1980 (10) TMI 131 - AT - Income Tax

Summary

Issues Involved:
1. Classification of dividend income for tax exemption under Section 80P(2)(a)(i) of the Income Tax Act.
2. Entitlement to interest on delayed refund of tax deducted at source.

Detailed Analysis:

1. Classification of Dividend Income for Tax Exemption under Section 80P(2)(a)(i):
The primary issue in the appeals by the Revenue and the cross-objection by the assessee was whether the dividend income received by the assessee should be treated as business income and thus be eligible for exemption under Section 80P(2)(a)(i) of the Income Tax Act.

The assessee, a co-operative society engaged in banking and providing credit facilities, argued that the dividend income from investments should be considered business income. The Income Tax Officer (ITO) had assessed the dividend income under "other sources," denying the exemption under Section 80P(2)(a)(i). However, the Commissioner of Income Tax (Appeals) [CIT(A)] ruled in favor of the assessee, citing judicial precedents and the nature of the investments as business assets.

The Tribunal upheld the CIT(A)'s decision, stating that the investments in shares were made in the course of and incidental to the assessee's business. The Tribunal emphasized that the term "attributable" in Section 80P(2)(a)(i) is broader than "derived," thus including dividend income as business income for the purpose of the exemption. The Tribunal cited various judgments, including CIT vs. Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306 (SC) and CIT vs. Bombay State Co-operative Bank (1968) 70 ITR 86 (SC), to support this view.

2. Entitlement to Interest on Delayed Refund of Tax Deducted at Source:
The second issue raised by the assessee was the entitlement to interest on delayed refunds of tax deducted at source. The CIT(A) had rejected the assessee's appeal on this ground, stating that there was no provision for filing an appeal regarding interest on delayed refunds.

The assessee argued that under Section 141A, the ITO should have made a provisional assessment within six months and granted the refund, which was not done, leading to financial hardship. The assessee contended that the appeal should be allowed under Section 246(1)(n) and Section 246(2)(f) of the Income Tax Act.

However, the Tribunal rejected the assessee's plea, stating that no appeal is provided regarding this issue. The Tribunal noted that Section 237, which deals with refunds, was not applicable as the assessments were made under Section 143(3) based on the returns filed under Section 139. The Tribunal also clarified that the scope of Section 144B is restricted to the modification of income or loss returned and does not cover the issue of non-allowance of interest on delayed refunds.

The Tribunal concluded that the assessee's remedy lies elsewhere and not through the appellate authority, thereby dismissing the assessee's ground regarding interest on delayed refunds.

Conclusion:
The Tribunal dismissed the appeals by the Revenue and treated the assessee's cross-objections as dismissed for statistical purposes. The Tribunal upheld the CIT(A)'s decision to classify the dividend income as business income eligible for exemption under Section 80P(2)(a)(i). However, it rejected the assessee's plea for interest on delayed refunds, stating that no appeal is provided on this issue under the current provisions of the Income Tax Act.