Statutory reserve fund investments can qualify as banking income, preserving deduction under section 80P(2)(a)(i) and defeating reference.

Interest earned on Government securities held to meet a statutory reserve fund requirement was treated as attributable to the banking business and therefore eligible for deduction under section 80P(2)(a)(i). The Bombay HC applied the Supreme Court's binding view that investments made in compliance with statutory requirements from reserve funds of a co-operative bank retain the character of business-linked income. On that basis, no referable question survived for the Tribunal, and the consequential challenge relating to interest under section 234B also did not survive independently.

---

---

Issues: Whether the assessee was entitled to deduction under section 80P(2)(a)(i) on interest earned from Government securities earmarked for the statutory reserve fund.

Analysis: The relevant assessment year was 1992-93. The controversy was controlled by the Supreme Court's ruling that interest arising from investments made in compliance with statutory requirements, out of reserve funds of a co-operative society engaged in banking business, is attributable to banking business and falls within the exemption under section 80P(2)(a)(i). In view of that binding position, no question warranting reference to the Tribunal survived. The challenge regarding interest under section 234B was only consequential.

Conclusion: The assessee was entitled to the deduction and the Revenue's request for reference was not accepted; the consequential question also did not survive independently.

---