COMMISSIONER OF INCOME-TAX VS MADURAI DISTRICT COOPERATIVE BANK LTD.
2001 P T D 2208
[239 I T R 700]
[Madras High Court (India)]
Before N. V. Balasubramanian and P. Thangavel, JJ
COMMISSIONER OF INCOME‑TAX
Versus
DISTRICT COOPERATIVE BANK LTD.
T. C. Nos.908 and 909 of 1986 (References Nos.585 and 586 of 1986), decided on 11/11/1997.
(a) Income‑tax‑‑‑
‑‑‑‑Cooperative society‑‑‑Special deduction‑‑‑Interest on securities, subsidy from Government, interest from other cooperative institutions and Banks and dividends are entitled to special deduction under S.80P‑‑‑Indian Income Tax Act, 1961, S.80P(2)(a)(i).
Interest on securities; subsidy from the Government; interest from other cooperative institutions and banks; dividends received by the assessee were business income entitled to deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.
CIT v: Madurai District Central Cooperative Bank Ltd. (1984) 148 ITR 196 (Mad.) and CIT v. Maduri District Central Cooperative Bank Ltd. (1997) 224 ITR 237 (Mad.) fol.
(b) Income‑tax‑‑‑
‑‑‑‑Cooperative society‑‑‑Special deduction‑‑‑Amount received by cooperative society from letting out surplus space assessed as income from business ‑‑‑Amount received entitled to special deduction under S.80‑P‑‑ Indian Income Tax Act, 1961, S.80‑P(2)(a)(i).
In the income‑tax assessment of the assessee for both the assessment years 1978‑79 and 1979‑80, the income from letting out of the surplus space available in the cooperative society was assessed under the head "Income from business". The Revenue had not challenged the mode of treatment of the income. Once the income from letting out the property was assessed under the head "Income from business", it could be only on the basis that the property let out was a commercial asset and once it was found that building was a commercial asset during the relevant previous year, the income derived from letting out the commercial asset was properly assessable as business income it the hands of the assessee, and consequently, the assessee was entitled to clam the deduction under section 80P(2)(a)(i) of the Act.
CIT v. V.S.T. Motors (P.) Ltd. (1997) 226 ITR 155 (Mad.) and Kottayam Cooperative Land Mortgage Bank. Ltd. v. CIT (1988) 172 ITR 443 (Ker.) ref.
C.V. Rajan for the Commissioner. P.P.S.
Janarthana Raja for the Assessee.
JUDGMENT
N.V. BALASUBRAMANIAN, J.--‑‑The Income‑Tax Appellate Tribunal, Madras, has referred the following common question of law for our consideration under section 256(1) of the Income Tax Act, 1961:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that (i) interest on securities, (ii) income from house property, (iii) subsidy from the Government, (iv) interest from other cooperative institutions and banks, (V) dividends received by the assessee was business income entitled to deduction under section 80P(2)(a)(i) of the Income Tax Act 1961?"
The assessment year involved in the above tax cases reference are the years 1978‑79 and 1979‑80. The assessee is a cooperative society engaged in the business of banking and providing credit facilities to its members. The issues that arise in the above two tax cases are whether the following income can be treated as business income assessable under section 80P(2)(a)(i) of the Income Tax Act, 1961:
"(1) Interest on securities;
(2) Income from house properties;
(3) Subsidy from Government;
(4) Interest from other cooperative institutions and banks;
(5) Dividends."
In so far as the income from the interest on securities, receipts by way of subsidy from the Government, interest from other cooperative institutions are concerned, this Court in the assessee's own case for the assessment years 1970‑71, 1971‑72 and 1972‑73 considered the question whether the assessee was entitled to claim deduction under section 80P(2)(a)(i) of the Act. This Court in the case of CIT v. Madurai District Central Cooperative Bank Ltd. (1984) 48 ITR 196 held that the assessee was entitled to deduction under section 80P(2)(a)(i) of the Act in respect of the interest on securities, subsidy from Government and interest from other cooperative institutions and banks. Subsequently, this court in the case of CIT v. Madurai District Central Cooperative Bank Ltd. (1997) 224 ITR 237 also held that the assessee was entitled to claim deduction apart from the first three items‑ but also on the income from dividends under section 80P(2)(a)(i) of the Act. The result is that with reference to the items covered under ' 1, 3, 4, and 5 are concerned the order of the Appellate Tribunal holding that the assessee was entitled to claim deduction under section 80P(2)(a)(i) of the Act is in conformity with the earlier decision of this Court and, there is no infirmity in the order of the Appellate Tribunal.
In so far as the income from the house property is concerned, the question arises is whether the assessee is entitled to deduction under section 80P(2)(a)(i) of the Act. The assessee claimed that income from the meeting hall held by the assessee was assessable under the head "Income from business" and, therefore, claimed exemption under section 80P(2)(a)(i) of the Act. The Income‑tax Officer in the assessment made for the assessment years 1978‑79 and 1979‑80 held that the assessee has let out the surplus assets and the assessee had no intention to earn income from business and the income from the meeting hall should be assessed under the head "Income from the house property". The assessee preferred appeals against the orders of assessment before the Commissioner of Income‑tax (Appeals) for both the years. The Commissioner of Income‑tax (Appeals) noticed that the assessee had let out only surplus space available in its own head office building to other cooperative institutions and to its staff members and derived rent and he, therefore, held that such income should be treated as business income on the basis of an order of the Income‑tax Appellate Tribunal rendered for the assessment year 1977‑78 in I.T.A. No.1131/Mds of 1981, dated April 16, 1982, as the Appellate Tribunal was consistently taking the view right from the assessment year 1970‑71 that the income from letting out the surplus space available in the head office should be assessed under the head "Income from business". The Commissioner (Appeals), therefore, held that once the income was held to be assessable under the head "Income from business" the assessee was entitled to deduction under section 80P(2)(a)(i) of the Act.
The Revenue carried the matter in appeal before the Income‑tax Appellate Tribunal. The Appellate Tribunal also noticed its earlier decisions rendered for the assessment years 1970‑71 to 1973‑74 and held that the income derived from letting out the meeting hall was properly assessable under the head "Income from business" and the assessee was entitled to deduction under section 80P(2)(a)(i) of the Act in respect of the entire business income.
Learned counsel for the Revenue submitted that the assessee has let out only the surplus assets and, therefore, the income from such letting out, is properly assessable under the head "Income from house property: and, therefore, the assessee is not entitled to claim deduction under section 80P of the Act in respect of the rents from letting out the surplus space available with the assessee. Learned counsel for the Revenue also placed strong reliance on the decision of the Kerala High Court in the case of Kottayam Cooperative Land Mortgage Bank Ltd. v. CIT (1988) 172 ITR 443 wherein the Kerala High Court held that the income from letting out the surplus space available to the cooperative society cannot partake the character of the business income of the cooperative society and the assessee was not entitled to claim exemption under section 80P(2)(c) of the Act.
Mr. P. P. S. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that the decision of the Kerala High Court is not applicable to the facts of the case as the Kerala High Court was dealing with the case of letting out the property which was not a commercial asset, but in the instant case the property was held to be a commercial asset and the income derived from such letting out of a commercial asset was properly assessable under the head "Income from business" and correspondingly the assessee is entitled to deduction under section 80P of the Act.
We have carefully considered the rival submissions of learned counsel for the Revenue as well as learned counsel for the assessee. The fact remains that in the proceeding for income‑tax assessment of the assessee for both the assessment years, the income from letting out of the surplus space available in the cooperative society was assessed under tile head "Income from business". The Revenue has not challenged the mode of treatment of the income from such letting out under the head "Business". The only question that is raised before us is since the assessee has let out the surplus space available, the income derived from letting out the surplus space available cannot be assessed under the head "Income from business". and the assessee was not entitled to deduction under section 80P of the Act. We are of the view that once the income from letting out the property was assessed under the head "Income from business", it can be only on the basis that the property let out was a commercial asset and once it was found that the building was a commercial asset during the relevant previous year, the income derived from letting out the commercial asset is properly assessable as business income in the hands of the assessee and, consequently, the assessee is entitled to claim the deduction under section 80P(2)(a)(i) of the Act. The decision of the Kerala High Court on which reliance has been placed by learned counsel for the Revenue is not applicable to the facts of the case as it dealt with a case of letting out a property which was a non commercial asset, but, on the other hand, in the instant case, it was found that the property was a commercial asset and once it‑ is found to be commercial asset, the income derived from letting out the commercial asset, is a business income of the assessee and, consequently, the assessee is entitled to the deduction under section 80P of the Ac;.
In this connection, it is relevant to notice a decision of this Court in the case of CIT v. V.S.T. Motors (P.) Ltd. (1997) 226 ITR 155, wherein it was held that the rent derived from commercial asset was rightly assessable under the head "Business income". Following the said decision, we hold that once the income is treated as business income, the assessee is entitled to deduction under section 80P(2)(a)(i) of the Act.
We are of the view that the there is no error in the order of the Appellate Tribunal in holding that the assessee is entitled to deduction under section 80P(2)(a)(i) of the Act in respect of the income from letting out the surplus meeting hall of the assessee as well. Consequently, we answer the question of law referred to us in the affirmative holding that in respect of the interest on securities income from house property, subsidy from Government interest from other cooperative institutions and banks and dividends received by the assessee, the assessee is entitled to deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.
Accordingly, we answer the question of law referred to us in the affirmative and against the Department. No costs.
M.B.A./259/FCReference answered.