Law:

Section:

Section 80P of the income-tax act, 1961-Deductions-In respect of income of co-operative societies-Whether interest on securities held by assessee co-operative society as liquid assets as per provisions of banking regulation act and directions of reserve bank should be taken as income from banking business eligible for deduction under section 80p-Held, yes-Whether subsidies received by assessee from government is also eligible for deduction as income from banking business-Held, yes-Whether assessee's income both by way of interest on securities and subsidies from government are incomes 'attributable to' its banking business and hence also eligible for deduction in terms of section 80p(2)(a)(i)-Held, yes Words and phrases-'Attributable to' occurring in section 80P(2)(a )(i) of the income-tax act, 1961 Facts The assessee, a co-operative bank, claimed deduction under section 80P in respect of (i) interest income from securities held by it as liquid assets as required by the Banking Regulation Act and directions of the RBI and (ii) amounts received as subsidies from the Government as inducement for opening branches and as compensation in the matter of grant of loans to the poorer sections at lower rates of interest. The ITO disallowed the claims on the grounds (i) that interest from securities, which were treated as investments, could not be treated as income from banking business, and (ii) that the subsidies could also not be treated as business income of the assessee. On appeal, the Tribunal upheld the assessee's claim. On reference: Held It was not in dispute that the securities constituted the liquid assets which were to be maintained at a particular percentage as per 'the provisions of the Banking Regulation Act and the directions given by the RBI. But for such maintenance of liquid assets, the assessee would not have been allowed to carry on the banking business. The maintenance of liquid assets in the form of securities being a must for the carrying out of the banking activities of the assessee, the income from such securities should be taken to be income from banking business. Moreover, the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT…

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