1998 (10) TMI 108 - AT - Income Tax

Summary

Issues Involved:
1. Deductibility of income from Maharashtra State Electricity Board (MSEB) bills collection commission under section 80P(2)(a)(i).
2. Treatment of income from Government and Trustee securities.
3. Treatment of compensation for the use of guest-house and premises.
4. Treatment of miscellaneous income from the sale of old newspapers, stationery charges, and telephone recovery.
5. Chargeability of penal interest under section 234B.

Detailed Analysis:

1. Deductibility of Income from MSEB Bills Collection Commission:
The primary issue was whether the income from MSEB bills collection commission is deductible under section 80P(2)(a)(i). The assessee, a cooperative society engaged in banking, argued that this income should be considered part of its banking business and thus deductible. The Assessing Officer disagreed, treating it as non-banking income and taxable. The CIT(A) upheld this view, relying on the Supreme Court decision in Madhya Pradesh Co-op. Bank Ltd. v. Addl. CIT. However, the Tribunal noted that the Pune Bench in Ahmednagar Distt. Central Co-op. Bank Ltd. and the Jabalpur Bench in Sagar Co-op. Central Bank had previously ruled in favor of the assessee, interpreting section 80P(2)(a)(i) to include such income. The Tribunal emphasized the distinction between sections 81 and 80P(2)(a)(i), noting that the latter allows deduction for income attributable to banking, a view supported by the Supreme Court in Bangalore Distt. Co-op. Central Bank Ltd. The Tribunal concluded that the commission from MSEB bills collection is integral to the banking business and thus deductible under section 80P(2)(a)(i).

2. Treatment of Income from Government and Trustee Securities:
The second issue was whether the income from Government and Trustee securities should be treated as non-banking income. The assessee argued that as per the Banking Regulation Act, it was required to invest a certain percentage of deposits in such securities, making the income from these investments part of its banking activities. The Tribunal agreed, citing the Supreme Court decisions in Madhya Pradesh Co-op. Bank Ltd., Bangalore Distt. Co-op. Central Bank Ltd., and Vellore Electric Corpn. Ltd., which supported the view that such income is attributable to banking activities and thus deductible under section 80P(2)(a)(i).

3. Treatment of Compensation for Use of Guest-House and Premises:
The assessee contended that the compensation for the use of its guest-house and premises should be considered banking income. The Tribunal disagreed, stating that maintaining a guest-house is not an essential part of banking activities, and thus, the income from this source should be treated as non-banking income.

4. Treatment of Miscellaneous Income:
The issue here was whether miscellaneous income from the sale of old newspapers, stationery charges, and telephone recovery should be considered banking income. The Tribunal referred to its previous decision in the assessee's case for earlier assessment years, which treated such income as attributable to banking activities. Consequently, the Tribunal directed the Assessing Officer to treat the amount as banking income.

5. Chargeability of Penal Interest under Section 234B:
The final issue was whether the CIT(A) was justified in not deciding on the chargeability of penal interest under section 234B. The Tribunal held that the CIT(A) should have entertained the ground, as the issue of charging interest under section 234B is appealable, referencing the decision in Vikshara Trading & Investment (P.) Ltd. v. Dy. CIT. The Tribunal directed the CIT(A) to adjudicate on this matter afresh.

Conclusion:
The appeal was allowed in part, with the Tribunal ruling in favor of the assessee on the deductibility of income from MSEB bills collection commission and income from Government and Trustee securities, while upholding the treatment of compensation for the use of the guest-house as non-banking income. The Tribunal also directed the treatment of miscellaneous income as banking income and remanded the issue of penal interest under section 234B to the CIT(A) for fresh adjudication.