Commissioner of Income Tax vs Madurai District Co-operative Bank Ltd.

N. V. Balasubramanian, J.—The Income Tax Appellate Tribunal, Madras, has referred the following common question of law for our

consideration u/s 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 co-operative institutions and banks, (v) dividends received by the assessee

was business income entitled to deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961 ?

The assessment years involved in the above tax cases reference are the years 1978-79 and 1979-80. The assessee is a co-operative 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 u/s 80P(2)(a)(i) of the Income Tax Act, 1961 :

Interest on securities;

Income from house properties;

Subsidy from Government;

Interest from other co-operative institutions and banks;

Dividends.

In so far as the income from the interest on securities, receipts by way of subsidy from the Government, interest from other co-operative

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 u/s 80P(2)(a)(i) of the Act. This court in the case of COMMISSIONER OF Income Tax Vs.

MADURAI DISTRICT CENTRAL CO-OPERATIVE BANK LTD., held that the assessee was entitled to deduction u/s 80P(2)(a)(i) of the Act

in respect of the interest on securities, subsidy from Government and interest from other co-operative institutions and banks. Subsequently, this

court in the case of Commissioner of Income Tax Vs. Madurai District Central Co-operative Bank Ltd., also held that the assessee was entitled to

claim deduction apart from the first three items but also on the income from dividends u/s 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 u/s 80P(2)(a)(i) of the Act is in conformity with the earlier decisions 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 u/s 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 u/s 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 co-operative 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 u/s 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 u/s 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 u/s 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 Co-operative Land Mortgage Bank Ltd. Vs. Commissioner of Income

Tax, wherein the Kerala High Court held that the income from letting out the surplus space available to the co-operative society cannot partake the

character of the business income of the co-operative society and the assessee was not entitled to claim exemption u/s 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 u/s 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 co-operative society was assessed under the 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 u/s 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 u/s 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 u/s 80P of the Act.

In this connection, it is relevant to notice a decision of this court in the case of Commissioner of Income Tax Vs. V.S.T. Motors P. Ltd., ,

wherein it was held that the rent derived from a 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 u/s 80P(2)(a)(i) of the Act.

We are of the view that there is no error in the order of the Appellate Tribunal in holding that the assessee is entitled to deduction u/s 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 co-operative institutions and banks and dividends received by the assessee, the assessee is entitled to deduction u/s 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.