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Interpretation of section 81(i)(a) of the Income-tax Act, 1961 regarding exemption of interest income on Government securities held by a cooperative bank as part of its stock-in-trade. Analysis: The case involved a cooperative society, functioning as an apex bank, holding securities and cash, earning interest on the securities. The dispute arose when the Income-tax Officer disallowed the exemption claim on the grounds that the securities represented surplus funds investment, not stock-in-trade. The Tribunal, however, ruled in favor of the assessee, stating that the securities were part of its stock-in-trade to meet depositors' demands. The Tribunal held that income from these securities was earned in the course of banking business, exempt under section 81(i)(a) of the Act. The Additional Commissioner challenged this decision, leading to the reference question to the High Court. The High Court considered previous judgments, including the Allahabad High Court's decision, establishing that income from securities held as stock-in-trade by a banking institution is exempt under section 81(i)(a) of the Act. The Court noted that the Tribunal found the Government securities in question were part of the assessee's stock-in-trade, justifying the exemption under section 81(i)(a) and rendering section 81(v) inapplicable. Therefore, the Court upheld the Tribunal's decision, ruling that the interest income on Government securities held as stock-in-trade by the cooperative bank was exempt from tax. In conclusion, the High Court affirmed that the income derived by the assessee from the Government securities held as part of its stock-in-trade was exempt from tax under section 81(i)(a) of the Income-tax Act, 1961. The Court held that the provisions of section 81(v) were not applicable in this case, as the securities were considered part of the assessee's stock-in-trade. Consequently, the Tribunal's decision was upheld, and the question was answered in the affirmative, with no order as to costs.
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