1979 (3) TMI 108 - AT - Income Tax

Summary

Issues:
1. Exemption under section 80P for interest on staff housing loans and penal interest.
2. Interpretation of banking business activities for exemption eligibility.
3. Disallowance of insurance premium deduction for property income calculation.

Analysis:

Issue 1: Exemption under section 80P
The Revenue disputed the AAC's decision to grant exemption under section 80P for interest income received by the assessee on loans for housing staff and penal interest. The Revenue argued that these incomes were not incidental to the banking business and did not qualify for exemption under section 80P. The assessee contended that as a cooperative society engaged in banking business, the interest received on staff housing loans was part of its banking activities. The ITAT held that the interest receipts on advances to staff were indeed part of the banking business and qualified for exemption under section 80P(2)(a)(i). However, the ITAT disagreed with the AAC's application of section 80P(2)(d) for exemption, stating that the interest receipts did not fall under that provision.

Issue 2: Interpretation of banking business activities
The ITAT examined the nature of the assessee's banking business to determine the eligibility for exemption under section 80P. It noted that the assessee, a cooperative society, was authorized to lend money and had made advances to staff for housing loans. The ITAT emphasized that the reason for the advances did not change their character as banking transactions. It further highlighted that the absence of similar advances to others did not affect the banking nature of these transactions. The ITAT analyzed the interest income details from the annual statements, confirming that the staff housing loans were integral to the banking business, irrespective of classification under different heads.

Issue 3: Disallowance of insurance premium deduction
In the specific case of the insurance premium deduction for property income calculation, the ITAT reviewed the disagreement between the ITO and the AAC regarding the apportionment of the premium for a building partly used by the assessee and partly let out. The ITO disallowed a portion of the premium, considering only the let-out portion for deduction. The AAC, however, allowed the full deduction, citing income from amenities on the let-out portion. The ITAT upheld the ITO's approach, emphasizing that deductions under section 24 should be limited to the portion of the property actually let out. It directed further consideration by the AAC on whether the disallowed portion could be allowed under other heads.

In conclusion, the ITAT dismissed the appeal for the year 1976-77 and partly allowed it for the year 1977-78, addressing the issues of exemption under section 80P and the deduction of insurance premium for property income calculation.