The normal mode of conducting banking business includes investing funds in a manner to earn interest, and such investments form part of the bank's business profits.

G. C. BHARUKA, J.

( 1 ) THIS is an appeal preferred by the Department under Section 260a of the IT Act, 1961, ("the act" for short ).

( 2 ) THE only question involved herein is whether the Tribunal is justified in holding that the respondent-assessee is entitled to deduction under Section 80p (2) (a) (i) of the Act in respect of the interest and dividend income of Rs. 2,50,664 derived out of investment in National Saving certificate, Indira Vikas Patra, Kisan Vikas Patra, short-term fixed deposits in banks and shares of Maharashtra State Finance Corporation of India.

( 3 ) THE assessee is a co-operative bank within the meaning of Section 2 (b-I) of the Karnataka co-operative Societies Act, 1959, and is registered as such under the provisions of the said Act. It is. a regional rural bank within the meaning of Regional Rural Banks Act, 1976. As per section 22 of the latter Act it is to be deemed to be a co-operative society for the purpose of the act. It appears that the above investments were made by the assessee-bank out of its surplus funds. The AO disallowed the deduction claimed by the assessee under Section 80p (2) (a) (i ). On appeal, CIT (A) took the view that the deduction claimed by the assessee is admissible only against the income from banking business and according to him since the income derived out of the investments referred to above was not a part of ordinary banking business of the assessee-bank, the deduction as claimed was not admissible. The assessee questioned the order of the CIT (A) before the Tribunal. The Tribunal, on consideration of the entire facts and circumstances, held that the assessee has rightly claimed the deduction and directed the AO to redo the assessment by granting such deduction,

( 4 ) SRI Seshachala, learned standing counsel for the Department, has sought to assail the order of the Tribunal by relying on a recent judgment of the Supreme Court in the case of Gujarat State co-operative Bank Ltd v. CIT [2001 ]251 ITR522 (SC ). The passage of the judgment on which the learned counsel has relied is to the following effect:

"now, as to the second question, we have heard learned counsel and been referred to various decisions, including the decision of this Court in Bihar State Co-operative Bank Ltd v. CIT AIR1960 SC 789 , [1960 ]39 ITR114 (SC ), [1960 ]3 SCR58. To be able to answer the question, it is necessary to ascertain, as a fact, whether the income derived by the assessee from the investment of its voluntary reserves has been utilised by it in the course of its ordinary banking business. Though the assessee placed before the assessing authority its books of account and balance sheets, the fact aforestated was not considered at any stage, for one or other reason on which it is not necessary for us to dilate. We think that it is in the interests of justice that the assessee should have the opportunity to lead evidence before the CIT (A) to establish as a fact what is stated above. So far as the second question is concerned, therefore, the matter is restored to the CIT (A) for being decided afresh. He shall also decide any consequential issue that may arise. "

A bare reading of the above passage from the judgment of the Supreme Court makes it clear that the Court has not laid down any law with regard to applicability of Section 80p (2) (a) (i) rather by accepting the law laid down by it in the case of Bihar State Co-operative Bank Ltd. v. CIT AIR1960 SC 789 , [1960 ]39 ITR114 (SC ), [1960 ]3 SCR58 , it had merely directed the authority under the Act to ascertain whether the income derived by the assessee from the investment of its voluntary reserves had been utilised by it in the course of its ordinary banking business.

( 5 ) 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 CIT (A) was that (on) the determination of the

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