Co-operative bank interest on Government securities treated as business income, qualifying for exemption under section 80P(2)(a)(i).

Interest earned by a co-operative bank from Government securities was treated as business income linked to banking operations because the securities were found to form part of circulating capital and were readily realisable for use in the business. Applying the view taken in an earlier similar decision, the Tribunal accepted that the income arose from stock-in-trade rather than from an independent investment activity. The result was that the interest qualified for exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961.

---

---

Issues: Whether interest earned by a co-operative bank from Government securities was income from stock-in-trade or circulating capital and, therefore, eligible for exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The Tribunal accepted the finding that the securities were held as part of the bank's circulating capital and were readily realisable for use in banking operations. It relied on the view taken in an earlier decision involving similar facts and noted that exemption had also been allowed in the assessee's subsequent year. On that basis, the interest derived from the securities was treated as business income connected with the banking activity.

Conclusion: The interest on Government securities was held eligible for exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961, in favour of the assessee.

---