COMMISSIONER OF INCOME TAX, KARNATAKA-III versus KARNATAKA STATE COOPERATIVE APEX BANK

Citation: [2001] SUPP. 2 S.C.R. 35 · Decided: 22-08-2001 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Dismissed

Judgment (excerpt)

COMMISSIONER OF INCOME TAX, KARNATAKA-III 
A 
v. 
KARNATAKA STATE COOPERATIVE APEX BANK 
AUGUST 22, 2001 
[S.P. BHARUCHA, Y.K. SABHARWAL AND ASHOK BHAN, JJ.] 
B 
Income Tax Act, 1961: Section 80-P(2)(a)(i) 
Assessee-Co-operative Bank-Imperative requirement to place part of 
funds with State Bank or Reserve Bank-Income derivedfi"omfunds so placed- C 
Held, such income is income derived fi"om Assessee's business-Assessee not 
required to pay tax thereon-Provision contained in Section 80-P(2)(a)(i) 
does not make it applicable onlv to income derivedfi"om working or circulating 
capital. 
These appeals have been preferred by Revenue. The question in these D 
appeals is whether, on the facts and in the circumstances of the case, the 
Appellate Tribunal was right in law in holding that the interest income of 
the respondent-Cooperative Bank arising from the investment made out of 
reserve fund is exempt under Section 80-P(2)(a)(i) of the Income Tax Act? 
Dismissing the appeals, the Court 
HELD : The assessee-Cooperative Bank is required to place a part of 
its funds with the State Bank or the Reserve Bank of India to enable it to 
carry on its banking business. This being so, any income derived from funds 
E 
so placed arises from the business carried on by it and the assessee has not, 
" 
by reason of Section 80-P(2) (a) (i), to pay income tax thereon. The placement .r 
of such funds being imperative for the purposes of carrying on the banking 
business, the income derived therefrom would be income from the assessee's 
business. There is nothing in the phraseology of Section 80-P(2) (a) (i) which 
makes it applicable only to income derived from working or circulating 
capital. 138-C-E] 
G 
MP. Cooperative Bank Ltd, Jabalpur v. Additional Commissioner of Income 
Tax Madhya Pradesh, Bhopal, 11996] 2 SCC 541, overruled. 
Commissioner of Income Tax, Bangalore v. Bangalore District Cooperative 
Central Bank Ltd, 11998] 6 SCC 129, explained. 
35 
H 
36 
SUPREME COURT REPORTS [200!] SUPP. 2 S.C.R. 
A 
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 4646-
4648 of 2000. 
From the Judgment and Order dated 12.1.2000 of the Karnataka High 
Court in I. T.R.C. Nos. 876-878 of 1998. 
B 
Harish N. Salve, Solicitor General, Sanjiv Sen, B.V. Bairam Das and 
c 
Ms. Sushma Suri for the Appellant. 
Ms. Asha Gopalan Nair for the Respondent. 
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, Jaba!pur v. Additional Commissioner of Income Tax, Madhya 
Pradesh, Bhopal, [I 996] 2 SCC 541 and Commissioner of Income Tax, 
D Bangalore v. Bangalore District Coopermive Central Bank Limited, [I 998) 
6 sec 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: 
E 
"80-P. (i) Where, in the case of an assessee being a cooperative society, 
the gross total income includes any income referred to in sub-
section (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. 
F 
(2) The sums referred to in sub-section (I) shall be the following, 
G 
H 
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 
r 
.... 
CIT. r. KARNATAKA STATE COOPERATIVE APEX BANK [BHARUCHA, l.l 
37 
arising from the investment made out of reserve fund is exempt under A 
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 B 
part of the Reserve Fund deposits be withdrawn except with the permission 
of the Registrar to meet losses or at the time of winding up and not otherwise. 
In the circumstan

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