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TMI Blog1984 (11) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... gs that the rental income of Rs. 19,990 from the house property would be exempt under section 80P(2)(c) of the Income-tax Act, 1961 ('the Act'). The ITO did not accept this claim, as he was of the view that the income from house property was not derived as a result of any activity, as envisaged by section 80P(2)(c). He, accordingly, rejected the assessee's claim for exemption of this income of Rs. 19,990 from tax. 4. In the next year 1981-82, for the previous year ended on 30-6-1980, the appellant had declared a total income of Rs. 2,780 in its return of income filed on 29-4-1981. It had claimed in the return that income amounting to Rs. 34,05,417 was exempt from tax under section 80P(2)(a), (c) and (d). The ITO observed that the appellant derived income from banking business and other sources, that out of the assessee's claim for exemption under section 80P(2), the appellant was not entitled to exemption in respect of the property income amounting to Rs. 20,949 under section 80P(2)(c) for the reasons given in the assessment order for the earlier assessment year. He, accordingly, brought to charge the said income. 5. The appellant took up the matter in appeal and contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s along with the appellant's returns of income. The learned counsel pointed out that the appellant owned six buildings in the first year and eight buildings in the second year, that all these buildings were acquired by the appellant-bank mainly for the purpose of carrying on its banking business and that only in four of the buildings, viz., those situated at Girgaum, Dadar, Juhu and Khetwadi, the appellant-bank was deriving income from rent from the tenants, who were in occupation of portions of these properties. According to the learned counsel, these properties were let out to these tenants even prior to the acquisition of these properties by the appellant-bank, that these tenants continued to remain in the properties even after the acquisition of the properties by the Bank, since they were protected by the Bombay Rent Control Act, and that the rental income received by the appellant-bank formed part and parcel of the income of the appellant in the normal course of carrying on its banking business, even though the said rental income had to be computed in accordance with the provisions of the Act under a separate head for the purposes of assessment. The learned counsel further sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome derived by the appellant-bank formed part of the business income of the appellant-bank in the normal course of carrying on its banking business, that the fact that the rental income from this property has to be computed under the specific provisions contained in the Income-tax Act would not alter or affect the true nature and character of this income as the business income of the appellant-firm and that, therefore, the appellant would be entitled to exemption under the main provisions of section 80P(2). Alternatively, the appellant would be entitled to exemption under section 80P(2)(c), as claimed before the departmental authorities. In support of these submissions, Shri Pandit relied on the following decisions---CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306 (SC), CIT v. Universal Radiators (P.) Ltd. [1981] 128 ITR 531 (Mad.), Shardlow India Ltd. v. CIT [1981] 128 ITR 571 (Mad.) and Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC). 8. Shri C.K. Vohra, the learned departmental representative, placed before us a copy of the letter dated 2-5-1980 filed by the appellant's counsel before the ITO in the course of the assessment proceedings for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of law. We are unable to agree with the revenue that the appellant should not be allowed to raise this plea for the first time before the Tribunal. It will be seen that the appellant had been claiming exemption in respect of the property income before the departmental authorities in both the years, no doubt under section 80P(2)(c). At the same time, the appellant had also mentioned that it was a banking company in the co-operative sector, that during the course of its business it had acquired buildings, that the part of these buildings, which were not required for business, was let out on rental basis to the tenants and that realisation of such rental income became the source of the business income to the assessee. This would be clear from the letter dated 2-5-1980 written by the appellant's counsel, enclosing the return for the assessment year 1980-81. Thus, the present claim of the assessee is only for exemption not merely under section 80P(2)(c) but also under section 80P(2)(a)(i). The decision of the Supreme Court in the case of Mahalakshmi Textile Mills Ltd. fully supports such a contention being raised by the assessee. At page 713 of the report, their Lordships of the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial order of the State Government. Rules 54 and 55 enable a co-operative society to invest its funds in any immovable property specified by the Registrar by a general or a special order. The learned counsel has also placed before us a copy of the order, dated 11-9-1979, issued by the Divisional Joint Registrar of Co-operative Societies, allowing the appellant-bank to invest Rs. 20 lakhs from its reserve fund to purchase the building at Navneet Bhavan at Girgaum. We are only referring to this just to show that there is substance in the contentions of the counsel for the assessee that there are restrictions on the appellant-bank in investing in immovable property except for the purpose of carrying on its banking business with the permission of the Registrar of Co-operative Societies. Thus, it is clear from a reading of the bye-laws quoted above as well as the order of the Registrar of Co-operative Societies that the acquisition of the immovable properties by the appellant-bank was only for the purpose of the appellant-bank carrying on its banking business. This would also be clear from the statement of income filed along with the returns for these two years. For example, the break up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st from securities does not cease to be part of income from business if the securities are part of the trading assets. Their Lordships held that whether a particular income is part of the income from a business falls to be decided not on the basis of the provisions of section 6 but on commercial principles. Their Lordships have explained their earlier decisions in United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 (SC) and East India Housing Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC) and applied the ratio of their decision in CIT v. Chugandas Co. [1965] 55 ITR 17 (SC). 15. In Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114, the Supreme Court held that as the appellant was a bank and one of its objects was to carry on the general business of banking, its normal business was to deal in money and credit and did not consist only of receiving deposits and lending money to its members or other societies. Their Lordships further held that it was a normal mode of carrying on banking business to invest monies in such a manner that they are readily available, that the monies laid out in the form of deposits did not cease to be part of the appellant's circula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also subject to the provisions of this Act in addition to the Maharashtra Co-operative Societies Act, relied on by the appellant's learned counsel. We, therefore, respectfully follow the two decisions of the Supreme Court referred to above and hold that the bank is entitled to the exemption in respect of its property income under section 80P(2)(a)(i). 18. Even the alternative submission of the appellant for exemption under section 80P(2)(c) has to be accepted. It cannot be disputed that the income of Rs. 19,990 in 1980-81 and of Rs. 20,949 in 1981-82 is income attributable to such activities other than those specified in clause (a) or clause (b) of section 80P(2). The learned counsel is right in his submission that the words employed in section 80P(2)(c), viz., 'profits and gains attributable to such activities' are wider in their scope than 'income derived by the co-operative society from the letting of godowns or warehouses for storage', etc., in section 80P(2)(e), relied on by the Commissioner (Appeals). This is now well settled by the decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd.. The two decisions of the Madras High Court relied ..... X X X X Extracts X X X X X X X X Extracts X X X X
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