1986 (5) TMI 87 - AT - Income Tax

Summary

Issues:
1. Deletion of income from commission on sale of fertilizers.
2. Deletion of addition in expenditure incurred on earning commission income.
3. Provision for gratuity, contribution to District Co-operative Union, and depreciation on securities disallowed by the ITO.

Analysis:

Deletion of Income from Commission on Sale of Fertilizers:
The departmental appeal challenged the deletion of Rs. 34,119.60 as income from commission on the sale of fertilizers. The CIT(A) had ruled in favor of the assessee, a co-operative central bank, stating that the commission earned was part of its banking activities. The bank collected funds from primary societies on behalf of the State Co-operative Bank Marketing Societies, earning a commission of Rs. 1 per thousand. The ITAT upheld the CIT(A)'s decision, emphasizing that the service of collecting funds was within the scope of banking activities as per the Banking Regulation Act. Referring to a previous decision, the ITAT concluded that such income was attributable to the business of banking and hence deductible under the relevant section.

Deletion of Addition in Expenditure Incurred on Earning Commission Income:
The next issue involved the deletion of Rs. 12,797 by the CIT(A), which comprised various reimbursements received by the assessee. The ITAT held that these amounts represented reimbursement of expenses and not income earned, thus upholding the CIT(A)'s decision. The ITAT emphasized that such reimbursements should reduce expenditures and not be treated as taxable income.

Provision for Gratuity, Contribution to District Co-operative Union, and Depreciation on Securities Disallowed:
Regarding the disallowed amounts for provision of gratuity, contribution to District Co-operative Union, and depreciation on securities, the ITAT analyzed the provisions applied by the ITO. The ITO disallowed these amounts, citing various sections of the IT Act and M.P. Co-operative Society Act. However, the ITAT, after considering the gross receipts and nature of income of the co-operative society, held that the entire income of the assessee was exempt under the relevant section attributable to banking business. Therefore, the disallowances made by the ITO were deemed unjustified, and the ITAT upheld the CIT(A)'s decision to delete the disallowances.

In conclusion, the ITAT dismissed the departmental appeal, affirming the decisions of the CIT(A) on all the contentious issues raised in the appeal.