IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 16.02.2010 CORAM THE HONOURABLE MR.JUSTICE D.MURUGESAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.1160 of 2009 Commissioner of Income Tax Tiruchirappalli ..Appellant -vs- M/s Kamalambika Co-operative Urban Bank Ltd., Thiruvarur 610 002. ..Respondent Memorandum of Grounds of Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras 'C' Bench dated 27.3.2009 made in ITA No.1318/Mds/2008 for the assessment year 2004-2005 ITA.No.610/CIT(A) 2006-2007 dated 10.04.2008 on the file of the Commissioner of Income Tax (Appeals) Trichirappalli, against No.S-606/I(1)/NGT dated 27.12.2006 on the file of the Income Tax Officer Ward I(1) Nagapattinam for teh Assessment Year 2004-2005. For Appellant : Mr.J.Narayanaswamy For Respondent : Mr.S.Sridharan JUDGMENT (Judgment of the Court was delivered by D.MURUGESAN, J). The revenue has filed this tax case appeal questioning the order of the Income Tax Appellate Tribunal, Madras 'C' Bench made in ITA No.1318/Mds/2008 dated 27.3.2009. The respondent is M/s Kamalambika Co-operative Urban Bank Limited. The primary business of the assessee is banking. For the assessment year 2004-2005, the assessee filed its return of income admitting an income of Rs.26,14,953/- and claimed exemption under Section 80-P of the Income Tax At. The assessee relied upon Section 80-P(2)(a)(i) for deduction in respect of income derived from purely banking activities. Holding that the assessee is engaged in the activity of purchasing and selling securities which does not partake the character of banking https://hcservices.ecourts.gov.in/hcservices/ activities, the assessing officer did not allow the deduction under Section 80-P(2)(a)(i), but has allowed the deduction upto Rs.50,000/- in terms of Section 80-P(2)(c) of the Income Tax Act. That order was taken on appeal before the Commissioner of Income Tax (Appeals), Tiruchirappalli by the assessee. The Commissioner of Income Tax (Appeals) dismissed the said appeal, which was again taken on appeal by the assessee to the Tribunal. The Tribunal, following the decision in Mayavaram Co-operative Union Bank Limited in ITA No.208/Mds/2007 dated 7.9.2007, allowed the appeal on the ground that the activities of the assessee-bank would amount to the business activity and therefore the assessee is entitled to deduction on the whole amount of profits and gains of business as per Section 80-P(2) (a)(i) of the Income Tax Act. This order is put in issue by the revenue in this appeal. 2. We have heard Mr.J.Narayanaswamy, learned counsel for the revenue and Mr.S.Sridharan, learned counsel for the assessee. 3. Even before we consider the rival submissions, our attention is drawn to the judgment of the Supreme Court in Commissioner of Income Tax v. Nawanshahar Central Co-operative Bank Ltd., (2007) 289 ITR 6. In that case, the Supreme Court has held that where a co-operative bank carrying on business of banking is statutorily required to place a part of its funds in approved securities, and the income attributable thereto is deductible under section 80-P(2)(a)(i) of the Income Tax Act. In fact the Supreme Court had relied upon the earlier judgments in Bihar State Co-operative Bank Ltd. v. CIT (1960) 39 ITR 114, CIT v. Karnataka State Co-operative Apex Bank, (2001) 251 ITR 194 and CIT v. Ramanathapuram District Co-operative Central Bank Ltd., (2002) 255 ITR 423. The contention of the learned counsel for the respondent-assessee is that in view of the above judgments of the Supreme Court, the issue is covered in favour of the assessee and therefore the appeal of the revenue should be dismissed. 4. However, Mr.J.Narayanaswamy, learned counsel for the revenue would submit that on the facts of the present case, the judgments of the Supreme Court referred to above cannot be made applicable. According to the learned counsel, in order to satisfy the provisions of Section 80-P(2)(a)(i), it must be first established that the assessee should primarily engage in banking activities. In case the banking activities are incidental, those judgments are not applicable. Secondly, the investments should be only with the members of the society and not with outsiders. If the investments are with outsiders, the provisions cannot be made applicable. Lastly, the learned counsel would submit that as per the norms of the Reserve Bank of India, the assessee can hold ten percent in approved securities and whatever the amount over and above ten percent is taxable. Hence for all the above reasons, the appeal should be allowed. https://hcservices.ecourts.gov.in/hcservices/ 5. We have carefully considered the above submissions. So far as the first contention of the learned counsel for the revenue is concerned, factually, the respondent-assessee is primarily involved in banking activities and the transactions of investments by way of sale and purchase are not incidental and therefore the first contention must fail. As far as the second contention as to whether such sale and purchase should be only with the members of the society is concerned, we are not inclined to go into the said question, as this question has not been either considered by the assessing officer or by the Commissioner of Income Tax (Appeals) and for that matter, the Tribunal. In fact the said ground has not even been urged in the grounds of appeal. Hence the second contention also must fail. 6. So far as the last contention that the assessee is entitled to deduction only upto ten percent as per the norms of the Reserve Bank of India is concerned, we may point out that from the judgments of the Supreme Court, we are not able to find out any such distinction being made with reference to the limit as per the norms. Even assuming that the assessee should maintain the basic norm of holding only upto ten percent and not above and in case the amount exceeds ten percent, the assessee is not entitled to deduction under Section 80-P(2)(a)(i), this point has not at all been considered by the assessing officer, as it was not a ground on which the claim of deduction under the said section was rejected. Even while the appeal was heard by the Commissioner of Income Tax (Appeals), this was not at all put as an issue for consideration. When the Tribunal also heard this matter, strangely, the revenue had not taken this point before the Tribunal. This point is taken for the first time before this Court. Mr.J.Narayanaswamy, learned counsel for the revenue brought to our notice grounds D and E of the appeal grounds. So far as ground D is concerned, it is pleaded that the Tribunal erred in holding that the assessee had purchased/ held/sold and made profit from said securities only to the extent of abiding the RBI guidelines. This being a factual finding by the Tribunal that the assessee had made profit from securities only abiding the RBI guidelines, we are not inclined to go into this ground. In fact the Tribunal had relied upon the decision in Mayavaram Co-operative Urban Bank Limited case in ITA No.208/Mds/2007 dated 7.9.2007, wherein the submission of the learned counsel for the assessee that the assessee was eligible for deduction on the whole amount of profits and gains of business attributable to any one or more than such activities was accepted for deduction. So far as ground E is concerned, the revenue has now taken the stand that the assessee had held securities to the extent of 34.56% if face value is adopted and 36.75% if book value is adopted. This also being a factual position and is taken for the first time and having regard to the consistent view of the Supreme Court on the said issue in more than one case, particularly the recent decision in Nawanshahar Central Co-operative Bank Ltd., case, we are not inclined to consider the said question relating to the factual issue which is raised for the first time before this Court. https://hcservices.ecourts.gov.in/hcservices/ 7. For all the above reasons, we find no merit in the tax case appeal and accordingly, the tax case appeal is dismissed. No costs. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar ss To 1. The Assistant Registrar, Income Tax Appellate Tribunal Madras 'C' Bench, Rajaji Bhavan, III Floor, Besant Nagar, Madras. 2. The Commissioner of Income Tax, Tiruchirappalli. 3. The Commissioner of Income Tax (Appeals) Tiruchirappalli. 4. The Income Tax Officer, Ward I (1) Nagapattinam. + 1 c.c. to Mr. K. Subramaniam, Sr. Standing Counsel for IT. S.R.No.10515. + 1 c.c. to Mr. S. Sridharan, Advocate. S.R.No.10104. T.C.(A) No.1160 of 2009 JRG (CO) GSK 24.02.2010. https://hcservices.ecourts.gov.in/hcservices/