Judgment 1. The appellant-assessee M/s. Bihar Rajya Sahkari Bhoomi Vikas Co-operative Bank Ltd. is a bank registered under the Bihar State Co-operative Societies Act . Its object, according to the bye-laws, are as follows: (i) To give loans to individual member of co-operative societies registered under the Act or corporate bodies after admitting them as member in accordance with the bye-laws. (ii) To float debenture on the security of its assets or land mortgages, Government guarantee and other assets and securities in the form or forms of hypothecation, pledge, lien, surety, agreement, bond deed, actionable claim, charge, promissory note, rehan, etc., obtained from and transferred to it by borrowers for such period and on such terms and conditions as have been approved by the trustee. (iii) To raise deposits and loans and to advance loans for the purposes enumerated under Section 44B of the Act. (iv) To acquire such immovable properties and construct such buildings as it may consider necessary for proper conduct of its for the business. (v) To do such other things as incidental or conducive to attainment of the above objects. 2. In these appeals we are concerned with the assessment years 1989-90 and 1995-96. In these assessment years, the assessee had income from interest on provident fund amount of the employees as also rental income from the house property. 3. It is relevant here to state that the assessee had shown the interest on the investments of the employees provident fund as its income in the profit and loss account. It also derived rental income from the house property. The assessee claimed deduction of both the income under Section 80P(2)(a)(i) of the Income-tax Act, which was not granted by the Assessing Officer and its appeal before the Commissioner of Income-tax (Appeals) also failed. The assessee carried the matter further in appeal before the Patna Bench of the Income-tax Tribunal, hereinafter referred to as the Tribunal. The Tribunal also negatived the contention of the assessee, inter alia, observing that the interest earned on the investment of the provident fund money was not eligible for exemption under Section 80P(2)(a)(i) of the Income-tax Act, hereinafter referred to as the Act, because the said income has not been earned from regular business of banking. It also observed that the interest earned on investment of the provident fund amount did not form part of either the stock-in-trade or the circulating capital. It also observed that the interest earned on investment of the provident fund amount did not form part of either the stock-in-trade or the circulating capital. For parity of reasons the Tribunal disallowed the deduction of the rental income also. 4. The assessee aggrieved by the same has preferred these appeals under Section 260A of the Act. By order dated January 16, 2001, Misc. Appeal No. 350 of 1999 was admitted on the following substantial question of law: (i) Whether the interest derived from the investment and the rental income of the house property qualify for deduction under Section 80P of the Income-tax Act. 5. By order dated September 15, 2006, Miscellaneous Appeal No. 141 of 2002 was directed to be heard along with Misc. Appeal No. 350 of 1999 and although no substantial question of law was formulated at that time but in view of the direction that the appeal is to be heard along with another appeal referred to above, we are proceeding on an assumption that the said appeal was also admitted for hearing on the same question of law. 6. It is relevant here to state that Misc. Appeal No. 141 of 2002 is barred by limitation and for condoning the delay an application (IA 1984 of 2002) has been filed. By order dated February 16, 2004, this Court directed for consideration of the limitation petition at the time of admission of the appeal. However, no order was passed at that time. 7. Before we take up the said appeal on the merits, it is expedient to consider the limitation petition. According to the stamp reporter limitation expired on March 22, 2002, whereas the appeal has been filed on April 12, 2002. 8. Mr. K.N. Jain, senior advocate appears on behalf of the appellant, whereas the Commissioner of Income-tax is represented by Mr. Harshwardhan Prasad. 9. In the application for condonation of delay it has been stated that the file was handed over by the assessee to the counsel to file appeal within time but due to some trouble in the eye of the counsel which ultimately led to surgical interference delay had occurred in filing the appeal. 10. This assertion has not been contested by the respondent. 11. We are of the opinion that sufficient cause has been shown for condoning the delay in filing this appeal. 12. 10. This assertion has not been contested by the respondent. 11. We are of the opinion that sufficient cause has been shown for condoning the delay in filing this appeal. 12. Accordingly, the delay in filing the appeal is condoned. 13. As in both the appeals common question of law is involved, common arguments have been advanced by Mr. Jain on behalf of the assessee. 14. Mr. Jain submits that the interest earned from the investment of the employees provident fund is not the income of the assessee and merely the fact that it has been shown as the assessees income in the profit and loss account will not make it is the assessees income. 15. We do not find any merit in the submission of Mr. Jain. Merely showing the interest as income may not be decisive but the very fact that the assessee had made investment of the provident fund amount, earned interest thereon and in the absence of any material to show that interest has been credited in any other account, in the face of the assessees own profit and loss account, there is no escape from the conclusion that the interest earned is the assessees income. 16. Mr. Jain then submits that the income of interest may not be on account of carrying on the business of the bank but it is attributable to the same. He emphasise that the distinction has to be made between income attributable from business and derived from that. He points out that there is no provision in the Bihar and Orissa Co-operative Societies Act prohibiting investment of the provident fund amount and hence interest on investment is on account of carrying on the business of banking and is attributable to that. 17. In support of the submission, he has placed reliance on a decision of the Supreme Court in the case of Bihar State Co-operative Bank Ltd. v. CIT and our attention has been drawn to the following passage from the said judgment (page 12): As we have pointed out above, it is a normal mode of carrying on banking business to invest moneys a manner that they are readily available and that is just as much a part of the mode of conducting a banks business as receiving deposits or lending moneys or discounting hundis 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 return 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 earned 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. Under the bye-laws, one of the objects of the appellant bank is to carry on the general business of banking and, therefore, subject to the Co-operative Societies Act, it has to carry on its business in the manner that ordinary banks do. It may be added that the various heads under Section 6 of the Income-tax Act and the provision of that Act applicable to these various heads are mutually exclusive. Section 12 is a residuary section and does not come into operation until the preceding heads are excluded. In our opinion, the High Court was in error in treating interest derived from deposits as not arising from the business of the bank and, therefore, not falling within the income exempted under the notification. (underlining ours) 18. Mr. Harshwardhan Prasad, appearing on behalf of the Revenue, however, submits that the income derived from interest on investment of the provident fund amount is neither derived from the business of banking or attributable to that. According to him, the matter is squarely covered by the decision of the Madhya Pradesh High Court in the case of M. P. State Cooperative Bank Ltd. v. Addl. According to him, the matter is squarely covered by the decision of the Madhya Pradesh High Court in the case of M. P. State Cooperative Bank Ltd. v. Addl. CIT and our attention has been drawn to the following passage from the said judgment (page 333): As regards investment of provident fund, it is expressly provided in Section 46 of the Co-operative Societies Act that provident fund cannot be used in the business of the society. It was contended before us that the provident fund does not belong to the assessee and, therefore, interest income from investment of provident fund in securities is not income of the assessee. The Tribunal negatived this contention by pointing out that interest from investment of provident fund was included in the gross interest shown in the profit and loss account of the assessee. The point that interest from investment of provident fund was not income of the assessee was not raised before the Income-tax Officer or Appellate Assistant Commissioner. The Tribunal held that as interest earned from investment of provident fund was included in the gross interest, it had to be held that the income was income of the assessee. The question referred to us does not cover the question whether interest from investment of provident fund is the assessees income or not. We are, therefore, not entitled to go into this question. We have to proceed on the assumption that this income was income of the assessee. This income, however, cannot be a part of the income from banking business as the provident fund cannot be utilised in the business of banking. The income from interest of investment of provident fund also, therefore, does not qualify for exemption under Section 81(i)(a) of the Act. (underlining ours) 19. Having given our most anxious consideration to the submission advanced, we do not find any merit in the submission of Mr. Jain and the authority relied on is clearly distinguishable. In the case of a bank the business normally consists in the essence of dealing with money and credit. Depositors place their money with the bank and receive a small rate of interest. The bank advances loans to the borrowers, a large part of the deposits at somewhat higher rates of interest. The banker has always to keep enough cash or easily realisable securities to meet any probable demand by the depositors. Depositors place their money with the bank and receive a small rate of interest. The bank advances loans to the borrowers, a large part of the deposits at somewhat higher rates of interest. The banker has always to keep enough cash or easily realisable securities to meet any probable demand by the depositors. Provident fund amount belonged to the employees and it cannot be said to be stock-in-trade or circulating capital of the assessee and hence cannot be said that the interest earned is derived from the banking business or attributable to the same. The interest has not been earned from the money in stock-in-trade or circulating capital. It is not the case of the assessee that it placed the provident fund on which it earned the interest to enable it to carry on its banking business. In our opinion, the interest earned on such deposits necessary for the purpose of carrying on the banking business is to be treated as income attributable to the banking business. In that circumstance it shall also not make any difference whether the deposit is made from the stock-in-trade or circulating capital. However, the money, if does not belong to the assessee at all will make the difference and in such situation interest earned on such investment cannot be said to be attributable or derived from the banking business. 20. In the case of Bihar State Co-operative Bank Ltd. v. CIT, relied on by Mr. Jain the interest earned on the deposit by the assessee-bank to Imperial Bank was treated as income from the business of the bank as the amount deposited with Imperial Bank was considered to be stock-in-trade and circulating capital. 21. Mr. Jain then submits that the interest out of the investment of the provident fund amount legally do not belong to the assessee and, therefore, cannot be treated as the assessees money. Reliance has been placed on a decision of the Calcutta High Court in the case of CIT v. Sandersons and Morgans and our attention has been drawn to the following passage from the said judgment (page 444): In the instant case, we have already observed, the money received was money of the principal received by the agent in a fiduciary capacity, for being employed for the work of the principal entrusted to the agent. We have already seen that the balance of the money was refundable by the agent to the principal. Since the money was impressed with the character of somebody elses money, namely, clients money, it did not become the income of the assessee. It may be, in the absence of a rule like the Solicitors Account Rules in this country, the assessee mixed up this money with its own money and may have deposited the money in its own bank account ; it may be that this money remained part of the general assets of the assessee for a long time ; but this mixing up did not have the result of converting the money into the assessees money or trading receipt or income. That being the position, we do not think that the Tribunal was wrong in not relying upon the Punjab case and being guided by Tattersall case in this matter. It was lastly contended, on behalf of the Revenue, that since the solicitor did not stand in the position of a trustee to the client and since the Limitation Act applied, the remedy of the clients to recover the sum of the balances may have become barred by limitation. We do not think that this consideration in any way alters the legal position. 22. Yet another decision on which reliance has been placed is the decision of the Bombay High Court in the case of CIT v. Tanubai D. Desai and our attention has been drawn to the following passage from the said judgment (page 719): The relevant principle laid down by the House of Lords in its judgment in that case is that if a person in a fiduciary position receives any financial benefit arising out of the use of the property of the beneficiary, he cannot keep it unless he is authorized to do so. Applying that principle the House of Lords held that on the facts of the case the solicitor was not authorized to keep the interest either by custom or by implied agreement, although, as a matter of fact, a similar practice had long been followed by a number of solicitors in the United Kingdom. Applying that principle the House of Lords held that on the facts of the case the solicitor was not authorized to keep the interest either by custom or by implied agreement, although, as a matter of fact, a similar practice had long been followed by a number of solicitors in the United Kingdom. As seen earlier, the relevant rules of this High Court do not permit a solicitor to treat the moneys received by him from or on account of his clients as his personal moneys and such moneys are held by him in a fiduciary capacity. Even the income received from such moneys must equally be held by the solicitor in a fiduciary capacity. What the solicitor actually does with the income, i.e., whether he appropriates it to himself or not, is, in our opinion, a matter of no consequence. If he appropriates it to himself, it would simply amount to a breach of his fiduciary relationship and whatever may be the consequence in law would follow. But his unauthorized act of converting any part of the corpus or even the income derived there from which is not in accordance with the provisions of the rules of this High Court would not convert those amounts held by him in a fiduciary capacity into moneys held by him beneficially for himself. 23. We do not find any substance in the submission of the learned Counsel and reliance on the aforesaid decision is absolutely misconceived. In the present case, the assessee had sought deduction not of the provident fund amount but the interest thereon. In the case of CIT v. Sandersons and Morgans the deposits made by the clients were credited in the profit and loss account and in the face of the legal position that the assessee was bound to refund the balance money, the court came to the conclusion that it is not the assessees income. Here, as observed earlier, the assessee had not sought deduction of the provident fund amount but the interest thereon. The assessee had shown this amount as income in its profit and loss account. There is nothing on record to show that this amount has been credited in any other account. In that view of the matter it cannot be said that the income in question did not belong to the assessee. 24. The assessee had shown this amount as income in its profit and loss account. There is nothing on record to show that this amount has been credited in any other account. In that view of the matter it cannot be said that the income in question did not belong to the assessee. 24. In view of what we have found we are of the opinion that the decision of the Calcutta High Court in the case of Sandersons and Morgans and that of the Bombay High Court in the case of Tanubai D. Desai are clearly distinguishable. 25. As regards the rental income, Mr. Jain submits that rental receipts are business income and as such, deductible under Section 80P(2)(a)(i) of the Act. Reliance has been placed on a decision of the Madras High Court in the case of CIT v. V.S.T. Motors P. Ltd. 26. We do not find any substance in this submission of Mr. Jain also and the decision relied on has no bearing in the facts and circumstances of the case. 27. In the aforesaid case, the question before the court was as to whether the rental income is an income from business or from house property and in the facts of the said case the court held that it is a business income. Here the assessee has claimed deduction under Section 80P(2)(a)(i) of the Act. We have held that the said income is neither attributable nor derived from the business of banking. In our opinion, the matter stands concluded by the judgment of Madhya Pradesh High Court in the case of M. P. State Cooperative Bank Ltd. v. Addl. CIT. We are entirely in agreement with the reasoning and conclusion arrived at in the said case so far as issue in these cases are concerned. 28. Accordingly, we are of the opinion that the interest derived from investment of the provident fund amount and the rental income do not qualify for deduction under Section 80P(2)(a)(i) of the Act. 29. In the result, we do not find any merit in these appeals and they are dismissed accordingly.