1982 (7) TMI 111 - AT - Income Tax

Issues Involved:
1. Eligibility for exemption under section 80P of the Income-tax Act, 1961.
2. Interpretation of the term "attributable to" in section 80P.
3. Applicability of various High Court and Supreme Court decisions.
4. Classification of income from interest on securities as business income.

Detailed Analysis:

1. Eligibility for Exemption under Section 80P of the Income-tax Act, 1961:
The primary issue was whether the Karnataka State Co-operative Apex Bank Ltd. (the assessee) was eligible for exemption under section 80P(2) of the Income-tax Act, 1961, for its income from interest on securities invested out of the reserve fund. The Income Tax Officer (ITO) had initially allowed this exemption but later reopened the assessments based on the Madhya Pradesh High Court decision in M.P. State Co-operative Bank Ltd. v. Addl. CIT [1979] 119 ITR 327.

2. Interpretation of the Term "Attributable to" in Section 80P:
The assessee argued that the term "attributable to" in section 80P(2) had a broader scope, as interpreted by the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. This interpretation was also supported by the Allahabad High Court in CIT v. Co-operative Cane Development Union Ltd. [1979] 118 ITR 770. The first appellate authority agreed with this interpretation and allowed the assessee's appeals, emphasizing that the term "attributable to" enlarged the scope of exemption under section 80P.

3. Applicability of Various High Court and Supreme Court Decisions:
The departmental representative relied on several decisions, including the Andhra Pradesh High Court in Andhra Pradesh Co-operative Central Land Mortgage Bank Ltd. v. CIT [1975] 100 ITR 472 and the Kerala High Court in Malabar Co-operative Central Bank Ltd. v. CIT [1975] 101 ITR 87. However, the first appellate authority and the Tribunal found that these decisions did not address the interpretation of the term "attributable to" in section 80P. The Tribunal noted that the decision of the Madhya Pradesh High Court was rendered in the context of section 81, which had different wording compared to section 80P.

4. Classification of Income from Interest on Securities as Business Income:
The Tribunal held that merely because the interest on securities was assessable under a separate head, it did not cease to be business income. This was supported by the Supreme Court decision in CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306, which stated that the heads of income were intended merely to indicate the classes of income and did not delimit the sources from which income arose. The Tribunal concluded that the interest on securities invested out of the reserve fund was "attributable to" the assessee's business of banking or providing credit facilities to its members, and thus eligible for exemption under section 80P.

Conclusion:
The Tribunal upheld the first appellate authority's decision, finding no merit in the departmental appeals. It was concluded that the interest income from securities, invested out of the reserve fund as mandated by statutory requirements, was attributable to the assessee's business of banking or providing credit facilities to its members. Therefore, the assessee was rightly exempted on this income under section 80P(2) of the Income-tax Act, 1961. The appeals were dismissed.

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