TMI Blog1985 (6) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... e case, the Tribunal was right in law in holding that the income derived by the assessee from interest on securities was exempt as per provisions of section 80P(2)(a)(i) of the Income-tax Act, 1961 ? " This reference arises out of the assessment for the years 1967-68, 1968-69, 1969-70, 1970-71, 1971-72, 1972-73 and 1973-74. By these seven reference applications which are consolidated for the sake of convenience, the Commissioner of Income-tax, Madhya Pradesh-I, Bhopal, approached the Tribunal to make a reference to this court to answer the question referred to above. The assessee, Bhopal Co-operative Central Bank Ltd., had some (security) deposits and the Income-tax Officer did not exempt interest derived on securities from tax under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintain a certain percentage of their assets in the form of securities and hence the securities held by the banking companies under section 24 of the Banking Regulation Act, 1949, would form part of stock-in-trade and the income derived therefrom will be income arising from the banking business and exempted as per provisions of section 80P(2)(a)(1) of the Act. The Revenue challenged the order of the Appellate Assistant Commissioner in appeal before the Income-tax Appellate Tribunal. Before the Tribunal, it was submitted on behalf of the Department that the assessee invested its surplus funds in long-term investment and not in short-term deposits and hence these securities did not form part of its stock-in-trade and, therefore, the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by a general or special order of the Registrar, at least 25% of its profits to its reserve fund. Under section 44 of the Societies Act, investment of funds has been dealt with and sub-section (2) of section 44 provides that the reserve fund of a society shall be invested or utilised only in such a manner and on such terms and conditions as may be laid down by the Registrar in this behalf. Learned counsel further submitted that the securities held by the bank as part of its assets were in the nature of stock-in-trade of the society and, therefore, income arising therefrom was part of its business income and, therefore, it will be exempt under section 80P of the Act. Learned counsel placed reliance on the decision of their Lordships of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities. In this regard, it is pertinent to refer to section 24 of the Banking Regulation Act, 1949 (Act No. X of 1949), which reads as under: " 24. Maintenance of a percentage of assets.-(1) After the expiry of two years from the commencement of this Act, every banking company shall maintain in India in cash, old or unencumbered approved securities, valued at a price not exceeding the current market price, an amount which shall not at the close of business on any day be less than twenty per cent. of the total of its time and demand liabilities in India. Explanation.-For the purposes of this section, ' unencumbered approved securities ' of a banking company shall include its approved securities lodged with another institution for an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society qualifies for exemption under section 80P of the Act. Learned counsel appearing for the Revenue submitted that the assessee has been holding the same securities and there had been no transaction at all and, therefore, it is liable to be assessed to tax. But the securities deposited in compliance with section 24 of the Banking Regulation Act, 1949, will not change the nature of holding from stock-in-trade to investment. In the instant case, the assessee-bank has shown the interest received on securities as interest received on investment. Therefore, the argument as advanced on behalf of the Revenue is not available to him in the instant case. Learned counsel appearing for the Revenue referred to the decision of this court in M. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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