COMMISSIONER OF INCOME TAX vs MADURAI DISTRICT CO-OPERATM BANK LTD.

N. V. BALASUBRAMANLAM, J.

The 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 and (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 issue that arises 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; and

Dividends.

Insofar as the income from the interest on securities receipts by way of subsidy from Government, interest from other co-operative institutions are

concerned, this Court in the assessee''s own case for the assessment year 1970-71, 1971-72 and 1972-73 considered the question whether the

assessee was entitled to claim deduction u/s 8OP(2)(a)(i) of the Act. This Court in the case in COMMISSIONER OF Income Tax Vs.

MADURAI DISTRICT CENTRAL CO-OPERATIVE BANK LTD., held that the assessee was entitled to deduction u/s 8OP(2)(a)(i) of the

Act in respect of the interest m 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 8OP(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 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 Tribunal.

Insofar as the income from the house property is concerned, the question arises is whether the assessee is entitled to deduction u/s 80P0(a)(i) of

the Act. The assessee claimed that income from the meeting hall held by the assessee was assessable under the head 1ncorne from business"" and,

therefore, claimed exemption u/s 80PQ)(a)(i) of the Act. The Income Tax Officer in the assessment made for the asst. yrs. 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 (Appeals) for both the years. The Commissioner (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 Tribunal rendered for the assessment year 1977-78 in ITA

No. 1131/Mds/1981, dt. 16th April, 1982, as the 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 Tribunal. The Tribunal also noticed its earlier decisions rendered for the asst. yrs. 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 80(P)(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 1ncome 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 assessees, on the other hand, submitted that the decision of the Kerala High Court is not

applicable to the facts of 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 the 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 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 8OP(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 CIT v. V.S.T. Motors (P) Ltd. (1997) 140 CTR (Mad) 245 :

(1997) 226 IM 155 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 80PQ)(a)(i) of the

Act.

We are of the view that there is no error in the order of the Tribunal in holding the assessee entitled to deduction u/s 80P0(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 8OP(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.