2008 (9) TMI 493 - HC - Income Tax

Special deduction under section 80P(2)(a)(i) interest The assessee a co operative society, carried on the business of marketing the agricultural produce of its members. In its return total income nil , claiming the deduction of income from business u/s 80P(2)(a)(i). The assessment was reopened. The Assessing officer holding that income from deposits and income from bonds and securities was assessable as income from other sources and no deduction u/s 80P(2)(a)(i) was allowable. Held that- the assessee was not a co-operative bank and was not doing any banking business and admittedly, the interest received from the securities and deposits with banks other than co-operative banks was not relatable to the business of the assessee and consequently it did not qualify for deduction u/s 80P of the act. That the original records revealed that the previous permission of the Additional Commissioner had been obtained before issuing notice to the assessee. Thus the proceedings for reopening of the assessment under section 147 of the act were proper and notice issued u/s 148 of the act was valid.

Issues Involved:
1. Whether the interest received by the assessee from securities and bank deposits qualifies for exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961.
2. Whether the reopening of the assessment under section 147 of the Income-tax Act and the notice issued under section 148 were valid.

Issue-wise Detailed Analysis:

1. Exemption under Section 80P(2)(a)(i):

The primary issue was whether the interest income from securities and bank deposits qualifies for exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961. The assessee, a co-operative society, claimed that the income from such investments was attributable to the profits and gains of its business activities, which included providing credit facilities to its members and marketing agricultural produce.

The Tribunal held that the interest income from securities and deposits in banks does not qualify for exemption under section 80P(2)(a)(i) because the assessee was not engaged in banking business. The Tribunal emphasized that the income from such investments is not attributable to the business activities of the assessee.

The assessee's counsel argued that the term "attributable" is broader than "derived from" and that the interest income should be considered part of the business income. However, the Tribunal referred to the Supreme Court's decision in CIT v. Producin Pvt. Ltd., which clarified that interest from surplus funds invested in FDRs is not attributable to business profits and gains.

The Tribunal further noted that the assessee was not required to make statutory deposits like a banking company and that the investments in securities and deposits were from surplus funds, not related to the business activities. Therefore, the interest income was assessable as "income from other sources" and did not qualify for exemption under section 80P(2)(a)(i).

2. Validity of Reopening of Assessment and Notice under Section 148:

The second issue was the validity of the reopening of the assessment under section 147 and the notice issued under section 148. The assessee contended that the notice was issued without obtaining prior approval from the Additional Commissioner of Income-tax, as required under section 151.

The Tribunal found that the approval from the Additional Commissioner was obtained on May 31, 2001, and the communication of the approval was received on June 8, 2001. The Tribunal verified the original records and concluded that the notice was issued after obtaining the necessary approval, thus complying with section 151.

The Tribunal's findings were supported by concurrent findings from the Commissioner of Income-tax (Appeals). The Tribunal rejected the assessee's contention that the notice was issued without proper approval, affirming the validity of the reopening of the assessment.

Conclusion:

The Tribunal concluded that the interest income from securities and bank deposits did not qualify for exemption under section 80P(2)(a)(i) as it was not attributable to the business activities of the assessee. Additionally, the reopening of the assessment and the issuance of the notice under section 148 were found to be valid, as the necessary approval was obtained. Consequently, the appeal was dismissed, and the order of the Income-tax Appellate Tribunal was confirmed.

← Previous Next →