2014 (4) TMI 1172 - AT - Income Tax

ITAT Cochin: Rental Income Not Eligible for Deduction under Section 80P(2)(c)

The Appellate Tribunal (ITAT Cochin) upheld the disallowance of a deduction claimed under section 80P(2)(c) of the Income-tax Act for the assessment year ... Disallowance of deduction u/s 80P(2)(c) - whether the activities referred to in section 80P(2)(c) of the Act includes letting out of property and rental income received as income from house property? - Held that:- As in Kottayam Co-operative land Mortgage Bank Ltd vs CIT (1987 (10) TMI 16 - KERALA High Court) found that the term “activities” referred to in section 80P(2)(c) of the Act intended to cover receipts from sources other than actual conduct of business but attributable to an activity which results in profit or gain. The Kerala High Court found that rental income received on letting out of the property cannot partake the character of profit and gains attributable to an activity carried out by the assessee society, therefore, not entitled for exemption u/s 80P(2)(c) of the Act. Thus Letting out of the property and receipt of rental income is not an activity referred to in section 80P(2)(c) of the Act, therefore, not entitled for deduction u/s 80P(2)(c) of the Act. - Decided against assessee Issues:Disallowance of deduction u/s 80P(2)(c) of the Income-tax Act.Analysis:The Appellate Tribunal ITAT Cochin considered the appeal against the order of CIT(A)- V, Kochi dated 13-11-2013 regarding the disallowance of a deduction claimed under section 80P(2)(c) of the Income-tax Act for the assessment year 2009-10. The primary contention was whether the exemption u/s 80P(2)(c) applied to rental income from letting out property. The assessee, a cooperative bank, argued that the exemption should apply to rental income up to Rs. 50,000. The assessing officer disallowed this claim, asserting that section 80P(2)(c) only pertained to non-business activities. The Tribunal reviewed conflicting judicial opinions on this matter. The Gauhati and Bombay High Courts held that letting out property and receiving income qualified as an activity under section 80P(2)(c). In contrast, the Kerala and Madhya Pradesh High Courts opined that such rental income did not fall under this section. The Tribunal, under the jurisdiction of the Kerala High Court, deemed the Kerala High Court judgments binding and upheld the disallowance, following the Kerala High Court's interpretation that rental income did not constitute an eligible activity under section 80P(2)(c). Given the absence of an Apex Court judgment on this specific issue, the Tribunal concluded that the Kerala High Court's stance must be adhered to until further clarification from a higher court.This detailed analysis of the judgment highlights the key arguments presented by both parties, the interpretation of relevant legal provisions, and the Tribunal's decision based on the conflicting judicial opinions and the binding precedent set by the Kerala High Court.