COOPERATIVE SOCIETY VS. INCOME TAX OFFICER 761 ITD 43 (CAL) (3 RD ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 30 OF 32 MEMBER). THE ASSESSING OFFICER HOWEVER DID NOT ALL OW THE DEDUCTION AND BROUGHT TO TAX THE ENTIRE AMOUNT. THE CIT (A) DISTINGUISHED THE ABOVE DECISIONS AND CONSIDERED TH AT THE INCOMES ARISING ON SALE OF CAPITAL ASSETS CANNOT BE CONSIDE RED AS INCOME FROM REGULAR BANKING TRANSACTIONS. HOWEVER HE DIRE CTED THE ASSESSING OFFICER TO TREAT THE INCOME AS CAPITAL GA INS AND DIRECTED FOR VERIFICATION OF THE ARITHMETIC CALCULATIONS PRO VIDED BY THE ASSESSEE. THE REVENUE HAS AGGRIEVED THAT THE AMOUNT IS TREATED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME WHEREAS THE ASSESSEE IS AGGRIEVED IN ITS ONLY GROUND IN ITS APPEAL ON THE TREATMENT GIVEN TO THE GAINS REALIZED ON SALE OF SECURITIES BY THE CIT (A). 35. WE HAVE CONSIDERED THE ISSUE AND RIVAL CONTENTI ONS. EVEN THOUGH IT WAS CONTENDED THAT PLACEMENT OF FUNDS BEI NG NECESSARY UNDER SECTION 24 OF THE B.R. ACT GIVING RISE TO BU SINESS INCOME DISPOSAL OF SUCH SECURITIES CONSEQUENT TO CANCELLA TION OF LICENSE CAN NOT BE CONSIDERED AS INCOME FROM BANKING BUSINE SS. FOR THE REASONS STATED ABOVE WHILE DECIDING THE ISSUE IN GR OUND NO.1 & 2 WE AGREE WITH THE FINDINGS OF THE CIT(A) THAT SALE OF SECURITIES AND GAINS EARNED THEREON CANNOT BE CONSIDERED AS INCOME FROM BANKING ACTIVITY. THEREFORE WE UPHOLD THE FINDINGS OF THE CIT (A) THAT THE GAINS ARE TO BE BROUGHT TO TAX AS CAPITAL GAINS ONL Y. EVEN THOUGH THE REVENUE CONTENDS THAT THE ASSESSEE TREATED THEM AS DEPRECIABLE ASSETS/BUSINESS ASSETS FOLLOWING THE GUIDELINES OF THE RBI AND WAS MAINTAINING INVESTMENT FLUCTUATION RESERVE/ INVESTM ENT DEPRECIATION FUND WE ARE OF THE OPINION THAT THESE ISSUES DO NOT PREVENT IN TREATING THE SAME AS CAPITAL GAIN. THE R ESERVES MIGHT HAVE BEEN PROVIDED UNDER THE REGULATIONS THEN APPLI CABLE UNDER B R ACT. BUT THERE IS NO CLAIM OF DEDUCTION IN COMP UTATION OF INCOME AS INCOMES ARE TO BE COMPUTED AS PER THE INC OME TAX ACT. THEREFORE THE CIT (A)S DIRECTIONS IN TREATING THE AMOUNTS AS LONG TERM CAPITAL GAIN/SHORT TERM CAPITAL HAS TO BE UPHE LD. IN CASE THE ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 31 OF 32 ASSESSEE HAS CLAIMED ANY DEDUCTION IN VALUE OF SECU RITIES IN ANY EARLIER YEAR(S) BY TREATING IT AS A TRADEABLE STOCK /CURRENT ASSETS SUCH REDUCED VALUE ONLY CAN BE CONSIDERED AS VALUE FOR THE PURPOSE OF ARRIVING THE GAINS. HOWEVER AS SEEN FROM THE DE TAILS FILED BEFORE THE CIT (A) WHICH WERE REFERRED TO THE ASSESSING OF FICER FOR EXAMINATION THERE IS NO SUCH CLAIM AND ACCORDINGLY THE CONTENTIONS RAISED BY THE REVENUE ARE ONLY ACADEMIC IN NATURE AND NOT SUPPORTED BY FACTS. IN VIEW OF THE ABOVE WE UP HOLD THE ORDERS OF THE CIT (A) TO THAT EXTENT AND DISMISS THE GROUN DS RAISED BY THE REVENUE AS WELL AS BY THE ASSESSEE RESPECTIVELY. 36. THE NEXT GROUND FOR CONSIDERATION IS EXCLUSION OF AN AMOUNT OF ` 1 90 88 857/- CONTESTED BY THE REVENUE IN GROUND NO .4. THE ASSESSEE HAD WRITTEN BACK UNCLAIMED DIVIDEND DECLAR ED BY THE ASSESSEE IN EARLIER YEARS TO P&L ACCOUNT UNDER THE HEAD MISCELLANEOUS INCOME. IT WAS SUBMITTED THAT THESE AMOUNTS SHOULD HAVE BEEN ADJUSTED IN THE RESERVE ACCOUNT AN D SHOULD NOT HAVE BEEN TAKEN TO THE P&L A/C. HAVING NOTICED THE MISTAKE THE ASSESSEE FILED A REVISED RETURN REDUCING THE ABOVE AMOUNT IN COMPUTATION OF INCOME. THE ASSESSING OFFICER HOWEVE R DID NOT ALLOW THE CLAIM AND BROUGHT TO TAX THE ENTIRE MISCE LLANEOUS INCOME. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE T HAT THEY HAVE INADVERTENTLY TAKEN IT AS A MISCELLANEOUS INCOME IN STEAD OF CREDITING TO STATUTORY RESERVES AND AS THE DIVIDEND DECLARED IN EARLIER YEARS WAS NOT ALLOWED AS A DEDUCTION WHILE COMPUTING THE TOTAL INCOME OF THE EARLIER YEARS AND SO PROVISIONS OF SECTION 41 ARE NOT APPLICABLE THE CIT (A) ACCEPTED THE SUBMISSION S. HE HELD THAT THE DIVIDEND DECLARED WAS APPLICATION OF INCOME AND NOT AN EXPENDITURE CLAIM. THEREFORE WRITE BACK OF UNCLAIM ED DIVIDEND OF EARLIER YEARS WILL NOT ADD TO THE INCOME OF THE ASS ESSEE. 37. AFTER CONSIDERING THE RIVAL CONTENTIONS AND AFT ER EXAMINING THE RECORD WE AGREE WITH THE FINDINGS OF THE CIT ( A). AS THE ASSESSEE ITA NOS 6061 AND 6514 OF 08 APEX URBAN COOPERATIVE BANK OF MAH.& GOA MUMBAI PAGE 32 OF 32 HAS NOT CLAIMED EXPENDITURE WHEN DIVIDEND WAS PAID THE WRITE BACK OF THE UNCLAIMED DIVIDEND CANNOT BE TREATED AS INCOME UNDER THE PROVISIONS OF THE ACT JUST BECAUSE THE SAME WA S CREDITED TO THE P&L ACCOUNT. WE THEREFORE REJECT THE GROUND RAISED BY THE REVENUE ON THIS ISSUE. 38. IN THE RESULT THE REVENUES APPEAL IS PARTLY A LLOWED AND ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER 2011. SD/- SD/- (D.MANMOHAN) (B. RAMAKOTAIAH) VICE - PRESIDENT ACCOUNTANT MEMBER VNODAN/SPS MUMBAI DATED 30 TH NOVEMBER 2011. COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR A BENCH ITAT MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI