Kerala H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee, a co-operative society, is not entitled to claim exemption under s. 80P(2)(c) of the IT Act, 1961, with regard to the income from letting out a portion of the building belonging to the assessee ?

Counsel Appeared

Usha, for the Assessee : P.K.R. Menon, for the Revenue

FATHIMA BEEVI, J.:

The Tribunal, Cochin Bench, has referred the following question for the opinion of this Court:

” Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee, a co-operative society, is not entitled to claim exemption under s. 80P(2)(c) of the IT Act, 1961, with regard to the income from letting out a portion of the building belonging to the assessee ? “

The assessee is a co-operative society engaged in carrying on the business of banking by providing credit facilities to its members. The assessee constructed a building to house the bank and the administrative offices. Surplus space in the building was let out. The assessee returned a net amount of Rs. 29,139 for the asst. yr. 1978-79 and Rs. 20,564 for the asst. yr. 1979-80 by way of income from property and claimed out of the same, a deduction of Rs. 20,000 for each assessment year under s. 80P(2)(c) of the IT Act, 1961.

The ITO held the view that the assessee is not entitled to claim any further exemption under cl. (c) as the assessee is entitled to exemption under cl. (a) in respect of the banking activities. The AAC, in allowing the assessee’s appeal, held that exemption under cl. (c) is in addition to the exemption allowable under cls. (a) and (b) and directed the ITO to allow a deduction of Rs. 20,000 separately, taking into consideration the property income earned by the assessee. The Revenue carried the matter in appeal before the Tribunal. The Tribunal held that the rule of construction of ejusdem generis applies to the construction of cl. (c), that the other activities referred to in cl. (c) must be some activity which results in profits and gains, that the income from house property has been dealt with in ss. 22 to 27 as income and not as profits and gains and that the assessee is not, therefore, entitled to any exemption under cl. (c). The Tribunal did not accept the alternative contention raised by the assessee for the first time before the Tribunal that the letting out of surplus space should be treated as a business activity under cl. (a) of sub-s. (2) of s. 80P of the Act. The appeals were accordingly allowed. The question of law referred is stated to arise out of the order of the Tribunal.

4. Sec. 80P of the IT Act, 1961, allows a straight deduction, in the computation of the total income of a co- operative society, to the extent mentioned. Clause (c) of s. 80P(2) provides that in the case of a co-operative society engaged in activities other than those specified in cl. (a) or cl. (b) either independently of, or in addition to, all or any of the activities so specified, so much of its profits and gains attributable to such activities as does not exceed Rs. 20,000 shall be deducted in computing the total income. The co-operative society engaged in carrying on the business of banking or providing credit facilities to its members falls under cl. (a) of s. 80P(2). The claim for exemption under cl. (c) is in addition to the exemption provided under cl. (a). The provisions are cumulative and mutually supplementing. The limits specified in cl. (c) are in relation to the profits and gains attributable to the activity other than that specified in cl. (a). If the rental income received by the society is attributable to an activity of the society, cl. (c) would be attracted. It is then necessary that the cooperative society must prove that it has engaged itself in carrying on the activity giving rise to profits or gains. Such activity of the assessee must have a direct or proximate connection with or nexus to the earning in order that the assessee may enjoy the exemption. Sec. 80P(2)(c) of the Act exempts income of co-operative societies to the extent mentioned therein if the profits or gains are attributable to the activity in which the co-operative society is engaged. The expression “attributable to” is much wider than the expression “derived from” and it covers receipts from sources other than the actual conduct of the business of the assessee. In this view of the matter, interest earned by a co-operative society, which was carrying on the business of supplying sugarcane on statutory investment in Government securities, was held profit attributable to the carrying on of the activity of supplying sugarcane [CIT vs. Co-operative Cane Development Union Ltd. (1979) 10 CTR (All) 282 : (1979) 118 ITR 770 (All) : TC26R.720]. The profits and gains from such investments were connected with or incidental to the carrying on of the actual business. Where, however, the assessee as owner of certain property lets out that property and receives rental income, the income thus received cannot partake of the character of profits and gains attributable to an activity carried on by the society. The building let out is not a commercial asset or the rent received is not profit or gain arising from the exploitation of a business asset. The word “activity” is wider than the word “business “. It connotes a specified form of supervised action or field of action. Read in the context of the profit-earning activity of a co-operative society, it means the corporate activity of the society, that is to say, the combination of operations undertaken by the co-operative society whether or not they amount to a business, trade or profession in the ordinary sense. Clause (c) of s. 80P(2) is intended to cover receipts from sources other than the actual conduct of the business but attributable to an activity which results in profits or gains. Letting out of surplus space in the building owned and used by the assessee is not such an activity falling under cl. (c). The rent thus received by the assessee is not eligible for the exemption provided thereunder. In this view, the Tribunal was justified in rejecting the assessee’s claim.

We accordingly answer the question referred in the affirmative, that is, in favour of the Revenue and against the assessee.

[Citation : 172 ITR 443]