1986 (6) TMI 243 - AT - Income Tax

Summary

Issues:
1. Exemption under section 80P of the Income Tax Act for income from banking business, house property, and dividends.
2. Interpretation of sections 80P(2)(c) and 80P(2)(f) regarding the scope of activities covered for exemption.
3. Whether income from letting out a building by a cooperative society is incidental to its main business for exemption under section 80P.
4. Application of commercial principles in determining income from business.
5. Exemption eligibility for dividend income under section 80L.

Analysis:
The judgment by the Appellate Tribunal ITAT Hyderabad involved appeals by a cooperative society engaging in banking business, with income from a let-out building, banking operations, and dividends. The Income Tax Officer (ITO) initially allowed exemption under section 80P(1) for banking income but denied exemption for house property income exceeding Rs. 20,000 under section 80P(2)(f) and for dividends under section 80L. The CIT (A) upheld the denial of exemption under section 80P(2)(c) due to a monetary ceiling of Rs. 20,000 and distinct interpretation of 'profits and gains of business.' The Tribunal considered the cooperative society's building usage, emphasizing that letting out a portion was incidental to the main banking business, allowing exemption under section 80P(2)(a)(i).

The Tribunal also accepted an alternative claim for exemption under section 80P(2)(c), considering the wider scope of 'profits and gains attributable to such activities.' It distinguished the case from a previous Andhra Pradesh High Court decision, emphasizing the rental income's attribution to the business activity of the society. The judgment applied commercial principles and relevant legal provisions to allow the appeals regarding income from the house property, setting aside the CIT (A)'s order.

Regarding the deduction for dividends, the Tribunal followed the Andhra Pradesh High Court's decision, denying the cooperative society any deduction for dividend income. The judgment concluded by partially allowing the appeals, granting exemption for income from the house property but upholding the denial of deduction for dividend income.