1981 (2) TMI 141 - AT - Income Tax

Summary

Issues:
- Appeal against CIT's order under section 263 of the Income Tax Act
- Claim of exemption under section 80P for income from securities
- Interpretation of the Banking Regulation Act, 1949
- Prejudicial nature of the ITO's assessment order

Analysis:
1. The appeal was filed against the CIT's order under section 263 of the Income Tax Act. The assessee, a limited company operating as a Co-operative Society, filed a revised return showing Nil income, claiming exemption under section 80P for income from securities. The ITO accepted this claim, resulting in a Nil assessment. However, the CIT found the ITO's orders prejudicial to the revenue's interest, as the assessee's bank, engaged in banking business, derived income from investments in Government securities. The CIT issued a show cause notice, and the assessee argued its case based on previous decisions and the Banking Regulation Act of 1949.

2. The CIT concluded that the assessee was not eligible for exemption under section 80P for interest income from securities. The CIT highlighted the lack of evidence showing the income was earned in carrying on banking business or providing credit facilities. The CIT also noted that previous treatment of the income as investment income did not justify exemption. The CIT set aside the ITO's assessment, directing a reassessment with full opportunity for the assessee to present evidence.

3. The assessee's counsel argued that the income from interest was part of its business income as it operated a banking business. Referring to previous Tribunal and Supreme Court decisions, the counsel contended that the interest from securities constituted business income eligible for exemption under section 80P. The Senior Deptl. Rep. supported the CIT's order, emphasizing that the securities were not held as stock-in-trade or circulating capital, justifying the CIT's decision.

4. The Tribunal allowed the appeal, setting aside the CIT's order. It acknowledged the assessee's banking business and reliance on previous decisions to support its claim for exemption under section 80P. The Tribunal found no factual or legal errors in the ITO's assessment, leading to the conclusion that the CIT's order under section 263 was unwarranted. Consequently, the appeal was allowed, and the CIT's order was set aside.