S.K. KESHOTE, J. - (1.) THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (for short, `the Tribunal') under s. 256(1) of the IT Act, 1961, in Ref. Appln. No. 308/Jp/1986 arising out of ITA No. 408/Jp/1985, asst. yr. 1981-82, has referred for the opinion of this Court the following questions: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the investment of the reserves and other funds in various securities did not require the sanction of the Registrar of the co-operative societies under s. 63 of the Co-operative Societies Act ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that such investment could be said to be of banking nature ?2.Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income from such investment could be said to be from banking business and exempt under s. 80P(2)(a)(i) of the IT Act, 1961 ?"
(2.) ANSWER of questions No. 1 and 2 is dependent upon the decision on question No. 3. In case the question No. 3 is decided against the Revenue, the natural consequence thereof would be that the questions No. 1 and 2 would become otiose, which means decision would be required thereon. Learned counsel for the Revenue, referring to certain decisions of the other High Courts, contended that the learned Tribunal was not correct in its approach to hold that the income from investment of reserves and other funds could be said to be from banking business and exempted it under s. 80P(2)(a)(i) of the IT Act, 1961. On the other hand, the learned counsel for the assessee supported the judgment of the learned Tribunal. We have given our thoughtful and anxious consideration to the submissions made by the learned counsel for the parties. In Madhya Pradesh Co-operative Bank Ltd. vs. Addl. CIT (1996) 134 CTR (SC) 92 : (1996) 218 ITR 438 (SC), their Lordships of the Honourable Supreme Court held that the interest on Government securities placed with the State Bank or the Reserve Bank of India would not qualify for exemption under s. 81 (now s. 80P) of the IT Act, 1961, and such investment could not be regarded as an essential part of banking activities inasmuch as that same did not form part of stock-in-trade or the working capital or the circulating capital. However, this view taken by the Honourable apex Court in the judgment aforesaid was not accepted by the Honourable apex Court in CIT vs. Karnataka State Co- operative Apex Bank (2001) 169 CTR (SC) 486 : (2001) 251 ITR 194 (SC), wherein it has been held: "The question is whether we agree with the reasoning in Madhya Pradesh Co-operative Bank Ltd. (1996) 134 CTR (SC) 92 : (1996) 218 ITR 438 (SC). There is no doubt, and it is not disputed, that the assessee co-operative 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 so placed arises from the business carried on by it and the assessee has not, by reason of s. 80P(2)(a)(i), to pay income-tax thereon. The placement of such funds being imperative for the purpose of carrying on the banking business, the income derived therefrom would be income from the assessee's business. We are unable to take the view that found favour with the Bench that decided the case of Madhya Pradesh Co-operative Bank Ltd. (supra) that only income derived from circulating or working capital would fall within s. 80P(2)(a)(i). There is nothing in the phraseology of that provision which makes it applicable only to income derived from working or circulating capital. In the premises, we take the view that the decision of this Court in the case of Madhya Pradesh Co- operative Bank Ltd. (supra) does not set down the correct law and that the law is as we have put it above."
(3.) IN view of this pronouncement of the Honourable apex Court, the contention advanced by the learned counsel for the Revenue cannot be accepted. As a result of the aforesaid discussion, the questions referred to for the opinion of this Court by the learned Tribunal accordingly are answered in affirmative and in favour of the assessee. No order as to costs.;