2008 (1) TMI 418 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to deduction under Section 80P of the Income Tax Act, 1961 for parking and visiting charges.
2. Entitlement to deduction under Section 80P for income from the sale of scrap.

Issue-Wise Analysis:

1. Entitlement to deduction under Section 80P of the Income Tax Act, 1961 for parking and visiting charges:

The core issue is whether the assessee, engaged in the banking business, is entitled to deductions under Section 80P(2)(a)(i) of the Income Tax Act, 1961 for parking and visiting charges amounting to Rs. 2,84,606. The assessee argued that these charges were attributable to the main banking business since they arose from the seizure and parking of vehicles due to non-payment by clients. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] had denied this deduction, asserting that such income did not derive directly from the banking business but from non-performing assets (NPA) accounts, and should be treated as income from other sources.

However, the Tribunal considered the broader interpretation of the term "attributable to" as opposed to "derived from," referencing the Supreme Court's judgment in Cambay Electric Supply Industrial Co. Ltd. vs. CIT, which established that "attributable to" covers receipts from sources other than the direct conduct of business. The Tribunal concluded that the activity of seizing and parking vehicles had a direct nexus with the primary banking activity of granting loans. Hence, the income from parking and visiting charges was deemed attributable to the banking business, and the assessee was entitled to the deduction under Section 80P(2)(a)(i).

2. Entitlement to deduction under Section 80P for income from the sale of scrap:

The second issue concerns whether the income from the sale of scrap amounting to Rs. 27,000 qualifies for deduction under Section 80P(2)(a)(i). The assessee contended that this income was incidental to its main banking business. The CIT(A) had rejected this claim, categorizing the income as receipts from "other sources."

The Tribunal, drawing from various precedents, including the Hon'ble Madras High Court's decision in CIT vs. Universal Radiators (P) Ltd. and CIT vs. Wheels India Ltd., which held that income from incidental activities like sale of scrap is attributable to the main business, ruled in favor of the assessee. The Tribunal recognized that the sale of scrap was related to the main banking activity and thus qualified for the deduction under Section 80P(2)(a)(i).

Conclusion:

The Tribunal concluded that the income from parking and visiting charges, as well as the sale of scrap, was attributable to the main banking business of the assessee. Consequently, the CIT(A)'s decision was set aside, and the AO was directed to allow the deductions under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The appeal of the assessee was allowed in full.