1986 (6) TMI 92 - AT - Income Tax

Tribunal rules on jurisdiction of Inspecting Assistant Commissioner & exemptions for banking business income.

The Tribunal partially allowed the assessee's appeals and dismissed the department's appeals. The Tribunal held that the Inspecting Assistant ... Draft Assessment Order, Reference To IAC Issues Involved:1. Powers of the IAC under section 144B of the Income-tax Act, 1961.2. Commissioner (Appeals) view on income from investments and its relation to banking business under section 80P(2)(a)(i).3. Income from commission, interest on advances to staff, and miscellaneous income on sale of newspapers.4. Interest income earned on investment of staff gratuity fund, staff security deposit, and security deposit of pump set dealers.Detailed Analysis:1. Powers of the IAC under section 144B of the Income-tax Act, 1961:The first issue pertains to whether the powers of the Inspecting Assistant Commissioner (IAC) under section 144B are limited to the issues objected to by the assessee or cover the entire assessment, thereby allowing the IAC to enhance the assessment while giving directions. The assessee argued that the IAC's jurisdiction is confined to the objections raised by the assessee, and any enhancement without invoking section 144A is invalid. The department countered this by referring to the Delhi High Court ruling in Sudhir Sarin v. ITO, which held that the IAC has the power to enhance the assessment after giving the assessee an opportunity to be heard. The Tribunal, after considering the arguments and the relevant provisions, concluded that the IAC's jurisdiction under section 144B is limited to the issues covered by the objections. However, in the absence of any contrary decision, the ruling of the Delhi High Court was followed, and the assessee's ground was dismissed.2. Commissioner (Appeals) view on income from investments and its relation to banking business under section 80P(2)(a)(i):The second issue revolves around whether all income from investments, including shares, securities, properties, etc., is related to the banking business and thus exempt under section 80P(2)(a)(i). The department argued that investments made without the sanction of the Registrar of Co-operative Societies are non-banking business and not exempt. The assessee contended that the Rajasthan State Co-operative Societies Act does not require such sanction and that all income from investments is part of the banking business. The Tribunal referred to a previous decision in the case of Rajasthan State Co-operative Bank Ltd., which held that the banking business includes acquiring, holding, and dealing in securities and investments as defined in section 6 of the Banking Regulations Act. Consequently, the Tribunal upheld the Commissioner (Appeals) order, concluding that the income from various securities is related to the banking business and exempt under section 80P(2)(a)(i).3. Income from commission, interest on advances to staff, and miscellaneous income on sale of newspapers:The third issue concerns whether income from commission, interest on advances to staff, and miscellaneous income on the sale of newspapers is attributable to the banking business. The assessee argued that commission income from discounting bills is part of the banking business, while the department disagreed. The Tribunal concluded that commission income from discounting bills is indeed related to the banking business and exempt under section 80P(2)(a)(i). However, interest on advances to staff and income from the sale of old newspapers were not considered part of the banking business and would be considered under section 80P(2)(c).4. Interest income earned on investment of staff gratuity fund, staff security deposit, and security deposit of pump set dealers:The final issue addresses whether interest income from staff gratuity fund, staff security deposit, and security deposit of pump set dealers is related to the banking business. The Tribunal concluded that while these investments protect the bank's obligations, they do not strictly fall under banking business. Therefore, such interest income would be covered under section 80P(2)(d), which exempts income derived from investments in co-operative societies.Conclusion:The appeals of the assessee are partly allowed, and the appeals of the department are dismissed.