Law:

Section:

Section 8OP of the Income-tax Act, 1961 - Deductions - Income of co-operative societies - Assessment year 1968-69 - Whether holding of securities by banking institution cannot be presumed to be not part of its business nor can it be said that securities held are not part of its stock in trade - Held, yes - Whether interest earned by assessee co-perative society carrying on banking business from securities held by it was its business income and was thus entitled to exemption under section 80P(2)(a)(i) - Held, yes. FACTS The assessee was a co-operative society carrying on banking business. It earned income by way of interest on securities and claimed exemption under section 80P(2)(a)( i) on ground that the Banking Regulation Act, 1949 had been made applicable to it and the banking business as defined under the said Act clearly indicates that the holding of securities, the realization of those securities, the earning of interest from those securities all spell carrying on of the business of the banking institution and that, therefore, the interest that was accrued on the securities should be treated as business income. The AAC rejected the assessee's claim. The Tribunal held that the assessee was required under the Banking Regulation Act, to invest in securities or keep cash or gold to the extent of 20 percent of its time and demand liabilities but such a provision would appear to curb the proponsity of the smaller banks to over-trade at the expense of liquidity and to ensure the maintenance of a reasonably large proportion of the cover in the form of cash or gold or approved securities. The Tribunal also held that the assessee not having discharged the burden of showing that the securities did represent its stock-in-trade, the AAC was justified in rejecting the assessee's claim under section 80P(2)(a)( i). On reference : HELD It is no doubt true that a finding entered by the Tribunal on a question of fact is final unless in extraordinary circumstances as when the finding was entered without material or was otherwise arbitrary or perverse and the very finding was questioned in the reference to the High Court. It is equally true that if the question referred…

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