Gauhati High Court
Commissioner Of Income-Tax vs The Industrial Co-Operative Bank Ltd. on 7 December, 1991
Equivalent citations: [1992]196ITR174(GAUHATI)
JUDGMENT B.P. Saraf, J.
1. By this reference, the Income-tax Appellate Tribunal, Gauhati, has referred the following question of law to this court for opinion :
"Whether, on the facts and in the circumstances of the case and on a proper construction of Section 80P(2)(c) read with Section 80P(2)(f) of the Income-tax Act, 1961, the Tribunal was justified in holding that the letting out of house property, collection of rent therefrom, repairs to the property, constituted 'activities' as envisaged in Section (2)(f) and, on that basis, in deciding that the assessee was entitled to deduction of Rs. 20,000 in respect of the income from house property chargeable under Section 22 of the said Act ?"
2. The assessee is a co-operative society engaged in carrying on the business of banking, the income whereof is totally exempt from tax under Section 80P(2)(a) of the Income-tax Act, 1961 ("the Act"). In the assessment years 1977-78 and 1978-79, in addition to income from banking business, the assessee had also income from newly constructed house property. The assessee claimed deduction of Rs. 20,000 out of the income from this activity for each of the two years by virtue of the provisions of Section 80P(2)(c) of the Act. The Income-tax Officer did not allow the claim. The assessee went in appeal before the Commissioner of Income-tax (Appeals) ("Commissioner (Appeals)"). The Commissioner (Appeals) allowed the appeal and held that the assessee was entitled to deduction of Rs. 20,000 in each assessment year in respect of its income under the head "Income from house property" under Section 80P(2)(c) of the Act. Against the order of the Commissioner (Appeals), the Revenue went in appeal to the Tribunal.
3. The case of the Revenue before the Tribunal was that the claim for deduction under the aforesaid provisions was not allowable in view of the provisions contained in Section 80P(2)(f) of the Act which restricted the benefit of deduction only to societies whose income did not exceed Rs. 20,000. The further case of the Revenue was that, in order to entitle a society to get the benefit of Clause (c), it is necessary that the principal activity of the society should be the activity the income attributable to which is claimed to be deductible from taxable income. A society like the assessee-society engaged in carrying on the business of banking can claim the benefit of deduction only in respect of its income from its business of banking--it cannot claim any further deduction of Rs. 20,000 in respect of profits or gains attributable to letting out a house. It was also contended that such income falls under Clause (f) which restricts the exemption in respect of income from house property chargeable under Section 22 only to certain specified societies whose income does not exceed Rs. 20,000. These contentions of the Revenue were rejected by the Tribunal and the order of the Commissioner (Appeals) allowing the deduction was affirmed. Aggrieved by this order of the Tribunal, the Commissioner filed an application under Section 256(1) of the Act for reference to this court and, at his instance, the aforesaid question has been referred by the Tribunal.
4. Mr. S. K. Senapati, learned counsel for the Revenue, reiterates the stand taken by the Revenue before the Tribunal and submits that Clause (c) of Section 80P(2) is not applicable to the facts of the present case.
5. We have considered the submission of learned counsel. Section 80P grants deduction in respect of certain categories of income of a co-operative society. The total income is exempt from tax in certain cases whereas the profits and gains attributable to certain specified activities are exempt to the extent specified therein in some other cases. Section 80P, so far as relevant, reads as follows :
"80P. Deduction in respect of income of co-operative societies,--(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in Sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in Sub-section (2), in computing the total income of the assessee.
(2) The sums referred to in Sub-section (1) shall be the following, namely :-
(a) in the case of a co-operative society engaged in--
(i) carrying on the business of banking or providing credit facilities to its members, or ...
the whole of the amount of profits and gains of business attributable to any one or more of such activities : . . .
(c) in the case of a co-operative society engaged in the activities other than those specified in Clause (a) or Clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,--
(i) where such co-operative society is a consumers' co-operative society, forty thousand rupees ; and
(ii) in any other case, twenty thousand rupees.
Explanation.--In this clause, 'consumers' co-operative society' means a society for the benefit of the consumers ; . . .
(f) in the case of a co-operative society, not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities chargeable under Section 18 or any income from house property chargeable under Section 22.
Explanation.--For the purpose of this section, an 'urban consumers' co-operative society' means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment. . . "
6. From a reading of this section, it is clear that, in the case of a cooperative society engaged in carrying on the business of banking, the whole of the amount of "profits and gains of business" attributable to such business is to be deducted in computing the total income of the society. In other words, in respect of such income, there is a total exemption from tax. This is under Clause (a). Clause (c) refers to profits and gains attributable to activities other than those specified in Clause (a) or Clause (b). Such activity may be carried on by the society "either independently or in addition to" the activities specified in those two clauses. A society engaged in the business of banking which is one of the activities specified in Clause (a), may also carry on other activities either independently or in addition to its banking business. Computation of income from such other activities will be governed by Clause (c) and the profits and gains attributable to such activities, except in the case of a consumer co-operative society, shall be restricted to Rs. 20,000. The expression "profits and gains" in Clause (c) is not confined to "profits and gains of business", as is the case under Clause (a). In this clause, the expression used is "profits and gains attributable to such activities". Constructing a house and letting it out to earn rental income is also an activity. Income derived by way of rent from such property will undoubtedly be profits and gains attributable to the activity of constructing and letting out the house. In that view of the matter, rent received by the society from letting out the house property constructed by it can be held to be profit or gain "attributable to the activity of letting out the house". It is not necessary that such activity should be the primary activity of the society. It may be carried on by the society either independently or in addition to activities specified in Clause (a) or Clause (b). In the instant case, the society is engaged in carrying on the business of banking which is an activity specified in Clause (a). In addition thereto, it also carried on the activity of constructing and letting out house property and derived profits and gains therefrom. Such a case will clearly fall within the ambit of Clause (c) of Section 80P(2) and the society would be entitled to get deduction from the profits and gains attributable to such activity to the extent of Rs. 20,000. Clause (f) has no application to such a case.
7. We are, therefore, of the opinion that the Tribunal was right in holding that the assessee was entitled to deduction under Clause (c) of Section 80P(2) of the Act. Accordingly, the question referred to us is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.
8. No order as to costs.
D.N. Baruah, J.
9. I agree.