Property income from surplus building space is outside section 80P(2)(c) exemption for a co-operative banking society.

Income derived by a co-operative banking society from letting out surplus space in its building was treated as rental income assessable under the head of property income, not as profits and gains attributable to the society's business activity. On that basis, the Kerala High Court held that the receipt did not qualify for exemption under section 80P(2)(c) of the Income-tax Act, 1961. The Court applied its earlier decision on the same legal question and answered the reference in favour of the Revenue, denying the assessee exemption for the rental income.

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Issues: Whether a co-operative society engaged in banking is entitled to exemption under section 80P(2)(c) of the Income-tax Act, 1961 in respect of income derived from letting out a portion of its building.

Analysis: The income was held to arise from letting out surplus space in a building owned and used by the society. Such receipt was treated as rental income falling under the head of income from property, and not as profits and gains attributable to an activity carried on by the society for the purpose of section 80P(2)(c) of the Income-tax Act, 1961. The earlier decision of the Court on an identical legal question was applied as governing authority.

Conclusion: The assessee was not entitled to exemption under section 80P(2)(c) of the Income-tax Act, 1961 in respect of the rental income. The answer to the reference was in favour of the Revenue and against the assessee.

Final Conclusion: Income derived by a co-operative society from letting out surplus building space is taxable as property income and does not qualify for exemption under section 80P(2)(c).

Ratio Decidendi: Rental income from letting out surplus space in a building owned by a co-operative society is not profits and gains attributable to its business activity for the purpose of exemption under section 80P(2)(c) of the Income-tax Act, 1961.

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