2012 (7) TMI 41 - AT - Income Tax

Exclusion of three items by CIT(A)in computing the deduction u/s. 80P (2)(a)(i) - interest from employees - assessee being a cooperative society - Held that - Considering the interest income as attributable to the activity of provision of credit facilities by the assessee to its members, by no stretch of imagination, it a part of the assessee s operational income by providing and accommodating their employees by giving loans. The income so earned would only be assessable u/s. 56, and cannot be considered as undertaking of an activity incidental to its principal or operational activity/s - against assessee. Income of jeep charges - Held that - Whether the collection is from the debtors or from the members, the same is not in fact a source of revenue but only a recoupment of cost. If at all there is a net gain, which could well be, it is only the net income which would in that case stand to be excluded, and that too if the same is not a part of the lending activity to its members - The Revenue has not stated any reason, much less a cogent one, in denying the assessee s claim, apart from stating of it to be an income from other sources - against revenue. Income from No Dues Certificates - Held that - As the assessee charges a nominal fee from the borrower to issue no dues certificate who wishes to transfer his borrowing or switch to another bank or cooperative society consequently that same cannot be assessed as income from other sources, being only integral to the assessee s principal business of lending - against revenue.

Summary

Issues involved:
1. Exclusion of three items in computing the deduction under section 80P(2)(a)(i) of the Income Tax Act.
2. Correct head of income under which the impugned incomes should be assessed.

Detailed Analysis:
1. The first issue in the appeal was the exclusion of three items in computing the deduction under section 80P(2)(a)(i) of the Income Tax Act. The first item was interest from employees, the second item was jeep charges, and the third item was income from 'No Dues Certificates'. The Revenue argued that these items should be considered as income from other sources, while the assessee contended that they were integral to its principal business of providing credit facilities to its members. The Tribunal analyzed each item separately. Regarding interest from employees, the Tribunal held that it did not qualify for deduction under section 80P(2)(a)(i) as it did not flow from providing credit facilities to its members. The Tribunal also discussed the relevant legal provisions and previous court decisions to support its conclusion.

2. The second item of income, 'jeep charges', was explained by the assessee as a recovery of expenses incurred for trips made by staff to recover dues from defaulting borrowers. The Tribunal agreed with the assessee that jeep charges were not a source of income but a recoupment of costs. The net income, if any, could be excluded only if it was not part of the lending activity to members. The Tribunal found no reason provided by the Revenue to deny the assessee's claim, and hence decided in favor of the assessee.

3. The third item of income was from 'No Dues Certificates', which the assessee argued was integral to its lending business and not income from other sources. The Tribunal agreed with the assessee's position, stating that these certificates were essential to the principal business of lending and should not be assessed as income from other sources.

4. The second issue involved determining the correct head of income under which the impugned incomes should be assessed. The Tribunal clarified that the primary issue was not the eligibility of incomes for deduction under section 80P(2)(a)(i) but whether they should be assessed as income from other sources under section 56 or as profits and gains of business under section 28. The Tribunal emphasized that the assessee's huge brought forward loss precluded any deduction under section 80P(2)(a)(i) due to nil gross total income. The Tribunal further discussed relevant legal precedents and concluded that all three incomes, irrespective of their eligibility for deduction under section 80P(2)(a)(i), should be assessed as business income and set off against the brought forward loss under section 72.

5. The Tribunal also addressed the case law relied upon by the assessee, emphasizing that the decisions were not directly relevant to the issue at hand and were applicable to businesses engaged in banking, which was not the case in the present appeal. The Tribunal disposed of the Revenue's appeal based on the analysis and conclusions reached regarding the issues involved in the case.