1988 (2) TMI 21 - HC - Income Tax

Summary

Issues Involved:
The judgment addresses the following issues:
1. Whether interest on securities earmarked against reserve and provident funds is exempt under section 81(i)(a) of the Income-tax Act, 1961.
2. Whether expenses like commission and exchange are considered part of banking business.
3. Whether income from commission, exchange, and miscellaneous income of a co-operative bank is exempt under section 81(i)(a) of the Income-tax Act, 1961.

Summary:

Issue 1:
The Income-tax Appellate Tribunal referred the question of whether interest on securities earmarked against reserve and provident funds is exempt under section 81(i)(a) of the Income-tax Act, 1961. The Tribunal held that such interest is not income from business and thus not exempt. The court, based on a previous decision, agreed with the Tribunal's stance, stating that the interest is not considered income from business and therefore not exempt under section 81 of the Act.

Issue 2:
Regarding the second issue, the Tribunal determined that income from commission, exchange, and miscellaneous sources of a co-operative bank was not part of banking business as per the Banking Regulation Act. Citing a previous case, the court emphasized that income attributable to banking activities or providing credit facilities to members is deductible. The court concurred with this interpretation, holding that the income in question is indeed attributable to the business of banking and thus deductible.

Issue 3:
The Tribunal also ruled that the income from commission, exchange, and miscellaneous sources of the co-operative bank was not exempt under section 81(i)(a) of the Income-tax Act, 1961. However, the court disagreed with this assessment, aligning with the view that such income is indeed attributable to the business of banking or providing credit facilities to members. Therefore, the court's answers to questions 2 and 3 were in the negative and against the Revenue.

In conclusion, the court's response to question 1 was affirmative against the assessee, while its responses to questions 2 and 3 were negative and against the Revenue. Each party was directed to bear their own costs in the reference.