1982 (4) TMI 81 - AT - Income Tax

Bank Deposits, Interest Income, Interest On Securities, Provident Fund, Providing Credit Facilities

Summary

Issues Involved:
1. Classification of income as business income or otherwise for exemption under section 80P(2)(a)(ii).
2. Applicability of section 80P(2)(a)(ii) to investments as stock-in-trade.
3. Validity of reopening of assessments under section 147(b).

Issue-wise Detailed Analysis:

1. Classification of Income as Business Income or Otherwise for Exemption under Section 80P(2)(a)(ii):
The primary issue was whether the income earned by the assessee, a co-operative society, from its various activities could be classified as business income eligible for exemption under section 80P(2)(a)(ii). The assessee argued that all its income, except for income from property, should be considered business income and thus exempt under section 80P. The Income Tax Officer (ITO) disagreed, asserting that only the income from providing credit facilities to its members was exempt, while income from other investments was taxable. The Commissioner (Appeals) sided with the assessee, holding that the income from investments was part of the business income and thus exempt. The Tribunal upheld this view, noting that the assessee's investments were part of its business activities and represented its stock-in-trade, thus qualifying for exemption under section 80P(2)(a)(ii).

2. Applicability of Section 80P(2)(a)(ii) to Investments as Stock-in-Trade:
The Tribunal examined whether the investments made by the assessee could be treated as its stock-in-trade. The assessee contended that its investments were part of its business activities and should be treated as stock-in-trade. The ITO, however, argued that the investments were not part of the assessee's business of providing credit facilities and thus were not exempt. The Tribunal referred to various judicial precedents, including the Gujarat High Court's decision in Ahmedabad District Co-operative Bank Ltd., which held that investments made by a bank in easily realisable securities could be considered part of its stock-in-trade. The Tribunal concluded that the investments made by the assessee were part of its business activities and thus eligible for exemption under section 80P(2)(a)(ii).

3. Validity of Reopening of Assessments under Section 147(b):
The Tribunal also addressed the issue of whether the reopening of assessments for the assessment years 1973-74 and 1974-75 under section 147(b) was valid. The ITO had reopened the assessments on the grounds that new information had come to light, suggesting that the assessee's income had escaped assessment. The Commissioner (Appeals) found that the reopening was based on a mere change of opinion, which did not justify the reopening of assessments. The Tribunal agreed, noting that the original assessments had correctly allowed the exemption under section 80P(2)(a)(i), and thus no income had escaped assessment. Consequently, the Tribunal held that the reopening of assessments under section 147(b) was invalid.

Conclusion:
The Tribunal dismissed the appeals, upholding the Commissioner (Appeals)'s decision that the assessee's income from investments was part of its business income and thus exempt under section 80P(2)(a)(ii). The Tribunal also held that the reopening of assessments under section 147(b) was invalid, as there was no new information justifying the reopening.