Law: Income Tax Act, 1961

Section: 256,81

Income-tax---Cooperative society---Special deduction ---Scope of--Cooperative Society engaged in, banking---Interest arising from investment made out of reserve fund---Whether qualifies for deduction---difference of opinion between two s of Supreme Court---Matt r referred to larger Bench---Indian Income Tax Act, 1961 (Old) S. 81, (new) S.80P(2)(a)(i). In view of the difference of opinion between two decisions of the Supreme Court, viz., Madhya Pradesh Cooperative Bank Ltd. v. Addl. CIT (1996) 218 ITR 438 and CIT. Bangalore District Cooperative Central Bank Ltd. (1998) 233 ITR 282, on the question whether interest arising from investment made o it of reserve fund by a cooperative society engaged in banking business qualifies for the special deduction under S.80P(2)(a)(i) (old S.81) of the/Income Tax Act, 1961, the matter has been referred to a larger Bench. CIT v. Bangalore District Cooperative Central Bank Ltd. (1998) 233 ITR 282 (SC) and Madhya Pradesh Cooperative Bank Ltd. v. Addl. CIT (1996) 218 ITR 438 (SC) ref. The of the Karnataka H' h Court in I.T.R.C. No.876 of 1998 (V.K. Singhal and T.N. Vallina again, JJ.) delivered by T.N. Vallinayagam, J. was as follows: The Income-tax Appellate Tribunal has referred the following question of law/arising out of its order, dated May 9, 1995, under section 256(1) of the Income Tax Act, 1961, in respect of the assessment year 1985-86: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that t e interest income arising from -the investment made out of reserve fun is exempt under section 80P(2)(a)(i) of the Income Tax Act?" The facts of the case are that the assessee, a co operative society, earned interest income out of the reserve funds which had been invested arid claimed exemption under section 80P(2)(a) of the Income Tax Act, 1461. The Assessing Officer declined to allow the claim, but on appeal, the First Appellate Authority, relying on the order of the Tribunal in the case of the assessee for the earlier years, allowed the deduction as claimed by the assessee. On appeal by the Revenue, the Tribunal relying on the decision of the Karnataka Higo Court in…

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