P. Vishwanatha Shetty, J.:— In this appeal, filed under section 260A of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), the appellant has called in question the correctness of the order dated December 18, 2002, made in I.T.A No. 1008.Bang of 2002 by the Income-tax Appellate Tribunal, Bangalore, reversing the order dated April 12, 2002, passed by the Commissioner of Income-tax (Appeals), Hubli. The only question that arises for our consideration in this appeal is as to whether the respondent-co-operative bank is entitled for deduction under section 80P(2)(a)(i) of the Act in respect of the interest and dividend income earned by it out of the investment made by it in other banking institutions. It is not in dispute that the respondent is a co-operative bank.
2. In this case, the assessment is of the year 1998-99.
3. The Tribunal on consideration of the material on record has taken the view that the respondent-bank is entitled for deduction under section 80P(2)(a)(i) of the Act in respect of the interest and dividend earned by it out of the investment made by it in other banking institutions.
4. However, Smt. Madhumita Bagchi, learned counsel appearing for the appellant, challenging the correctness of the impugned order submitted that the finding recorded by the Tribunal is erroneous in law.
5. In our view, there is no merit in the submission made by Smt. Bagchi. The Division Bench of this court in the case of CIT v. Sri Ram Sahakari Bank Ltd. [2004] 266 ITR 632 made in I.T.A No. 137 of 2002 disposed of on September 5, 2002, while considering the similar question has taken the view that a cooperative society carrying on banking business is entitled for deduction under section 80P(2)(a)(i) of the Act in respect of the interest and dividend earned by it out of the investment made by it in other banking institutions. It is useful to refer to the observations made by this court in the said case at paragraph 5 (page 634) of the judgment, which read as hereunder:
“In the present case, none of the authorities have come to the conclusion that the assessee had not utilised its surplus or voluntary reserve funds in the course of its ordinary banking business. But the view taken by the Commissioner of Income-tax (Appeals) was that the determination of the nature claimed herein could be granted only in a case where investments are made out of statutory reserve funds. The reasoning on its very face is contrary to the law laid down by the Supreme Court in the case of Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114. In this case, the Supreme Court has held that (page 122):
‘As we have pointed out above, it is a normal mode of carrying on banking business to invest moneys in a manner that they are readily available and that is just as much a part of the mode of conducting a bank's business as receiving deposits or lending moneys or discounting hundies or issuing demand drafts. That is how the circulating capital is employed and that is the normal course of business of a bank. The moneys laid out, in the form of deposits as in the instant case would not cease to be a part of the circulating capital of the appellant nor would they cease to form part of its banking business. The returns flowing from them would form part of its profits from its business. In a commercial sense the directors of the company owe it to the bank to make investments which earn them interest instead of letting moneys lie idle. It cannot be said that the funds of the bank which were not lent to borrowers but were laid out in the form of deposits in another bank to add to the profit instead of lying idle necessarily ceased to be a part of the stock-in-trade of the bank, or that the interest arising therefrom did not form part of its business profits’.”
6. In our view, the principle laid down by this court in the case of CIT v. Sri Ram Sahakari Bank Ltd. [2004] 266 ITR 632 would fully apply to the facts of the present case.
7. Therefore, in the light of the discussion made above, this appeal is liable to be rejected and accordingly, it is rejected. However, no order is made as to costs. 9