1972 (9) TMI 40 - HC - Income Tax

Petitioner is a co-operative society - Whether a co-operative society engaged in banking business is entitled to deduction in respect of interest on government securities - whether assessee can seek remedy by rate against the revision order by the Commissioner disallowing deduction claimed

Summary

Issues:
1. Whether interest accrued on securities held by a cooperative society engaged in banking business is exempt from taxation under section 80P of the Income-tax Act.
2. Whether the Additional Commissioner of Income-tax erred in disallowing the claim for exemption raised by the petitioner.
3. Whether the holding of Government securities by a cooperative society for banking purposes constitutes business income.
4. Whether the Additional Commissioner's decision can be challenged through a writ of certiorari.

Detailed Analysis:

Issue 1:
The petitioner, a cooperative society engaged in banking, claimed exemption under section 80P of the Income-tax Act for interest accrued on securities held. The relevant provision states that the profits and gains of a cooperative society engaged in banking business are exempt from taxation. The petitioner argued that interest on Government securities is profit attributable to its banking business and thus should be fully exempt.

Issue 2:
The Additional Commissioner of Income-tax declined to interfere with the Income-tax Officer's decision to disallow the exemption claim. The petitioner contended that the securities were held to ensure fluid assets for its banking business and were integral to its banking operations. The burden of proof lay on the petitioner to establish the right to claim exemption, which required demonstrating that the securities were connected to the banking business.

Issue 3:
The court considered precedents, including a Supreme Court decision, to determine whether interest on Government securities could be considered income from banking business. The court noted that holding Government securities is a common practice for banks to ensure liquidity for banking operations. The Additional Commissioner's conclusion that the securities were not connected to the banking business was deemed incorrect.

Issue 4:
The court assessed whether the Additional Commissioner's decision could be challenged through a writ of certiorari. Citing legal principles, the court held that if an inferior tribunal's conclusion is based on a misinterpretation of the law, it can be corrected through a writ of certiorari. The court found that the Additional Commissioner's decision was erroneous in law and directed that a writ of certiorari be issued to quash the orders disallowing the exemption claim.

In conclusion, the court allowed the applications, corrected the orders of assessment, and established that the petitioner was entitled to the exemption under section 80P of the Income-tax Act. No costs were awarded in the matter.