1998 (4) TMI 551

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....(iii) dividend from companies and (iv) interest and dividend received from other co-operative institutions were business income entitled to deduction under s. 80P(2)(a)(i) of IT Act, 1961 ?" The assessment year is 1980-81. 2. The assessee is a co-operative society engaged in the business of banking and providing credit facilities to its members. The assessee received in the assessment year in question, interest on securities, subsidies from the Government, dividend from companies and interest and dividend from other co-operative institutions, all of which were treated as part of its business income and in respect of which it claimed deduction under s. 80P(2)(a)(i) of the IT Act, 1961 (hereinafter referred to as 'the Act&#....

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....having regard to a later judgment of the Supreme Court in the case of Madhya Pradesh Rajya Sahkari Bank Maryadit vs. CIT (1996) 134 CTR (SC) 92: (1996) 218 ITR 438(SC) : TC S26.2715, the assessee is not entitled to deduction on the interest earned by it on securities, as the decision of the apex Court was rendered in the context of a claim made by a co-operative society for deduction of the amount earned by it as interest on securities purchased by it from out of it's reserve funds. The assessee under the Co-operative Societies Act was required to invest a part of its reserve fund and investment so made was not to be withdrawn by it unless the money was required to moot losses or the society had to be wound up, and even then the withdra....

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....apex Court held that the interest received from Government securities held by a co-operative society as its stock-in-trade qualifies for exemption under Notification issued under s. 60 of the India IT Act, 1922, and that the exemption was inapplicable only to interest received from Government securities held by the society as investments. 8. These decisions of the apex Court establish that a bank is not precluded from regarding the income earned by it by way of interest on deposits in Government securities, as being part of its business income and such interest would be part of the business income if it is derived from an investment, which did not come out or relate to its reserve fund, but from fund, which could be regarded as its stock....