C.I.T.-II, TIRUCHIRAPALLI vs CITY UNION BANK LTD.

The Supreme Court addressed the issue of whether interest earned by a bank on government securities is assessable under Section 2(7) of the Interest Tax Act, 1974. The Court upheld the decisions of the Income Tax Appellate Tribunal and the Madras High Court, which concluded that such interest does not fall under the definition of 'interest chargeable to tax' as it pertains to loans and advances. The appeal by the revenue was dismissed, affirming the distinction between loans/advances and investments/securities.