1984 (1) TMI 121 - AT - Income Tax

ITAT Cochin: Letting Out Property Income Not Eligible for Deduction

The Appellate Tribunal ITAT Cochin ruled in appeals concerning the deduction under section 80P(2)(c) of the Income-tax Act, 1961 for a cooperative society ... Guest House Issues:1. Whether a deduction under section 80P(2)(c) of the Income-tax Act, 1961 is admissible to a cooperative society engaged in banking activities and letting out surplus space in a building.2. Interpretation of the term 'profits and gains' in clause (c) of section 80P(2).3. Application of the rule of ejusdem generis in interpreting clause (c) of section 80P(2).4. Whether income from letting out property can be considered as 'profits and gains' under clause (c) of section 80P(2).The judgment by the Appellate Tribunal ITAT Cochin involved appeals by the department concerning the assessment years 1978-79 and 1979-80. The main issue was the allowance of a deduction of Rs. 20,000 under section 80P(2)(c) of the Income-tax Act, 1961. The cooperative society in question was engaged in banking activities and had let out surplus space in a building. The Income Tax Officer (ITO) contended that the deduction under clause (c) is only applicable if the society is engaged in activities other than those specified in clauses (a) or (b). The Appellate Assistant Commissioner (AAC) allowed the deduction, stating it is in addition to deductions under clauses (a) and (b). The department argued that 'profits and gains' in clause (c) refer to business activity and not income from property. The society argued that clause (c) covers all kinds of activities, including letting out space. The tribunal held that the income from letting out property cannot be considered 'profits and gains' under clause (c) as it is income from house property, not a business activity as specified in clauses (a) and (b).The tribunal analyzed the term 'profits and gains' in clause (c) and applied the rule of ejusdem generis to interpret the clause. It concluded that the term must be construed in connection with profits and gains of business activities, as specified in clauses (a) and (b). The tribunal noted that other provisions in section 80P refer to 'income' from various sources, indicating a distinction between income from business and income from property. The tribunal emphasized that clause (c) refers to profits and gains attributable to activities other than those specified in clauses (a) and (b), which must result in profits and gains. Therefore, income from letting out property cannot be considered as profits and gains under clause (c).Additionally, the tribunal rejected the argument that letting out surplus space should be treated as a business activity under clause (a) of section 80P(2). It also clarified that a claim under clause (c) can be independent of or in addition to claims under clauses (a) and (b). However, in this case, the tribunal held that the society was not entitled to the exemption claimed under clause (c) due to the nature of the income from letting out property. Ultimately, the appeals were allowed, and the exemption claimed was denied based on the interpretation of the relevant provisions of section 80P.