1997 (12) TMI 134 - AT - Income Tax

Issues Involved:
1. Deduction under section 80P(2)(a)(i) for interest earned from banks other than Co-operative Banks.
2. Deduction under section 80P(2) for locker rent income.
3. Deduction under section 80P(2)(a)(i) for commission income.
4. Allowance of proportionate expenses for earning interest income.
5. Exemption under section 80P(2)(a) for dividend income.
6. Allowance of proportionate expenses for earning dividend income.

Detailed Analysis:

1. Deduction under section 80P(2)(a)(i) for interest earned from banks other than Co-operative Banks:

The Revenue contended that the assessee bank was not entitled to deduction under section 80P(2)(a)(i) for interest earned from banks other than Co-operative Banks, citing the Madhya Pradesh High Court decision in M.P. State Co-operative Bank Ltd v. Addl. CIT and similar cases. The CIT(A) reversed the A.O.'s decision, holding that the Gujarat Co-operative Societies Act differed materially from the M.P. Act, and the investments were short-term deposits from temporarily surplus funds, thus qualifying for deduction. However, the Tribunal found that the provisions of the two Co-operative Societies Acts were closely similar and the Supreme Court's affirmation of the M.P. High Court's decision was applicable. The Tribunal concluded that the interest earned from reserve funds invested in banks other than Co-operative Banks did not qualify for exemption under section 80P(2)(a)(i).

2. Deduction under section 80P(2) for locker rent income:

The A.O. denied exemption for locker rent income, relying on the M.P. High Court decision in Bhopal Co-operative Central Bank v. CIT. The CIT(A) allowed the exemption, citing a later M.P. High Court decision. However, the Tribunal noted that the later decision did not specifically address locker rent and followed the earlier decision and a recent M.P. High Court decision in CIT v. Jila Sahakari Kendriya Bank Maryadit, which held that locker rent was not income from banking business. Consequently, the Tribunal reversed the CIT(A) and denied the exemption for locker rent income.

3. Deduction under section 80P(2)(a)(i) for commission income:

The A.O. disallowed the exemption for commission income due to the lack of details establishing its nexus with banking business. The CIT(A) allowed the exemption based on judicial decisions. The Tribunal set aside this issue, directing the A.O. to re-examine the details and establish the nexus of the commission income with the banking business, allowing the exemption if justified.

4. Allowance of proportionate expenses for earning interest income:

The Tribunal directed the A.O. to allow proportionate expenses related to the investment of reserve funds, ensuring that only the net interest income is taxed. The assessee was instructed to provide details of the expenses and the exact interest earned for verification by the A.O.

5. Exemption under section 80P(2)(a) for dividend income:

The A.O. disallowed the exemption for dividend income from institutions other than co-operative societies. The CIT(A) remanded the issue to the A.O. for re-examination. The Tribunal upheld the CIT(A)'s decision, allowing the assessee to press its claim for deduction under section 80P(2)(a)(i) before the A.O., who would examine it on merits.

6. Allowance of proportionate expenses for earning dividend income:

The Tribunal noted that this issue was consequential to the decision on the exemption for dividend income. Since the issue was remanded to the A.O., the Tribunal found this objection to be infructuous and filed it accordingly.

Conclusion:

The Tribunal allowed the Revenue's appeal in part, denying the exemptions for interest income from non-co-operative banks and locker rent but remanded the issues of commission income and dividend income for re-examination. The assessee's cross-objections were also allowed in part, directing the A.O. to consider proportionate expenses for earning interest and dividend income.

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