1998 JTR(SC) 692
1998 AIR(SC) 2955 ; 1998 AIR(SCW) 265 ; 1998 AIR(SCW) 2655 ; 1999 BankJ 589 ; 1998 148 CTR 226 ; 1998 233 ITR 282 ; 1998 5 JT 172 ; 1998 4 Scale 263 ; 1998 6 SCC 129 ; 1998 TaxLR 902 ; 1998 99 Taxman 404 ; 1998 6 Supreme 78
1998(6) Supreme 78
Supreme Court of India
(From Karnataka High Court)
Sujata V. Manohar & M. Srinivasan, JJ.
The Commissioner of Income Tax,Bangalore -Appellant
versus
The Bangalore Distt. Coop. Central Bank Ltd. -Respondent
Civil Appeal Nos. 1300-1302 of 1993
Decided on 24-7-1998
Counsel for the Parties :
For the Appellant : K.N. Shukla, Sr. Advocate, Hemant Sharma, (N.D.B. Raju) Advocate for D.K. Prasad, Advocates.
For the Respondent : G. Sarangi, Sr. Advocate, Ms. Janaki Ramachandran, Advocate.
Important Point
Income by way of interest in Govt. Securities and Dividends on shares of IFCI to the Bangalore Distt. Coop. Central Bank Ltd. is deductable u/s. 80P(2)(a)(i) of I.T. Act 1961 from its gross total income.
Act Referred :INCOME TAX ACT : S.80(p)(2)(a)(i)
(A) Section 80P(2)(a)(i) of the Income Tax Act, 1961 allows a deduction from the gross total income of a cooperative society engaged in banking or providing credit facilities to its members, covering the whole of the amount of profits and gains of business attributable to such activities. The present case involves a cooperative society carrying on banking business that claimed deduction on interest earned on Government Securities and dividends, with the income being held attributable to its banking operations under this provision.
(B) The key legal principle is that income must be attributable to the qualifying banking or credit business of a cooperative society to qualify for deduction under Section 80P(2)(a)(i), and statutory compliance under banking and cooperative laws supports such attribution. The court emphasized that findings of fact by the High Court regarding the business attribution are not to be disturbed in the absence of contradictory material evidence.
Facts of the case:
The assessee is a Cooperative Society engaged in banking business. For assessment years 1977-78, 1978-79 and 1979-80, it claimed deduction under Section 80P(2)(a)(i) on income from interest on Government Securities and dividends. The Income Tax Officer and the Appellate Assistant Commissioner disallowed the claim, holding that the investments were made out of Reserve Fund and not circulating capital. The Tribunal and the High Court held that the income was attributable to the assessees banking business and allowed the claim.
Findings of Court:
The High Court found that the interest income was attributable to the assessees business of banking. The Revenue did not challenge this finding on factual grounds and no materials were placed to upset the Tribunals factual conclusion. The earlier precedent distinguishing reserve fund from circulating capital was distinguished as not applicable due to the specific business attribution finding.
Issues:
Whether income from Government Securities and dividends can qualify for deduction under Section 80P(2)(a)(i) when the investments are sourced from reserve funds and not strictly circulating capital, and whether the finding of attribution to banking business is sustainable.
Ratio Decidendi:
Where a cooperative society engaged in banking derives income such as interest on Government Securities, the income is eligible for deduction under Section 80P(2)(a)(i) if it is attributable to the societys banking business, and courts will not interfere with well-founded factual findings supporting such attribution.
Result:
The appeals are dismissed with no order as to costs.
(A) Section 80P(2)(a)(i) of the Income Tax Act, 1961 allows a deduction from the gross total income of a cooperative society engaged in banking or providing credit facilities to its members, covering the whole of the amount of profits and gains of business attributable to such activities. The present case involves a cooperative society carrying on banking business that claimed deduction on interest earned on Government Securities and dividends, with the income being held attributable to its banking operations under this provision.
(B) The key legal principle is that income must be attributable to the qualifying banking or credit business of a cooperative society to qualify for deduction under Section 80P(2)(a)(i), and statutory compliance under banking and cooperative laws supports such attribution. The court emphasized that findings of fact by the High Court regarding the business attribution are not to be disturbed in the absence of contradictory material evidence.
Facts of the case:
The assessee is a Cooperative Society engaged in banking business. For assessment years 1977-78, 1978-79 and 1979-80, it claimed deduction under Section 80P(2)(a)(i) on income from interest on Government Securities and dividends. The Income Tax Officer and the Appellate Assistant Commissioner disallowed the claim, holding that the investments were made out of Reserve Fund and not circulating capital. The Tribunal and the High Court held that the income was attributable to the assessees banking business and allowed the claim.
Findings of Court:
The High Court found that the interest income was attributable to the assessees business of banking. The Revenue did not challenge this finding on factual grounds and no materials were placed to upset the Tribunals factual conclusion. The earlier precedent distinguishing reserve fund from circulating capital was distinguished as not applicable due to the specific business attribution finding.
Issues:
Whether income from Government Securities and dividends can qualify for deduction under Section 80P(2)(a)(i) when the investments are sourced from reserve funds and not strictly circulating capital, and whether the finding of attribution to banking business is sustainable.
Ratio Decidendi:
Where a cooperative society engaged in banking derives income such as interest on Government Securities, the income is eligible for deduction under Section 80P(2)(a)(i) if it is attributable to the societys banking business, and courts will not interfere with well-founded factual findings supporting such attribution.
Result:
The appeals are dismissed with no order as to costs.
Judgment
Srinivasan, J.-The respondent hereinafter referred to as the ‘assessee’ is a Cooperative Society engaged in banking business. For the assessment years 1977-78, 1978-79 and 1979-80, the assessee claimed deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 on the income by way of interest on Government Securities and Dividends on shares of Industrial Financial Corporation. The Income Tax Officer held that the investments were made out of reserves and disallowed the claim. On appeal, the Appellate Assistant Commissioner observed in his order that the Reserve Fund of the assessee was about Rs. 33 lakhs and the circulating capital was about Rs. 22 lakhs and held that the investment was out of the Reserve Fund. Consequently, he confirmed the order of the I.T.O.
2. On further appeal, the Tribunal accepted the contention of the assessee that interest income was attributable to the assessee’s business income. The Tribunal followed its earlier order in I.T.A. Nos. 665 to 668/Bang./1981 dated 30th July, 19821. Consequently the appeal was allowed and the matter was remitted to the I.T.O. to determine the deduction available to the assessee under Section 80P(2)(a)(i). On a reference under Section 256(2), the High Court of Karnataka agreed with the Tribunal and answered the question in favour of the assessee. The aggrieved Revenue has preferred this appeal.
3. Section 80P(1) and (2)(a)(i) are in the following terms:
“80P. (1) Where, in the case of an assessee being a cooperative 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 cooperative society engaged in-
(i) carrying on the business of banking or providing credit facilities to its members, or
(ii) ********
(iii) ********
(iv) ********
(v) ********
(vi) ********
(vii) ********
the whole of the amount of profits and gains of business attributable to any one or more of such activities”.
4. There is no dispute that the assessee is a cooperative society carrying on the business of banking. If the income in question is attributable to the said activity, there is no doubt that the same is to be deducted from the gross total income. The Tribunal has found in this case that the interest income is attributable to the business of the assessee. That finding has not been challenged on factual basis by the Revenue. No materials have been placed before us to upset the factual conclusion of the Tribunal.
5. Learned counsel for the appellant places reliance on the decision of this Court in Madhya Pradesh Cooperative Bank Ltd. v. Additional Commissioner of Income Tax etc. etc.2 wherein the decision of the Madhya Pradesh High Court in Madhya Pradesh State Cooperative Bank Ltd. v. Addl. Commissioner of Income Tax3 was affirmed. The Bench held that circulating capital was that which was put into circulation or turned over to earn profits and Government securities coming out of the reserve fund which could not be easily encashed and which could be utilised only when contingencies arose could not be considered to be circulating capital or stock-in-trade. It was therefore held that interest on Government securities placed with the State Bank of India or the Reserve Bank of India could not qualify for exemption under Section 81 (now Section 80P) of the Income Tax Act. The decision was rendered on the facts of that case and it is not applicable in the present case in view of the finding of the Tribunal that the income in question is attributable to the business of the assessee.
6. Learned counsel for the assessee has invited our attention to Sections 24 and 56 of the Banking Regulation Act, 1949 as well as Section 57(2) of the Karnataka Cooperative Societies Act, 1959 and Rule 23(3) of the Karnataka Cooperative Societies Rules, 1960 in support of his contention that the investments have been made by the assessee in compliance with the statutory provisions and in order to carry on the business of banking the same was necessary and consequently such investments were part of the business activities falling within the scope of Section 80P(2)(a)(i).
7. He has also referred to the rulings in Bihar State Cooperative Bank Ltd. v. Commissioner of Income Tax4, Cambay Electric Supply Industrial Co. Ltd. v. Commissioner of Income Tax Gujarat-II5 in support of his contentions that the expression ‘attributable to’ is of very wide import. It is unnecessary in this case to consider the same in detail.
8. On the fact situation of the case, we do not find any justification to interfere with the conclusion of the High Court. The appeals suffer dismissal. There will be no order as to costs.
(N.K.R.) Appeals dismissed.
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