2010 (1) TMI 851 - AT - Income Tax

Whether assessee is entitled for deduction under section 80P(2)(a)(i) on the interest received under section 244A of the Act on the refund of tax. - Held that - the purpose of allowing deduction under section 80P(2)(a)(i) to a co-operative society would be frustrated, if in peculiar circumstances, such as the one prevailing in the present case, the assessee is compelled to pay tax on its income, due to circumstances beyond its control. - In view of the fact that the expression attributable to has been used in section 80P visa-vis the business of the banking , we have absolutely no doubt in our mind that such interest is attributable to the banking business and there cannot be any question of denial of deduction under section 80P on such interest. - interest has been awarded on the refund of income-tax which was paid in relation to income from banking business otherwise eligible for deduction under section 80P(2)(a)(i). - Deduction allowed.

Issues Involved:
1. Denial of deduction under section 80P on the amount of interest on income-tax refund.
2. Applicability of the principle of consistency.
3. Head of income under which interest on income-tax refund falls.
4. Meaning of the expression "profits and gains" of business as used in section 80P.
5. Scope of the phrase "attributable to" the eligible business.

Detailed Analysis:

1. Denial of deduction under section 80P on the amount of interest on income-tax refund:
The primary issue was whether the assessee, a Co-operative Bank, was entitled to a deduction under section 80P(2)(a)(i) on the interest received under section 244A of the Act on the refund of tax. The Assessing Officer had denied this deduction, categorizing the interest received on the income-tax refund as non-banking activity income and thus not qualifying for the deduction under section 80P(2)(a)(i). The CIT(A) upheld this view, stating that the interest did not fall under the head "Profits and gains of business or profession" and was not attributable to the banking business.

2. Applicability of the principle of consistency:
The assessee argued that the principle of consistency should apply since the Tribunal had decided the same issue in the assessee's favor in the assessment year 2001-02, and that decision had attained finality. However, the Tribunal noted that the principle of consistency was not unexceptionable and that each year is a separate and independent unit of assessment. The Tribunal emphasized that if a subsequent Bench finds it difficult to follow an earlier view due to any convincing reason, it should refer the matter to a Larger Bench rather than follow the earlier view blindly. Hence, the Tribunal decided to address the issue on its merits rather than applying the principle of consistency.

3. Head of income under which interest on income-tax refund falls:
The Tribunal examined whether the interest on income-tax refund should be classified under the head "Profits and gains of business or profession" or "Income from other sources." It concluded that the interest on income-tax refund does not fall under the head "Profits and gains of business or profession" because the payment of income-tax is not an expenditure incurred for the purpose of business. The Tribunal held that the interest on income-tax refund is assessable under the head "Income from other sources."

4. Meaning of the expression "profits and gains" of business as used in section 80P:
The Tribunal analyzed the scope of the expression "profits and gains" of business as used in section 80P. It noted that the expression "profits and gains" is wider in scope than the income chargeable under the head "Profits and gains of business or profession." The Tribunal referred to various judicial precedents and concluded that "profits and gains" include not only the income directly arising from the business but also other incomes having some relation with the business. Therefore, the interest on income-tax refund, though falling under the head "Income from other sources," would still be considered as "profits and gains" of the banking business.

5. Scope of the phrase "attributable to" the eligible business:
The Tribunal examined the phrase "attributable to" used in section 80P and noted that it has a wider connotation than the phrase "derived from." The Tribunal referred to various judicial precedents, including the judgment of the Hon'ble Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT, which held that the expression "attributable to" covers receipts from sources other than the actual conduct of the business. The Tribunal concluded that the interest on income-tax refund has a commercial and causal connection with the banking business and is attributable to the banking business.

Conclusion:
The Tribunal held that the assessee is entitled to deduction under section 80P(2)(a)(i) on the amount of interest received under section 244A on the refund of tax. The appeal was allowed.

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