- (1.) Special leave granted in SLP (C) Nos, 5813-14 of 1982.
(2.) The assessee in all these cases is a Co-operative Society registered under the Madhya Pradesd Co-operative Societies (Amalgamation) Act. 1957 hereinafter called 'the Act'. While framing assessment for the relevant assessment years in question. the Income Tax Officer, included in the taxable income of the assessee interest earned on securities earmarked against reserves and interest earned on Provident Fund deposist. The assessee contended that it was entitled to the benefit of Section 81 of the Income Tax Act as in force at all material times. The Income Tax Officer rejected this claim of exemption from tax put forward by the assessee. Since the assesses contention did not find favour at the higher levels also, including the reference to the high Court, the assessee has approached this Court.
(3.) Section 81 of the Income-Tax Act on which the assessee's case is based raad thus at all material times : "Income of co-operative societies Income Tax shall not be payable by a co-operative society, (i) in respect of the profits and gains of business carried on by it, if it is. (a) a society engaged in carrying on the business of banking or providing credit facilites to its members; x X XX X provided that, in the case of a co-operative society which is also engaged in activities other than those mentioned in this clause, nothing contained herein shall apply to that part of its profits and gains as it attributable to such activities and exceeds fifteen thousand rupees. "on a plain reading of this provision it becomes clear that every income of a society carrying on banking business is not exempt from the payment of tax. Only the income from banking business is exempt from tax. The question which we are required to answer is whether the income from interest accruing government securities ear-marked for Reserve Fund/provident Fund can be said to be income derived by the assessee from the business of banking within the meaning of Section 81 to qualify for exempton. This question arises in the following facts.;