2005 (11) TMI 181 - AT - Income Tax

Summary

Issues Involved:
1. Additional Ground of Appeal: Whether the additional ground raised by the assessee is academic.
2. Charges Specified for the Appellant-Bank: Whether the appellant-bank features as one of the banks where charges have been specified.
3. Deduction under Section 80P: Whether the profit on the sale of Government Securities is eligible for deduction under Section 80P of the Income Tax Act.
4. Pro Rata Expenditure: Whether the entire income from the profit on the sale of Government Securities should be taxed without allowing pro rata expenditure attributable to earning these incomes.
5. Broken Period Interest: Whether the broken period interest received on the sale of Government Securities is eligible for deduction under Section 80P.

Detailed Analysis:

1. Additional Ground of Appeal:
The assessee raised an additional ground of appeal, which the CIT(A) deemed academic. The Tribunal noted that since all grounds are interlinked, they would be taken up together. The Tribunal did not find merit in the CIT(A)'s view that the additional ground was merely academic, indicating it needed substantive consideration.

2. Charges Specified for the Appellant-Bank:
The CIT(A) held that the appellant-bank was one of the thirty odd banks where charges have been specified. The Tribunal reviewed the Jankiraman Committee report and the findings of the CIT(A). It was noted that the CIT(A) had observed that the appellant-bank engaged in ready forward transactions with brokers, which were shown as transactions with other banks. However, the Tribunal found that the appellant-bank's name did not appear in the list of banks involved in irregularities as per the Jankiraman Committee's final report. Thus, the Tribunal did not uphold the CIT(A)'s findings on this matter.

3. Deduction under Section 80P:
The primary issue was whether the profit from the sale of Government Securities was part of the banking business and thus eligible for deduction under Section 80P. The Tribunal examined the nature of the transactions, particularly in light of the Jankiraman Committee's findings. The Tribunal noted that ready forward transactions were part of permissible banking business until 15th September 1992, when a specific prohibition was imposed. The Tribunal concluded that the transactions were part of the normal banking business and eligible for deduction under Section 80P. The Tribunal directed the AO to delete the disallowance of deduction under Section 80P(2)(a)(i).

4. Pro Rata Expenditure:
The assessee contended that if the entire income from the profit on the sale of Government Securities was taxable, then pro rata expenditure attributable to earning these incomes should be allowed. The Tribunal, having allowed the deduction under Section 80P, found this ground to be infructuous and did not call for adjudication.

5. Broken Period Interest:
For the assessment year 1991-92, the issue of broken period interest was raised. The Tribunal held that the broken period interest (net) in respect of the transactions was also eligible for deduction under Section 80P, following the same reasoning applied to the profits from ready forward transactions.

Conclusion:
The Tribunal allowed both appeals, directing the AO to delete the disallowance of deduction under Section 80P for the profits from ready forward transactions and broken period interest. The additional ground of appeal was found to be substantive, and the charges specified for the appellant-bank were not upheld based on the Jankiraman Committee's findings. The issue of pro rata expenditure was rendered infructuous.