Locker-rent income of co-operative credit society denied deduction, but related expenses must be verified on a net-income basis

Locker-rent income earned by a co-operative credit society was held not to qualify for deduction as banking income under section 80P(2)(a)(i) because the society was not a co-operative bank and had not shown that locker facilities formed a proved incidental banking activity within its authorised operations. The deduction claim on gross locker rent was therefore rejected. However, the related expenditure claim, including depreciation, salary and proportionate overheads, had to be verified on the basis of net income rather than gross receipts. The matter was remitted for limited verification and allowance of the locker-related expenses to that extent.

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Issues: (i) Whether income from locker rent earned by a co-operative credit society was eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. (ii) Whether the expenditure claimed against the locker rent income was required to be verified and allowed while computing the taxable income.

Issue (i): Whether income from locker rent earned by a co-operative credit society was eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The society was only a co-operative credit society and not a co-operative bank. Income from hiring of lockers forms part of ordinary banking business, but such character cannot be assumed for a credit society without a banking licence or supporting evidence that locker facility was a proved incidental activity within its authorised operations.

Conclusion: The claim for deduction under section 80P(2)(a)(i) on locker rent was rejected, and the assessee was not entitled to that deduction on the locker rent income.

Issue (ii): Whether the expenditure claimed against the locker rent income was required to be verified and allowed while computing the taxable income.

Analysis: The claim was for deduction of expenses incurred for running the locker facility, including depreciation, salary and proportionate overheads. The proper basis was net income, not gross locker rent, and the claim required verification by the Assessing Officer.

Conclusion: The matter was remitted for limited verification of the locker-related expenditure claim, and the assessee's alternative claim was accepted to that extent.

Final Conclusion: The locker rent was not exempt under section 80P(2)(a)(i), but the Assessing Officer was directed to verify and allow the locker-related expenditure, resulting in partial relief to the assessee.

Ratio Decidendi: A co-operative credit society cannot claim deduction under section 80P(2)(a)(i) for locker-rent income as banking income in the absence of a demonstrated banking character, but only the net income after verification of direct locker-related expenditure can be brought to tax.

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