Law: Income Tax Act, 1961

Section: 80

Income-tax----Cooperative society---Special deduction---Scope of---Cooperative society engaged in banking business---Interest arising from investment made out of reserve fund to enable it to carry on banking business---Is income from banking business---Deduction not restricted to income derived from working or circulating capital---Indian Income Tax Act, 1961, S. 80P(2)(a)(i) (old S.81).---[Madhya Pradesh Cooperative Bank Ltd. v. Addl. CIT (1996) 218 ITR 438 (SC) overruled]. Interest arising from investment made, in compliance with statutory provisions to enable it to carry on banking business, out of reserve fund by a cooperative society engaged in banking business, is exempt under section 80P(2)(a)(i) of the Income Tax Act, 1961. The placement of such funds being imperative for the purpose of carrying on banking business the income there from would be income from the assessee's business. There is nothing in the phraseology of section 80P(2)(a)(i) which makes it applicable only to income derived from working or circulating capital. Madhya Pradesh Cooperative .Bank Ltd. v. Addl. CIT (1996) 218 ITR 438 (SC) overruled. CIT v. Bangalore District Cooperative Central Bank Ltd. (1998) 233 ITR 282 (SC) approved. JUDGMENT S.P. BHARUCHA, J.---These appeals have been referred to a Bench of three learned Judges, in view of the apparent conflict between the two judgments (of Benches of two learned Judges of this Court) in Madhya Pradesh Cooperative Bank Ltd. v. Addl. CIT (1996) 218 ITR 438 (SC) and CIT v. Bangalore District Cooperative 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 subsection (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection (2), in computing the total income of the assessee. (2) The sums referred to in subsection (1) shall be the following namely:--- (a) in the case of a cooperative society engaged in--- (i) carrying on the…

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