COMMNR. OF INCOME TAX, KARNATAKA-III vs. KARNATAKA STATE COOPERATIVE APEX BANK

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 2 CASE NO.: Appeal (civil) 4646-4648 of 2000 PETITIONER: COMMISSIONER OF INCOME TAX, KARNATAKA-III RESPONDENT: KARNATAKA STATE COOPERATIVE APEX BANK DATE OF JUDGMENT: 22/08/2001 BENCH: S.P. BHARUCHA & Y.K. SABHARWAL & ASHOK BHAN JUDGMENT: JUDGMENT 2001 Supp(2) SCR 35 The Judgment of the Court was delivered by 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 M.P. Cooperative Bank Limited, Jabalpur v. Additional Commissioner of Income Tax, Madhya Pradesh, Bhopal, [1996] 2 SCC 541 and Commissioner of Income Tax, Bangalore v.

Bangalore District Cooperative Central Bank Limited, [1998] 6 SCC 129.

The question in appeal relates to, what was Section 80(i) and is now Section 80-P of the Income Tax Act, 1961, which reads thus : "80-P. (i) 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 sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely : (a) in the case of a cooperative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (ii)-(vii) the whole of the amount of profits and gains of business attributable to any one or more of such activities : The question in appeal reads : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the interest income arising from the investment made out of reserve fund is exempt under Sec.80-P (2) (a) (i) of the Income Tax Act ?"

In the case of M.P. Cooperative Bank Limited, this court noted instructions of the Madhya Pradesh Government which required the investment of the reserve funds of apex banks and observed that, by reason thereof no part of the Reserve Fund could be utilised as working capital nor could any part of the Reserve Fund deposits be withdrawn except with the permission of the