COMMNR. OF INCOME TAX, KARNATAKA-III vs KARNATAKA STATE COOPERATIVE APEX BANK

The Supreme Court addressed the interpretation of Section 80-P of the Income Tax Act, 1961, determining whether interest income from investments made out of a cooperative bank's reserve fund is exempt from taxation. The Court held that such interest does not qualify for exemption under Section 80-P(2)(a)(i) as the reserve fund investments do not constitute circulating capital or stock-in-trade essential for banking activities. The judgment clarified that government securities from the reserve fund, which cannot be easily encashed, cannot be treated as part of the bank's operational capital.