- (1.) These are five applications filed under Section 256(2) of the Income-tax Act, 1961, by the Commissioner of Income-tax, Lucknow, and pertain to the assessment years 1981-82 to 1985-86. Two common questions have been proposed in these applications which are said to be questions of law arising out of a common order passed by the Income-tax Appellate Tribunal. The questions proposed are as under : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the shares of the Agricultural Refinance Corporation and the Unit Trust of India are held by the assessee-bank as its stock-in-trade?
(2.) Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the income earned in respect of the shares of the Agricultural Refinance Corporation and the Unit Trust of India is income from business carried on by the assessee and is exempt under Section 80P(2) of the Income-tax Act, 1961 ? "2. The respondent-assessee is a co-operative society giving long-term finance to primary banks, co-operative farming societies, cultivators and land development banks on security by way of simple mortgage over land, etc. In other words, it is a co-operative society functioning as a bank for the purposes of providing finance to cultivators and co-operative societies, etc. It appears that the assessee held certain shares of the Agricultural Refinance Corporation as well as certain units of the Unit Trust of India. In the assessment years in question, the assessee put up a claim that the income received by way of dividend and interest, etc., attributable to the shares and units held by the assessee was liable to be deducted from its gross income under Section 80P(2) of the Income-tax Act, 1961 (for short "the Act"), in computing its taxable income. The Income-tax Officer, however, negatived the claim and brought to tax the income in question under the head "Other sources". The claim of the assessee was, however, accepted by the appellate authorities, namely, the Commissioner of Income-tax (Appeals), Lucknow, and the Income-tax Appellate Tribunal, B-Bench, Allahabad. The Commissioner of Income-tax (Appeals) has observed in his order that the shares of Agricultural Refinance Corporation had been declared as Government securities under Section 7 of the Agricultural Finance Act and the same situation applied to the shares of the Unit Trust of India. He further held that while deciding the issue whether the shareholdings, etc., should be regarded as the business assets of an assessee, there must be material evidence indicating that the ownership of such holding is incidental to the business carried on by the assessee or that the holding is a business asset. In the ultimate analysis, the Commissioner held that the assessee was statutorily duty bound to make the investment and the shareholding as well as the investment in the Unit Trust of India was incidental to the business and the same had been made to safeguard the business itself. On these reasonings he further recorded a finding that the income in question received or accrued to the appellant was the income from business and the same was exempt from tax under Section 80P(2) of the Act, like the other income of the co-operative society. This view of the Commissioner of Income-tax (Appeals) was upheld by the Tribunal. The applications for reference moved under Section 256(1) of the Act having been dismissed, these applications have been made with a common prayer that the Income-tax Appellate Tribunal may be directed to refer the aforesaid questions for the opinion of this court.
(3.) We have heard learned counsel for the parties.;