Srinivasan, J. - (1.) The respondent hereinafter referred to as the 'assessee' is a Co-operative Society engaged in banking business. For the assessment years 1977-78, 1978-79 and 1979-80, the assessee claimed deduction under Section 80-P (2) (a) (i) of the Income-tax Act, 1961 on the income by way of interest on Government Securities and Dividends on shares of Industrial Financial Corporation. The Income-tax Officer held that the investments were made out of reserves and disallowed the claim. On appeal, the Appellate Assistant Commissioner observed in his order that the Reserve Fund of the assessee was about Rs. 33 lakhs and the circulating capital was about Rs. 22 lakhs and held that the investment was out of the Reserve Fund. Consequently, he confirmed the order of the I. T. O.
(2.) On further appeal, the Tribunal accepted the contention of the assessee that interest income was attributable to the assessee's business income. The Tribunal followed its earlier order in I. T. A. Nos. 665 to 668/ Bang./1981, dated 30th July 1982. Consequently the appeal was allowed and the matter was remitted to the I. T. O. to determine the deduction available to the assessee under Section 80-P (2) (a) (i). On a reference under Section 256 (2), the High Court of Karnataka agreed with the Tribunal and answered the question in favour of the assessee. The aggrieved Revenue has preferred this appeal.
(3.) Section 80-P (1) and (2) (a) (i) are in the following terms: "80P. (1) Where, in the case of an assessee being a co-operative 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. (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) in the case of a co-operative society engaged in - (i) carrying on the business of banking or providing credit facilities to its members, or (ii) to (vii) ********** the whole of the amount of profits and gains of business attributable to any one or more of such activities." ;