2001 (8) TMI 9

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....IT [1996] 218 ITR 438 (SC) and CIT v. Bangalore District Co-operative Central Bank Ltd. [1998] 233 ITR 282 (SC). The question in appeal relates to what was section 81 and is now section 80P of the Income-tax Act, 1961, which reads thus : "80P. (1) Where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the followings namely : (a) in the case of a cooperative society engaged in (i) carrying on the business of banking or ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....s, therefore, difficult, the court said, to comprehend bow such Government securities relating to the reserve fund could be considered the bank's stock-in-trade or circulating capitals It was understood in banking parlance that circulating capital was that which was put into circulation or turned over to earn profit. Government securities coming out of the reserve fund, which could not be easily encashed and which could be utilised only when the contingencies mentioned arose, could not be considered circulating capital or stock-in-trade. The court, therefore, came to the conclusion, on first principles, that the interest on the Government securities placed with the State Bank or the Reserve Bank of India would not qualify for exemption unde....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....e reasoning in Madhya Pradesh Co-operative Bank Ltd. [1996] 218 ITR 438 (SC). There is no doubt, and it is not disputed, that the assessee-co-operative hank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)(i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, the income derived therefrom would be income from the assessee's business. We are unable to take the view that found favour with the Bench that decided the case of Madhya P....