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2012 (11) TMI 428 - AT - Income TaxDeduction u/s 80P(2)(a)(i) - rental income received by the taxpayer - Held that - As decided in M/s. The Totgars Cooperative Sale Society Limited Versus Income Tax Officer, Karnataka 2010 (2) TMI 3 - SUPREME COURT the source of income is relevant for deciding the applicability of section 80P. Weightage should be given to the words the whole of the amount of profit and gain of business attributable to one of the activities specified in section 80P(2)(a). The income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. Unless and until the letting out of property falls within the definition of banking activity, the rental income received by the taxpayer cannot be construed as operational income. At no stretch of imagination it could be said that rental income is attributable to banking business. In the present case the taxpayer has let out the building. It is nobody s case that the commercial asset was exploited in the course of its banking activity or providing credit facility to its members. Therefore, letting out of the property is other than one specified in section and u/s 80P(2)(a)(i) and 80P(2)(c). Therefore, the rental income received by the taxpayer has to be assessed as Income from house property and it is not eligible for deduction u/s 80P(2)(a)(i) of the Act - in favour of revenue.
Issues Involved:
1. Deduction under Section 80P(2)(a)(i) of the Income Tax Act for rental income received by the taxpayer. Issue-wise Detailed Analysis: 1. Deduction under Section 80P(2)(a)(i) of the Income Tax Act for rental income received by the taxpayer: The core issue in this case was whether the rental income received by the taxpayer, a co-operative society, qualifies for deduction under Section 80P(2)(a)(i) of the Income Tax Act. The taxpayer claimed a deduction for rental income amounting to Rs. 27,12,152, arguing that it should be considered as business income attributable to its banking activities. The revenue's representative, Ms. Veni Raj, contended that the rental income does not qualify for deduction under Section 80P(2)(a)(i) as it is not attributable to the taxpayer's banking business. She cited the judgments of the jurisdictional High Court in Kottayam Co-operative Land Mortgage Bank Ltd. v. CIT [1988] 172 ITR 443 and the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. CIT [2010] 322 ITR 283, which held that income from activities not related to banking does not qualify for such deductions. On the other hand, the taxpayer's representative, Shri V. Devarajan, argued that since the rental income was derived from letting out commercial premises, it should be considered business income and thus eligible for the deduction. He relied on the judgments of the Madras High Court in CIT v. Madurai Dist. Co-operative Bank Ltd. [1999] 239 ITR 700 and the Karnataka High Court in CIT v. Grain Merchants' Co-operative Bank Ltd. [2004] 267 ITR 742. The Tribunal examined the provisions of Sections 80P(1) and 80P(2) of the Income Tax Act, which allow deductions for income from specific activities of co-operative societies, including banking and providing credit facilities to members. The Tribunal noted that the definition of "banking" under the Banking Regulation Act does not include letting out property. Section 6 of the Banking Regulation Act lists permissible banking activities, none of which involve letting out property. The Tribunal observed that the judgments of the Madras and Karnataka High Courts, which allowed deductions for rental income, were not binding in this jurisdiction. Instead, the Tribunal followed the Kerala High Court's judgment in Kottayam Co-operative Land Mortgage Bank Ltd., which held that rental income is not attributable to banking activities and thus not eligible for deduction under Section 80P(2)(a)(i). The Tribunal also referred to the Supreme Court's judgment in Totgar's Co-operative Sales Society Ltd., which emphasized that the income eligible for deduction under Section 80P must be operational income from the specified activities, not other income like rent. In conclusion, the Tribunal ruled that the rental income received by the taxpayer should be assessed as "Income from house property" and is not eligible for deduction under Section 80P(2)(a)(i). The Tribunal set aside the Commissioner of Income-tax(A)'s order, which had allowed the deduction, and restored the assessing officer's decision. Final Judgment: The appeal of the revenue was allowed, denying the deduction under Section 80P(2)(a)(i) for the rental income received by the taxpayer.
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