Madras High Court
Commissioner Of Income Tax vs Madurai District Co-Operatm Bank Ltd. on 11 November, 1997
Equivalent citations: (1999)156CTR(MAD)348
JUDGMENT N. V. BALASUBRAMANLAM, J.
The 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 co-operative institutions and banks and (v) dividends received by the assessee was business income entitled to deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 ?"
2. 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 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 co-operative institutions and banks; and
5. 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 under section 8OP(2)(a)(i) of the Act. This Court in the case in CIT v. Madurai District Central Co-operative Bank Ltd. (1984) 42 M (Mad) 27 : (1984) 148 ITR 196 (Mad) held that the assessee was entitled to deduction under section 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 CIT v. Madurai Distjdct Central Co-operative Bank Ltd. (1997) 224 ITR 237 (Mad) 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 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 under section 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.
3. Insofar as the income from the house property is concerned, the question arises is whether the assessee is entitled to deduction under section 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 under section 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 under section 80P(2)(a)(i) of the Act.
4. 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 under section 80(P)(2)(a)(i) of the Act in respect of the entire business income.
5. 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 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 Co-operative Land Mortgage Bank Ltd. v. CIT (1988) 70 CTR (Ker) 165 : (1988) 172 ITR 443 (Ker) 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 under section 80P(2)(c) of the Act.
6. 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 under section 80P of the Act.
7. 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 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 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 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 under section 80P of the Act.
8. 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 ,(Mad) 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 under section 80PQ)(a)(i) of the Act.
9. We are of the view that there is no error in the order of the Tribunal in holding the assessee entitled to deduction under section 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 under section 8OP(2)(a)(i) of the Income Tax Act, 1961;
10. Accordingly, we answer the question of law referred to us in the affirmative and against the department. No costs.