2002 PLP 1124 (PTD)

(Appeals by special leave from the judgment and order dated January 12, 2000, of the Karnataka High Court in I.T.R C. Nos. 876 to 878 of 1998). .

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 judgments 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 judgment 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 the case of the assessee in I T R C. No. 155 of 1983 dated February 23, 1989 confirmed the order of the First Appellate Authority. The Revenue has, therefore filed this reference application. The controversy is now covered by the decision given in the case of CIT v. Bangalore District Cooperative Central Bank Ltd. (1998) 233 ITR 282, wherein it was held that (page 284): "Leaned counsel for the assessee has invited our attention to sections 24 and 56 of the Banking Regulation Act, 1949, as well as section 57(2) of the Karnataka Cooperative Societies Act, 1954, and rule 23(3) of the Karnataka Cooperative, Societies Rules, 1960, in support of his contention that the investments have been made by the assessee in compliant with the statutory provisions and in order to carry on the business of banking, the same was necessary and consequently such investments were part of the business activities falling, within the scope of section 80P(2)(a)(i). He has also referred to the rulings in Bihar State Cooperative Bank Ltd. v. CIT (1960) 39 ITR 114 (SC); Cambay Electric Supply Industrial Co. Ltd. v. CIT (1978) 113 ITR 84 (SC), in support of his contentions that the expression `attributable to of very wide import. It is unnecessary in this case\to consider the same in detail." Following the said\decision, we are of the view that the Tribunal was right in holding that the interest income arising from the investment made out of reserve fund is exempt under section 80P(2)(a)(i) of the Income Tax Act, 1961. The reference is, accordingly, answered in favour of the assessee and against the Revenue. The Department preferred a petition under Article 136 of the Constitution of In is for special leave to appeal. Delay condoned. Leave granted. The appeals shall be heard by a Bench of three learned Judges in view of the a parent conflict between the judgments of Benches of two Judges of this court in M.P. Cooperative Bank Ltd. v. Addl. CIT (1996) 218 ITR 438 and CIT v. Bangalore District. Cooperative Central Bank 1245. M.B.A./1071/FC Leave granted.