M/s. THE MANHARASHTRA CO.OP. BANK LTD., MUMBAI v. ACIT 1(3), MUMBAI

ITA 7108/MUM/2004 | 2000-2001
Pronouncement Date: 22-01-2010 | Result: Allowed

Appeal Details

RSA Number 710819914 RSA 2004
Bench Mumbai
Appeal Number ITA 7108/MUM/2004
Duration Of Justice 5 year(s) 3 month(s) 18 day(s)
Appellant M/s. THE MANHARASHTRA CO.OP. BANK LTD., MUMBAI
Respondent ACIT 1(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 22-01-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted I
Tribunal Order Date 22-01-2010
Assessment Year 2000-2001
Appeal Filed On 04-10-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUN AL SPECIAL BENCH MUMBAI BEFORE SHRI R.S.SYAL (A.M.) SHRI N.V.VASUDEVAN (J. M.) AND SHRI B.RAMAKOTAIAH (A.M.) ITA NO.7108/MUM/2004 : ASST.YEAR 2000-2001 THE MAHARASHTRA STATE CO - OPERATIVE BANK LIMITED SIR VITHALDAS THACKERSEY MEMORIAL BUILDING 9 MAHARASHTRA CHAMBER OF COMMERCE LANE FORT MUMBAI 400 023. PA NO.AAAAT4066A. VS. THE ASSTT . COMMISSIONER OF INCOME - TAX CIRCLE 1(3) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.E.DASTUR RESPONDENT BY : S/SHRI AJAYKUMAR SRIVASTAVA CIT-DR & S.S.RANA CIT-DR O R D E R PER R.S.SYAL (AM) : THE HONBLE PRESIDENT OF THE INCOME TAX APPELLATE TRIBUNAL HAS CONSTITUTED THIS SPECIAL BENCH AND POSTED THE FOLLOWING QUESTIO N FOR OUR CONSIDERATION AND DECISION:- WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CAS E ASSESSEE IS ENTITLED FOR DEDUCTION U/S.80P(2)(A)(I) ON THE INTE REST RECEIVED U/S.244A OF THE ACT ON THE REFUND OF TAX. 2. ALL THE GROUNDS RAISED BY THE ASSESSEE IN ITS AP PEAL INVOLVE ONLY ONE ISSUE BEING THE DENIAL OF DEDUCTION U/S 80P ON THE AMOUNT OF INTEREST ON INCOME TAX REFUND. THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSESSEE A CO-OPERATIVE BANK FILED ITS RETURN DECLARING TOTAL INCOME AT RS. NIL CLAIMING DEDUCTION U/S.80P FOR THE ENTIRE AMOUNT OF GROSS TOTAL INCOME. THE RETURN WAS PROCESSED U/S.143(1). SUBSEQUENTLY IT WAS NOTED BY THE A.O. THAT THE ASSE SSEE HAD RECEIVED INTEREST U/S.244A AMOUNTING TO RS.34 33 50 201 WHICH WAS INC LUDED IN ITS TOTAL INCOME UNDER THE HEAD OF INCOME FROM BUSINESS AND DEDUCTI ON WAS CLAIMED U/S.80P(2)(A)(I). THE FACTS WHICH LED TO THE GRANTI NG OF INTEREST OF THIS MAGNITUDE TO THE ASSESSEE ARE THAT DURING THE ASSESSMENT YEARS 1 986-87 TO 1996-97 THE ASSESSEE ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 2 CLAIMED DEDUCTION U/S.80P(2)(A) WITH REFERENCE TO I TS ENTIRE INCOME. INITIALLY THE ENTIRE TAX DEDUCTED AT SOURCE AGGREGATING TO RS.5 9 8 02 427 ON THE INTEREST INCOME WAS REFUNDED AFTER PROCESSING THE RETURNS BUT SUBSE QUENTLY THESE ASSESSMENTS WERE REOPENED BY WAY OF NOTICE U/S.148 AND THE DEDUCTION WAS DENIED U/S.80P WITH REFERENCE TO INTEREST EARNED FROM INVESTMENTS MADE OUT OF STATUTORY RESERVE FUNDS. A DEMAND AGGREGATING TO RS.105 CRORES WAS RAISED. T HE LEARNED CIT(A) UPHELD THE REFUSAL OF DEDUCTION. HOWEVER THE TRIBUNAL OVERTUR NING THE VIEW OF THE LEARNED FIRST APPELLATE AUTHORITY CAME TO HOLD THAT THE AS SESSEE WAS ENTITLED TO DEDUCTION U/S.80P IN RESPECT OF SUCH INTEREST INCOME. IN VIE W OF THE SAID DECISION OF THE TRIBUNAL A SUM OF RS.140 CRORES WAS REFUNDED TO TH E ASSESSEE INCLUDING INTEREST U/S.244A AMOUNTING TO RS.34.43 CRORES. THE ASSESSIN G OFFICER DURING THE INSTANT REASSESSMENT PROCEEDINGS OPINED THAT THE INTEREST RECEIVED BY THE ASSESSEE ON INCOME TAX REFUND WAS ON ACCOUNT OF NON-BANKING AC TIVITY. THE ASSESSEES CONTENTION THAT THE INTEREST RECEIVED U/S.244A SHOU LD BE CONSIDERED AS INCOME FROM BANKING BUSINESS AS THE AMOUNT OF TAX WAS PAID ON ACCOUNT OF DEMAND RAISED BY THE DEPARTMENT IN THE BANKING BUSINESS DID NOT FIN D FAVOUR WITH THE REVENUE. HERE IT IS WORTH MENTIONING THAT THE ASSESSEE HAD A LSO SHOWN INCOME FROM HOUSE PROPERTY AMOUNTING TO RS.18 985 IN THE COMPUTATION OF INCOME AS ELIGIBLE FOR DEDUCTION U/S.80P(2) WHICH WAS NOT ACCEPTED BY TH E ASSESSING OFFICER AS QUALIFYING FOR DEDUCTION UNDER THIS SECTION. RESULT ANTLY THESE TWO ITEMS OF INCOME VIZ. THE INCOME FROM HOUSE PROPERTY AND INTEREST ON INCOME TAX REFUND WERE MADE INELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I). 3. IT WAS CONTENDED BEFORE THE LEARNED CIT(A ) THAT THE ASSESSEE-BANK HAD NO OTHER ACTIVITY OTHER THAN BANKING BUSINESS AND SINC E DEDUCTION U/S.80P(2)(A)(I) WAS IN RESPECT OF INCOME ATTRIBUTABLE TO BANKING BUSIN ESS THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION ON THE INTEREST ON INCOME-TAX REFUND. HOWEVER THE ASSESSEE DID NOT ASSAIL THE FINDING OF THE A.O. QUA THE NON-GRANTING OF DEDUCTION U/S.80P(2) IN RESPECT OF INCOME FROM HOUSE PROPERTY THEREBY ALLO WING THE FINALITY TO ATTACH TO ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 3 THE ASSESSMENT ORDER ON THAT SCORE. THE LEARNED CI T(A) DID NOT ACCEPT THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE ON THE QUESTION OF DEDUCTION U/S 80P ON THE AMOUNT OF INTEREST ON INCOME TAX REFUND. THE SUM AND SUBSTANCE OF HIS THREE-FOLD FINDING WAS AS UNDER:- (I) INTEREST U/S.244A DID NOT FALL UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AS THE AMOUNT OF INCOME-TAX REPRESENTED APPLICATION OF PROFIT AFTER THEY HAD BEEN EARNED. IN ORDER TO C ONSTITUTE BUSINESS INCOME IT WAS NECESSARY THAT THE INVESTMENT WHICH YIELDS INT EREST MUST BE DONE IN THE REGULAR COURSE OF BUSINESS. THE INTEREST WAS THERE FORE TO BE ASSESSED UNDER THE HEAD `INCOME FROM OTHER SOURCES. (II) THE EXPRESSION USED IN SECTION 80P(2)(A) IS ATTRIBUTABLE TO. THE HONBLE SUPREME COURT IN THE CASE OF INDIA LEATHER CORPORATION PRIVATE LIMITED VS. CIT [(1997) 227 ITR 552(SC)] HAS HELD THAT IN ORDER THAT AN INCOME COULD BE SAID TO BE ATTRIBUTABLE TO MANUFACT URE OR PROCESSING OF GOODS THE EARNING OF INCOME MUST BE DIRECTLY CONNE CTED WITH THE MANUFACTURE OR PROCESS OF GOODS. AS PAYMENT OF INCO ME-TAX WAS THE APPLICATION OF THE PROFIT AND HENCE INTEREST ON REF UND ON SUCH INCOME-TAX EARNED WOULD ALSO HAVE CONNECTION WITH THE APPLICA TION AND NOT WITH THE EARNING OF INCOME FROM BUSINESS OR BANKING. HENCE T HE INTEREST ON INCOME TAX REFUND WAS NOT ATTRIBUTABLE TO THE BANKING BUSI NESS. (III) THE FAVOURABLE DECISION OF THE TRIBUNAL IN A SSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-2002 WAS DISTINGUISHABLE BECAU SE IN THAT CASE THE ISSUE WAS ABOUT THE INTEREST U/S.244A ARISING OUT O F EXCESS DEDUCTION OF TAX AT SOURCE WHEREAS IN THE INSTANT YEAR THE INTEREST U/S.244A DID NOT ARISE FROM THE EXCESS TAX DEDUCTED AT SOURCE. ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 4 HE THEREFORE APPROVED THE ACTION OF THE ASSESSIN G OFFICER IN NOT GRANTING DEDUCTION U/S.80P(2)(A)(I) IN RESPECT OF INTEREST U /S.244A AMOUNTING TO RS.34.43 CRORES. 4. PRELIMINARY ISSUE APPLICABILITY OF PRINCIPLE OF CONSISTENCY 4.1 BEFORE US THE LEARNED SR. COUNSEL FOR T HE ASSESSEE URGED A PRELIMINARY ISSUE BY STATING THAT THE INTEREST ON INCOME-TAX R EFUND GRANTED IN THE INSTANT YEAR WAS NOT DIFFERENT FROM THAT ALLOWED IN THE IMMEDIAT ELY SUCCEEDING YEAR EXCEPT FOR THE FACT THAT IN THIS YEAR THE REFUND WAS MADE OUT OF WRONGFUL COLLECTION OF THE TAX BY THE A.O. BY WAY OF ASSESSMENT AND IN THE NEXT YE AR IT WAS OUT OF THE EXCESS DEDUCTION OF TAX AT SOURCE. HE CONTENDED THAT ONCE THE TRIBUNAL DECIDED THE SAME ISSUE IN ASSESSEES FAVOUR IN ASSESSMENT YEAR 2001- 2002 ON THE ELIGIBILITY OF DEDUCTION U/S.80P(2)(A)(I) ON THE AMOUNT OF INTERES T ON INCOME-TAX REFUND AND THE SAME ORDER HAD ATTAINED FINALITY THE REVENUE WAS N OT ENTITLED TO TAKE A CONTRARY STAND LATER ON AS THERE WAS NO MATERIAL DIFFERENCE BETWEEN THE INTEREST ON REFUND OF INCOME-TAX ARISING DUE TO EXCESS DEDUCTION OF TAX A T SOURCE OR IN THE ASSESSMENT. IT WAS STATED THAT THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. SIEMENS AKTIONGESELLSCHAFT [(2009) 310 ITR 320 (BOM .)] HAS HELD THAT THE RULE OF CONSISTENCY SHOULD BE FOLLOWED AND ONCE IN RESPECT OF THE SAME ASSESSEE THE ISSUE WAS IN DISPUTE BEFORE THE TRIBUNAL AND THE TRIBUNAL HAVING ANSWERED THE ISSUE AND THAT HAVING NOT BEEN CHALLENGED IT WAS NOT OPEN T O THE REVENUE TO RAISE THE SAID ISSUE AGAIN IN RESPECT OF THE SAME ASSESSEE. 4.2. IN THE OPPOSITION THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE ISSUE RAISED IN THIS APPEAL WAS A SUBSTANTIAL Q UESTION OF LAW AND RULE OF CONSISTENCY COULD NOT BIND THE REVENUE FROM ASSAILI NG THE CORRECTNESS OF THE EARLIER VIEW IN THE SUBSEQUENT PROCEEDINGS. HE RELIED ON TH E JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. OSWAL AGRO MILLS LTD. [(2009) 313 ITR 24 ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 5 (SC)] IN SUPPORT OF THE PROPOSITION THAT RULE OF CONSIST ENCY WAS NOT APPLICABLE IN RESPECT OF SUBSTANTIAL QUESTION OF LAW. 4.3. WE HAVE COGITATED THE RIVAL SUBMISSI ONS IN THE LIGHT OF PRECEDENTS RELIED UPON BY BOTH THE SIDES ON THIS PRELIMINARY ISSUE. THE VIEW CANVASSED BY THE LD. AR IS THAT SINCE THE TRIBUNAL IN ASSESSES OWN CASE FOR THE SUCCEEDING YEAR ON THE SIMILAR FACTS HAD DECIDED THE ISSUE IN ITS FAVOUR SO NOW THERE SHOULD BE INHIBITION ON THE DEPARTMENT TO REARGUE THE MATTER AS THE PRI NCIPLE OF CONSISTENCY COMES INTO PLAY. ON THE OTHER HAND THE LD. DR ARGUED THAT TH E RULE OF RES JUDICATA DOES NOT APPLY IN THE INCOME TAX MATTERS AND EACH YEAR IS A SEPARATE AND INDEPENDENT UNIT OF ASSESSMENT. HE ARGUED THAT THE DEPARTMENT WAS ENTIT LED TO ARGUE THE MERITS OF THE CASE SINCE SOME OF THE IMPORTANT ASPECTS OF THE SUB STANTIAL QUESTION OF LAW INVOLVED IN THIS APPEAL WERE OMITTED TO BE RAISED AND CONSI DERED BY THE TRIBUNAL IN THE SUCCEEDING YEAR. HE ALSO PRESSED INTO SERVICE THE JUDGMENT OF THE HONBLE APEX COURT IN OSWAL AGRO MILLS LTD. (SUPRA) IN WHICH IT HAS BEEN HELD THAT THE `SUBSTANTIAL QUESTION OF LAW CANNOT BE DECIDED ON THE BASIS OF THE `PRINCIPLE OF CONSISTENCY AND THAT IS WHY THE SUPERIOR COURT REM ANDED THE MATTER TO THE HIGH COURT FOR FRESH DECISION ON MERITS. WE NOTE THAT T HIS SPECIAL BENCH HAS BEEN CONSTITUTED SOLELY TO DECIDE THE ISSUE OF THE ALLOW ABILITY OR OTHERWISE OF DEDUCTION U/S 80P ON THE AMOUNT OF INTEREST ON INCOME TAX REF UND. THE ARGUMENT ABOUT THE PRINCIPLE OF CONSISTENCY COULD HAVE BEEN TAKEN BEFO RE THE DIVISION BENCH WHICH IF CONVINCED COULD HAVE FOLLOWED THE EARLIER ORDER. HOWEVER THE DB AFTER HEARING THE RIVAL PARTIES AT LENGTH ON THE MERITS OF THE CA SE DID NOT AGREE WITH THE EARLIER VIEW TAKEN BY THE BENCH AND EXPRESSED RESERVATIONS TO FOLLOW THE SAME BLINDLY. IT WAS IN SUCH CIRCUMSTANCES THAT AFTER GIVING DETAIL ED REASONS THE MEMBERS CONSIDERED IT EXPEDIENT TO MAKE REFERENCE TO THE H ONBLE PRESIDENT OF THE INCOME - TAX APPELLATE TRIBUNAL FOR THE CONSTITUTION OF THE SPECIAL BENCH ON THE POINT. IN OUR CONSIDERED OPINION IT IS NOW TOO LATE IN THE DAY T O COME OUT WITH THE ARGUMENT THAT APPEAL OF THE ASSESSEE BE ALLOWED BY FOLLOWING THE PRINCIPLE OF CONSISTENCY. IF THIS ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 6 PROPOSITION OF THE LD. AR IS ACCEPTED THEN THE ENTI RE EXERCISE OF CONSTITUTING THE PRESENT SPECIAL BENCH WILL BECOME FUTILE. 4.4. BE THAT AS IT MAY THE PRINCIPLE OF CONSISTENCY QUA THE JUDICIAL FORUMS IS NOT UNEXCEPTIONABLE. IT IS TRUE THAT ORDINARILY TH E ORDER PASSED BY THE EARLIER BENCH ON THE SAME POINT SHOULD BE RESPECTED AND FOLLOWED. BUT IF THE SUBSEQUENT BENCH FINDS IT DIFFICULT TO FOLLOW THE EARLIER VIEW DUE TO ANY CONVINCING REASON SUCH AS CHANGE IN THE FACTUAL OR LEGAL POSITION OR NON-RAI SING OR NON-CONSIDERATION OF AN IMPORTANT ARGUMENT BY THE EARLIER BENCH HAVING BE ARING ON THE ISSUE THEN THE EARLIER VIEW CANNOT BE THRUST UPON IT. IT IS A SETT LED LEGAL POSITION HAVING THE SANCTION OF THE HONBLE SUPREME COURT IN UNION OF I NDIA VS. PARAS LAMINATES P. LTD. 1990 (49) ELT 322 (SC) THAT IF A SUBSEQUEN T BENCH DIFFERS WITH PREVIOUS BENCH THEN IT SHOULD NOT ITSELF VENTURE TO DISAGRE E WITH THE EARLIER VIEW BUT A REFERENCE SHOULD BE MADE TO A LARGER BENCH. SIMILA R VIEW HAS BEEN TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN DY.CIT VS. RELIANC E INDUSTRIES LTD. (2004) 88 ITD 273 (MUM)(SB). SO WHEN A MATTER IS REFERRED TO THE LARGER BENCH THE VIEW EARLIER TAKEN BY THE DIVISION BENCH CEASES TO BE B INDING ON THE SPECIAL BENCH THOUGH IT RETAINS THE PERSUASIVE VALUE. IN VIEW OF THE ABOVE DISCUSSED LEGAL POSITION WE FIND THAT THE ACTION OF THE DIVISION BE NCH IN REFERRING THE MATTER FOR CONSIDERATION BY A SPECIAL BENCH IS PERFECTL Y IN ORDER AS IT FOUND ITSELF UNABLE TO AGREE WITH THE EARLIER VIEW TAKEN BY ANO THER DIVISION BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE. THIS PRACTICE OF MAKING REFERENCE FOR THE CONSTITUTION OF THE LARGER BENCH IS NOT CONFINED ON LY TO THE TRIBUNAL BUT IS PREVALENT IN THE HONBLE SUPREME COURT AND THE HON BLE HIGH COURTS AS WELL. RECENT EXAMPLE OF MAKING SUCH REFERENCE TO THE LARG ER BENCH BY THE HONBLE SUPREME COURT IS IN THE CASE OF UNION OF INDIA & OR S. VS. DHARMENDRA TEXTILES PROCESSORS & ORS. (2008) 306 ITR 277 (SC) WHEN THE LATER BENCH DOUBTED THE CORRECTNESS OF VIEW EXPRESSED BY THE EARLIER BENCH ON THE SAME ISSUE IN DILIP N SHROFF VS. JCIT & ANR. (2007) 291 ITR 519 (SC). WE THEREFORE DO NOT FIND ANY ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 7 INFIRMITY IN THE ACTION OF THE DB IN MAKING REFEREN CE FOR THE CONSTITUTION OF THE SPECIAL BENCH WHEN IT FOUND DIFFICULT TO ACCEPT THE EARLIER VIEW TAKEN IN ASSESSEES OWN CASE. UNDER THESE CIRCUMSTANCE WE ARE OF THE CO NSIDERED OPINION THAT THE EXCEPTION TO THE APPLICATION OF PRINCIPLE OF CONSI STENCY GETS ATTRACTED AND THE APPEAL NEEDS TO BE DECIDED ON MERITS RATHER THAN FO LLOWING THE EARLIER VIEW TAKEN BY THE TRIBUNAL IN ITS OWN CASE. THE SUBMISSION M ADE BY THE LD. AR ON THIS ISSUE THEREFORE BEING DEVOID OF ANY MERITS IN THE PRESE NT CIRCUMSTANCES DESERVES AND IS HEREBY REJECTED. 5. NOW WE PROCEED TO DEAL WITH THE ISSUE ON ME RITS. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD IN THE LIGHT OF PRECEDENTS CITED BEFORE US WE FIND THAT THE DISPUTE IN THIS A PPEAL ROTATES AROUND THE DETERMINATION OF THE QUESTION AS TO WHETHER THE ASS ESSEE IS ENTITLED TO DEDUCTION U/S.80P ON THE AMOUNT OF INTEREST AWARDED ON INCOME -TAX REFUND U/S.244A. IT IS ADMITTED THAT APART FROM SUCH INTEREST ON INCOME T AX REFUND THE ASSESSEES INCOME FROM BANKING ACTIVITIES EXCEPT THE INCOME FROM HOU SE PROPERTY IS OTHERWISE ELIGIBLE FOR DEDUCTION U/S 80P WHICH HAS ALSO BEEN ALLOWED BY THE AO. THE OPINION OF THE LEARNED CIT(A) IS THAT INTEREST ON INCOME-TAX REFUND U/S.244A DOES NOT QUALIFY FOR DEDUCTION U/S.80P(2) AS IT FALLS UN DER THE HEAD INCOME FROM OTHER SOURCES AND FURTHER IT IS NOT ATTRIBUTABLE TO THE BANKING ACTIVITY. BEFORE WE DELVE UPON TO EXAMINE AND EVALUATE THE RIVAL SUBMISSIONS IT WILL BE RELEVANT TO NOTE DOWN THE RELEVANT PART OF SECTION 80P WHICH IS AS UNDER:- 80P.(1) WHERE IN THE CASE OF AN ASSESSEE BEING A CO-OPERATIVE SOCIETY THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB- SECTION (2) THERE SHALL BE DEDUCTED IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION THE SUMS SPECIFIED IN SUB-SECTION (2) IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. (2) THE SUMS REFERRED TO IN SUB-SECTION (1) SHALL BE THE FOLLOWING NAMELY:- ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 8 (A) IN THE CASE OF A CO-OPERATIVE SOCIETY ENGAGED IN - (I) CARRYING ON THE BUSINESS OF BANKING OR PROVIDI NG CREDIT FACILITIES TO ITS MEMBERS OR (II) TO (VII) . THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BU SINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES: 6. FROM THE PRESCRIPTION OF ABOVE STATUTORY PROVIS ION IT CAN BE NOTICED THAT A CO-OPERATIVE SOCIETY SHALL BE ENTITLED TO DEDUCTION ON THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO THE C ARRYING ON OF THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBE RS. THUS IT CAN BE OBSERVED THAT THE PROFITS AND GAINS WHICH ARE ATTRIBUTABLE TO THE ELIGIBLE BUSINESS QUALIFY FOR DEDUCTION UNDER THIS SECTION. THE VIEW POINT OF THE LEARNED CIT(A) IS THAT THE INTEREST ON INCOME-TAX REFUND FALLS UNDER THE HEAD INCOME FROM OTHER SOURCES AND IS THEREFORE INELIGIBLE FOR DEDUCTION U/S.80P BEC AUSE IT CANNOT BE SAID TO BE ATTRIBUTABLE TO THE BANKING BUSINESS. IN ORDER TO REACH PROPER CONCLUSION WE NEED TO EXAMINE THIS CONTROVERSY IN FOLLOWING THREE PART S. I. HEAD OF INCOME UNDER WHICH INTEREST ON INCOME-TA X REFUND FALLS. II. MEANING OF EXPRESSION PROFITS AND GAINS OF BUSINESS AS USED IN SEC. 80P. III. SCOPE OF PHRASE ATTRIBUTABLE TO THE ELIGIB LE BUSINESS. ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 9 I. HEAD OF INCOME UNDER WHICH INTEREST ON INCOME TAX REFUND FALLS. 7.1. THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER PASSED ORDER FOR ASSESSMENT YEARS 1986-87 T O 1996-97 WRONGLY DENYING DEDUCTION U/S 80P AND COLLECTED TAX OF RS.105 CR ORES. IT WAS ONLY PURSUANT TO THE ORDER PASSED BY THE TRIBUNAL IN SUCH YEARS THAT TH E ACTION OF THE ASSESSING OFFICER WAS CORRECTED AND THE ASSESSEE BECAME ENTITLED TO R EFUND OF THE AMOUNT ALONG WITH INTEREST. HE STATED THAT THE ASSESSEE WAS ENGAGED I N BANKING ACTIVITY WHICH WAS THE ONLY SOURCE OF ITS INCOME. THE MONEY BELONGING TO T HE ASSESSEE IN THE NATURE OF BANKING BUSINESS WAS ITS STOCK-IN-TRADE. THE INCORR ECT RECOVERY EFFECTED BY THE REVENUE AUTHORITIES LED TO THE DEPRIVATION OF ITS S TOCK-IN-TRADE AND WHEN THE SAME WAS REFUNDED WITH INTEREST THEN THE INTEREST COUL D NOT HAVE A DIFFERENT CHARACTER FROM THAT OF THE PRINCIPAL. HE EMPHASIZED THAT IF THE ASSESSING OFFICER HAD NOT WRONGFULLY RECOVERED THE SAID AMOUNT THE SAME WOUL D HAVE BEEN EMPLOYED IN THE BUSINESS OF BANKING RESULTING INTO THE INCOME CLASS IFIABLE UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. HE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF DONALD MIRANDA & ORS. VS. CIT [(1961) 42 ITR 166 (SC)] IN WHICH IT WAS HELD THAT THE REFUND OF EXCESS PRO FIT TAX WAS BUSINESS INCOME BECAUSE WHEN IT WAS DEPOSITED WITH THE CENTRAL GOVE RNMENT IT WAS A PORTION OF PROFIT OF THE BUSINESS OF THE ASSESSEE. RELIANCE W AS ALSO PLACED ON THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF R.B.JODHAMAL KUTHIALA VS. CIT [(1972) 83 ITR 464 (P&H)] IN WHICH THE ISSUE WAS ABOUT THE INTEREST ON REFUND OF EXCESS PROFIT TAX PAID. HE STATED THAT T HE HONBLE HIGH COURT IN THIS CASE HELD THAT THE TAX DEMANDED WHEN REFUNDED ASSUMED IT S ORIGINAL CHARACTER AND THE INTEREST ON SUCH REFUND WAS CHARGEABLE UNDER THE HE AD ` PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE LEARNED A.R. ALSO REL IED ON AN ORDER PASSED BY THE CHANDIGARH BENCH OF THE TRIBUNAL IN PUNJAB STATE CO-OPERATIVE BANK VS. DCIT [(2000) 113 TAXMAN 128 (CHD.)] ; IN ITS OWN CASE FOR SUCCEEDING YEAR ; AND STIL L ONE MORE ORDER PASSED BY THE MUMBAI BENCH OF THE T RIBUNAL FOR CONTENDING THAT ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 10 THE INTEREST ON INCOME-TAX REFUND SHALL DROP IN THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. HE ALSO RELIED ON THE JU DGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. NAINITAL BANK LTD. [(1965) 55 ITR 707 (SC)] IN WHICH IT WAS HELD THAT CASH WAS STOCK-IN-TRADE OF A BANK ING BUSINESS AND ITS LOSS IN THE COURSE OF THE BUSINESS UNDER VARYING CIRCUMSTANCES WAS DEDUCTIBLE AS TRADING LOSS IN COMPUTING THE TOTAL INCOME OF THE BUSINESS. HE ALSO RELIED ON THE ORDER PASSED BY THE SPECIAL BENCH OF THE TRIBUNAL IN NARANG OVERSEAS (P.) LTD. VS. ACIT [(2008) 111 ITD 1 (MUM.) (SB)] HOLDING THAT THE INTEREST AWARDED ON A CAPITAL RECEIPT WAS ALSO A CAPITAL RECEIPT. DRAWING STRENG TH FROM THE RATIO OF THESE JUDGMENTS / TRIBUNAL ORDERS THE LEARNED A.R. STATE D THAT THE REFUND OF INCOME-TAX AMOUNTED TO THE RESTORATION OF ITS CIRCULATING CAPI TAL AND HENCE INTEREST THEREON WOULD THUS COME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. HE SUMMED UP HIS SUBMISSION BY STATING THAT THE ASSESS EE WAS CARRYING ON BANKING BUSINESS IN WHICH MONEY IS ALWAYS A CIRCULATING CA PITAL. THE AMOUNT OF TAX WRONGFULLY COLLECTED BY THE REVENUE LED TO THE DEPR IVATION OF THE USE OF ITS CIRCULATING CAPITAL AND WHEN THE SAME WAS REFUNDED ITS ORIGINAL BUSINESS CHARACTER WAS RESTORED AND RESULTANTLY INTEREST WOULD ALSO PARTAKE OF THE SAME CHARACTER AS THAT OF THE PRINCIPAL AMOUNT BEING THE CIRCULATIN G CAPITAL AND HENCE SUCH INTEREST SHALL FALL UNDER THE HEAD `PROFITS AND GAINS OF BU SINESS OR PROFESSION. 7.2. IN THE OPPOSITION THE LEARNED DEPARTMENT AL REPRESENTATIVE REITERATED THE REASONING GIVEN IN THE IMPUGNED ORDER FOR HOLD ING THAT INTEREST ON INCOME TAX REFUND WAS ASSESSABLE UNDER THE HEAD `IN COME FROM OTHER SOURCES. H E SUBMITTED THAT FOR AN INCOME TO FALL UNDER THE H EAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION IT WAS NECESSARY THAT I T SHOULD ARISE OUT OF SOME REAL SUBSTANTIAL AND SYSTEMATIC OR ORGANIZED COURSE OF A CTIVITY. IT WAS ARGUED THAT THE INCOME-TAX IS LEVIED AFTER THE INCOME IS EARNED AND NOT BEFORE IT. TO SUPPORT HIS CONTENTION THAT INCOME TAX IS LIABILITY OF PERSONAL NATURE HE RELIED ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CIT VS. GHATKOPAR ESTATE & ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 11 FINANCE CORPN. (P) LTD. [(1989) 177 ITR 222 (BOM.)] IN WHICH IT WAS HELD THAT INTEREST ON INCOME-TAX LIABILITY WAS NOT ALLOWABLE DEDUCTION BECAUSE IT WAS A LIABILITY OF PERSONAL NATURE. HE ALSO RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN BHARAT COMMERCE INDUSTRIAL VS. CIT (1998) 230 ITR 7 33 (SC) TO STATE THAT THE PAYMENT OF INCOME-TAX COULD NEVER B E FOR THE PURPOSE OF PRESERVING OR PROMOTING THE BUSINESS. AS THE PAYMEN T OF INCOME-TAX COULD NOT BE WITH THE INTENTION OF EARNING INCOME HE SUBMITTED THAT THERE WAS NO QUESTION OF TREATING THE INTEREST ON INCOME TAX REFUND AS FALLI NG UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. HE FURTHER STAT ED THAT ONCE TAX IS PAID THE MONEY SO PAID CEASES TO BE CIRCULATING CAPITAL AS T HE PAYMENT OF TAX IS PERSONAL LIABILITY DETERMINED AFTER THE ASCERTAINMENT OF TA XABLE INCOME. ACCORDINGLY HE PUT FORTH THE ARGUMENT THAT THE INTEREST ON INCOME-TA X REFUND COULD NEVER ASSUME THE CHARACTER OF INCOME COMING UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION WHETHER OR NOT THE ASSESSEE IS IN B ANKING BUSINESS OR THE MONEY IS OR NOT THE CIRCULATING CAPITAL OF THE BUSINESS. IN HIS OPINION THE TEST DEVISED BY THE LEARNED A.R. BEING UTILIZATION OF BUSINESS FUNDS W AS NOT APPROPRIATE TO HOLD ANY INCOME RESULTING THERE FROM AS GOING DOWN UNDER TH E HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. HE RELIED ON THE ORDER PA SSED BY THE PUNE BENCH OF THE TRIBUNAL IN SALGAOCAR MINING INDUSTRIES VS. DCIT [(1997) 61 ITD 105] IN WHICH IT WAS HELD THAT THE INTEREST ON INCOME-TAX REFUND IS ASSESSABLE AS INCOME FROM OTHER SOURCES. FOR THE SAME PROPOSITION HE ALSO RELIED ON THE ORDERS PASSED IN EICHER GOODEARTH LIMITED VS. DCIT [(2001) 71 TTJ (DELHI) 8 41] AND SHAH ORIGINALS VS. ACIT [(2007) 112 TTJ (MUM.) 754] . HE ALSO RELIED ON THE JUDGMENTS IN CIT VS. TRAVANCORE TEA & ESTATE LIMITED [(1994) 207 ITR 242 (KER.)] AND SMT. B. SESHAMMA VS. CIT (1979) 119 ITR 314 (MAD) HOLDING THAT THE INTEREST ON INCOME-TAX REFUND WAS LIABLE TO BE ASSESSED AS `INC OME FROM OTHER SOURCES. ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 12 7.3. SECTION 14 FALLING IN CHAPTER IV PROVIDES THAT ALL INCOME SHALL FOR THE PURPOSES OF CHARGE OF INCOME-TAX AND COMPUTATION OF TOTAL INCOME BE CLASSIFIED UNDER THE EXISTING FIVE HEADS OF INCOME. EACH HEAD FURTHER CONTAINS CERTAIN SECTIONS. IN THE PRESENT APPEAL WE ARE CONCERNED ON LY WITH TWO HEADS OF INCOME. CHAPTER IV-D IS THE HEAD `PROFITS AND GAINS OF BUSI NESS OR PROFESSION WHICH IS SPREAD OVER SECTIONS 28 TO 44DB AND CHAPTER IV-F IS THE HEAD `INCOME FROM OTHER SOURCES WHICH ENCOMPASSES SECTIONS 56 TO 59. T HERE ARE SOME SECTIONS IN THIS CHAPTER IV-D WHICH CONTAIN SPECIAL PROVISIONS FO R COMPUTING PROFITS AND GAINS FROM CERTAIN SPECIFIED CATEGORIES OF BUSINESSES. I T IS NOT THE CASE THAT THE ASSESSEE IS COVERED UNDER ANY OF SUCH SPECIAL PROVISIONS. B UT FOR THAT SECTION 28 CONTAINS A LIST OF INCOME WHICH SHALL BE CHARGEABLE TO TAX UND ER THIS HEAD. THIS SECTION CONTAINS CLAUSES (I) TO (VII). CLAUSE (I) WHICH IS A GENERAL IN NATURE PROVIDES THAT THE PROFITS AND GAINS OF ANY BUSINESS OR PROFESSIO N WHICH WAS CARRIED ON BY THE ASSESSEE DURING THE PREVIOUS YEAR SHALL BE CHARGEA BLE TO INCOME-TAX UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE OTHER SPECIFIC CLAUSES OF SECTION 28 ARE NOT APPLICABLE TO THE PRESENT SITUAT ION. WE THEREFORE NEED TO DETERMINE WHETHER THE INTEREST ON INCOME-TAX REFUND SATISFIES THE CONDITIONS OF SECTION 28(I). ON DISSECTION OF THIS PROVISION TH E FOLLOWING INGREDIENTS ARE NOTED. THERE SHOULD BE `PROFITS AND GAINS; SUCH PROFITS AND GAINS SHOULD BE `OF ANY BUSINESS OR PROFESSION; SUCH BUSINESS OR PROFESSIO N SHOULD BE `CARRIED ON BY THE ASSESSEE AT ANY TIME DURING THE PREVIOUS YEAR. THU S THE PRIMARY CONDITION IS THAT THE AMOUNT SOUGHT TO BE INCLUDED UNDER THIS CLAUSE SHOULD BE FROM CARRYING ON OF THE BUSINESS. SECTION 2(13) DEFINES BUSINESS T O INCLUDE ANY `TRADE COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE N ATURE OF TRADE COMMERCE OF MANUFACTURE. THE HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT VS. TECHNO SHARES AND STOCK LIMITED IN ITA NO.218 OF 2007 VIDE ITS JUDGMENT DATED 11.9.2009 HAS HELD THAT THE ACTIVITY OR TRANSACTION OF BUYING AND SELLING OF SHARES IS ORDINARILY A CASE OF `TRADE. IF SUCH TRANSACTIONS ARE ON A LARGER SCALE IT IS CALLED `COMMERCE AND CONTINUED REPETITION OF SUCH TRANSAC TIONS CONSTITUTES `BUSINESS. ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 13 THUS THE WORD `BUSINESS MEANS AN ACTIVITY CARRIED ON CONTINUOUSLY AND SYSTEMATICALLY BY A PERSON. OUR VIEW IS FORTIFIED B Y THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF BARENDRA PROSAD RAY VS. ITO [(1981) 129 ITR 295 (SC)] IN WHICH IT WAS HELD THAT THE WORD `BUSINESS IS OF A WIDER IMPORT TO MEAN AN ACTIVITY CARRIED ON CONTINUOUSLY AND SYSTEMATICALLY BY A PERSON BY APPLYING LABOUR OR SKILL WITH A VIEW TO EARNING INCOME. IT THEREF ORE FOLLOWS THAT IN ORDER TO CATEGORIZE AN INCOME UNDER THIS PROVISION IT IS OF PARAMOUNT IMPORTANCE THAT THE ASSESSEE SHOULD BE CARRYING ON SOME ACTIVITY ON RE GULAR BASIS WITH THE INTENTION OF EARNING INCOME THERE FROM. THUS BOTH THE CONDITIO NS SHOULD BE CUMULATIVELY SATISFIED VIZ FIRSTLY THERE SHOULD BE A SYSTEMATI C AND CONTINUOUS ACTIVITY AND SECONDLY SUCH ACTIVITY SHOULD BE DONE WITH THE INTE NTION OF EARNING INCOME. IF THERE IS NO CONTINUOUS AND SYSTEMATIC ACTIVITY BUT STILL THE INCOME RESULTS IT WILL CEASE TO DESCEND UNDER THIS HEAD. IT THEREFORE T RANSPIRES THAT IN ORDER TO CATEGORIZE THE INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUS INESS OR PROFESSION IT IS IMPERATIVE THAT INCOME SHOULD HAVE ARISEN FROM B USINESS CARRIED ON BY THE ASSESSEE AND THE BUSINESS REFERS TO A SYSTEMATIC RE AL AND SOME ORGANIZED ACTIVITY CONDUCTED WITH A VIEW TO EARN INCOME. 7.4. NOW WE HAVE TO DETERMINE AS TO WHETHER THE INTEREST ON INCOME-TAX REFUND CAN BE SAID TO BE FALLING UNDER THE HEAD `PR OFITS AND GAINS OF BUSINESS OR PROFESSION. BEFORE WE ADVERT TO THIS QUESTION IT IS NECESSARY TO CONSIDER THE NATURE OF INCOME-TAX. FOR THAT PURPOSE THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT [(1997 ) 224 ITR 627 (SC)] IS RELEVANT IN WHICH THE QUESTION WAS ABOUT THE D EDUCTIBILITY OR OTHERWISE OF INTEREST ON MONEY BORROWED FOR PAYMENT OF INCOME-TA X. IN THAT CASE THE ASSESSEE HAD AN OVERDRAFT ACCOUNT WITH A BANK. IT CLAIMED TH AT A SUM OF RS.28 488 WAS ALLOWABLE EXPENDITURE U/S.37(1) OF THE ACT AS REPRE SENTING THE INTEREST WHICH IT HAD TO PAY ON THE OVERDRAFT ACCOUNT TAKEN FOR THE PAYM ENT OF INCOME-TAX. THE ITO DISALLOWED THE DEDUCTION BY HOLDING THAT THE PAYMEN T OF INCOME-TAX COULD NOT BE ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 14 FOR THE PURPOSE OF BUSINESS. IT WAS CLAIMED BEFORE THE TRIBUNAL THAT IF THE TAX LIABILITY HAD NOT BEEN DISCHARGED THEN THE ENTIR E BUSINESS WOULD HAVE CRIPPLED AND THEREFORE INTEREST ON SUCH OVERDRAFT ACCOUNT BE AL LOWED AS AN EXPENDITURE FOR BUSINESS PURPOSES. THE TRIBUNAL REFUSED TO INTERFER E WITH THE VIEW TAKEN BY THE AUTHORITIES BELOW. SIMILAR OPINION WAS FORMED BY T HE HONBLE HIGH COURT BY HOLDING THAT A TRADER CARRIES ON BUSINESS FOR THE PURPOSE OF EARNING PROFIT AND NOT FOR THE PURPOSE OF PAYING INCOME-TAX. NO BUSINESS I S EVER CARRIED ON NOR CAN IT BE CARRIED ON WITH THE OBJECT OF PAYING THE INCOME-TAX . THOUGH THE EARNING OF PROFITS AND PAYMENT OF TAXES ARE NOT ISOLATED AND INDEPENDE NT ACTIVITIES OF A BUSINESS IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED OR LAI D OUT FOR THE PURPOSE OF PAYMENT OF INCOME-TAX SHALL FALL WITHIN THE SCOPE OF THE EX PRESSION FOR THE PURPOSE OF BUSINESS. IT WAS THEREFORE LAID DOWN THAT THE A MOUNT PAID AS INCOME-TAX WAS NOT AN EXPENDITURE AT ALL NOT EVEN A BUSINESS EXPENDIT URE AND HENCE IT COULD NOT EVEN BE ARGUED THAT THE INTEREST PAID BY TRADER ON THE M ONEYS BORROWED FOR THE PAYMENT OF INCOME-TAX WAS A BUSINESS EXPENDITURE. STILL IN ANOTHER JUDGMENT IN BHARAT COMMERCE INDUSTRIAL LTD. (SUPRA) THE HONBLE SUPREME COURT HAS HELD : THE LIABILITY IN THE CASE OF PAYMENT OF INCOME-TAX AND INTEREST FOR DELAYED PAYMENT OF INCOME-TAX OR ADVANCE TAX ARISES ON THE COMPUTATION OF PROFITS AND GAINS OF BUSINESS. THE TAX WHICH IS PAYABLE ON THE ASSESSEE S INCOME IS AFTER THE INCOME IS DETERMINED. IT WAS HELD THAT THE INTEREST PAID FO R NOT PAYING THE REQUISITE PAYMENT OF INCOME-TAX COULD NOT BE CONSIDERED AS AN EXPENDI TURE FOR THE PURPOSE OF EARNING ANY INCOME OR PROFIT. FROM THE ABOVE TWO JUDGMENTS IT IS MANIFESTED THAT THE PAYMENT OF INCOME-TAX IS PAYABLE AFTER THE INCOME I S DETERMINED. SECTION 40(A)(II) PROVIDES THAT ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR ASSESSED AT A PROPORTION OF OR OTHERWISE ON THE BASIS OF `ANY SUCH PROFITS OR GAINS SHALL N OT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. ON A CONJOINT READING OF SECTION 40(A)(II) ALONG WITH THE ABOVE REFERRED TWO APEX COURT JUDGMENTS IT CAN BE NOTICED THAT NOT ONLY T HE PAYMENT OF INCOME-TAX IS NOT ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 15 DEDUCTIBLE BUT ALSO THE INTEREST PAID BY THE ASSESS EE FOR NON/DELAYED PAYMENT OF INCOME-TAX BE IT DIRECTLY PAYABLE TO THE INCOME-T AX DEPARTMENT OR ON LOANS TAKEN FOR PAYING INCOME TAX CANNOT BE ALLOWED AS DEDUCT ION. IT CANNOT BE CONSIDERED AS AN EXPENDITURE WHICH IS INCURRED FOR THE PURPOSE OF BUSINESS SO AS TO QUALIFY FOR CONSIDERATION IN COMPUTING PROFITS OF THE BUSINESS . THUS THE PAYMENT OF INCOME- TAX OR THE INTEREST THEREON OR IN RELATION TO THAT IS A STEP AWAY FROM THE CARRYING ON OF THE BUSINESS ON YEAR TO YEAR BASIS. IN CONTRAST TO THAT ANY INDIRECT TAX WHICH IS PAID IN THE COURSE OF CARRYING ON OF THE BUSINESS IS DEDUCTIBLE FOR ARRIVING AT THE NET PROFIT FOR THE RELEVANT YEAR. IT THEREFORE FOLLO WS THAT THE PAYMENT OF INCOME-TAX OR INTEREST THEREON OR RELATING TO SUCH TAX IS AN EVEN T WHICH TAKES PLACE AFTER THE DETERMINATION OF THE PROFITS OF THE BUSINESS FOR TH E RELEVANT YEAR. EVEN THOUGH THERE IS RELATION BETWEEN THE EARNING OF PROFITS AND PAYM ENT OF INCOME TAX BUT THAT WOULD NOT MAKE IT DEDUCTIBLE UNDER THE HEAD `PROFIT S AND GAINS OF BUSINESS OR PROFESSION. 7.5. COMING BACK TO SECTION 28(I) IT IS N OTED THAT ONLY THE PROFITS AND GAINS OF ANY BUSINESS WHICH WAS CARRIED ON BY THE ASSESSEE AT ANY TIME DURING THE YEAR SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD `P ROFITS AND GAINS OF BUSINESS OR PROFESSION. THUS IN ORDER TO QUALIFY FOR AN ITEM OF INCOME TO BE CLASSIFIED UNDER THIS HEAD IT IS IMPORTANT THAT SUCH INCOME MUST BE EARNED FROM THE BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE. TURNING TO T HE FACTS OF THE INSTANT CASE IT IS OBSERVED THAT THE INCOME-TAX WAS PAID BY THE ASSESS EE IN EARLIER YEARS WHICH WAS CERTAINLY NOT FOR THE PURPOSE OF BUSINESS AND HEN CE NOT DEDUCTIBLE UNDER THIS HEAD. AS THE SAID TAX LIABILITY WAS DISCHARGED NOT IN THE CARRYING ON OF THE BUSINESS FOR THE RELEVANT YEARS BUT AFTER THE DETERMINATION OF INCOME IT WAS AN EVENT NOT TAKING PLACE IN CARRYING ON THE BUSINESS OF THE ASS ESSEE. EVENTUALLY WHEN THE AMOUNT OF INCOME-TAX WAS REFUNDED ALONG WITH INTER EST U/S.244A THAT WOULD ALSO NATURALLY BE AN EVENT AFTER THE DETERMINATION OF INCOME ON YEAR TO YEAR BASIS AND HENCE WOULD FAIL TO FALL U/S.28(I). ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 16 7.6. THIS POSITION CAN BE VIEWED FROM ANOT HER ANGLE ALSO. WE HAVE NOTED ABOVE THE MEANING OF BUSINESS AS SOME REAL SUBST ANTIAL AND SYSTEMATIC OR ORGANIZED COURSE OF ACTIVITY OR CONDUCT WITH THE IN TENTION OF EARNING INCOME. THEREFORE IT FOLLOWS THAT AN INCOME TO RESULT FROM BUSINESS SHOULD BE FROM THE DOING OF SOME SYSTEMATIC OR REGULAR COURSE OF ACTIV ITY CONDUCTED WITH THE INTENTION OF EARNING INCOME. WE HAVE NOTED ABOVE THAT THE PAY MENT OF INCOME-TAX IS A STATUTORY LIABILITY WHICH FALLS UPON THE ASSESSEE A FTER THE DETERMINATION OF INCOME I.E. AFTER THE BUSINESS IS CARRIED ON FOR A PARTICU LAR YEAR. IN THAT VIEW OF THE MATTER THE PAYMENT OF INCOME-TAX CANNOT BE HELD TO BE A BU SINESS ACTIVITY OR A TRANSACTION DONE DURING THE CARRYING ON OF THE BUSINESS WHICH IS A PRE-REQUISITE CONDITION FOR THE INCLUSION OF ANY ITEM OF INCOME WITHIN THE FOL D OF `PROFITS AND GAINS OF BUSINESS OR PROFESSION. WHEN THE PAYMENT OF INCOME -TAX IS AN EVENT POST- ASCERTAINMENT OF INCOME NATURALLY THE REFUND THERE OF OR INTEREST WOULD ALSO BE AN EVENT POST-ASCERTAINMENT OF INCOME AND NOT DURING T HE CARRYING ON OF THE BUSINESS. 7.7. FURTHER WE HAVE NOTED SUPRA THAT THE SECOND NECESSARY INGREDIENT FOR AN INCOME TO FALL UNDER THIS HEAD IS THAT THERE SH OULD BE AN INTENTION TO EARN INCOME. IF THE INTENTION TO EARN INCOME IS LACKING BUT SOME INCOME STILL RESULTS IT WILL NOT FALL UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. THERE CANNOT BE ANY DISPUTE ON THE PROPOSITION THAT THE P AYMENT OF INCOME TAX IS DISCHARGE OF STATUTORY LIABILITY. THERE IS NOT AND CANNOT BE ANY INTENTION OF THE ASSESSEE TO EARN INCOME BY PAYING THE INCOME-TAX. T HUS WHEN THE STATUTORY LIABILITY IS CREATED ON THE ASSESSEE WITH THE PASSING OF TH E ASSESSMENT ORDER SUCH LIABILITY IS TO BE DISCHARGED BY MAKING THE PAYMENT THEREOF. IT CANNOT BE SAID THAT THE ASSESSEE PAID INCOME-TAX WITH THE INTENTION OF EARN ING INCOME FROM THE INTEREST WHICH SHALL BECOME DUE IF THE ASSESSMENT ORDER IS M ODIFIED OR OVERTURNED TO HIS ADVANTAGE. THUS IT IS APPARENT THAT THERE CANNOT BE AN INTENTION TO EARN INCOME FROM THE PAYMENT OF INCOME-TAX. ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 17 7.8. THE LEARNED COUNSEL FOR THE ASSESS EE HAS OVEREMPHASIZED ON THE POINT THAT IN THE CASE OF A BANKING BUSINESS THE MONEY AV AILABLE AT THE DISPOSAL OF THE ASSESSEE WAS ITS STOCK IN TRADE AND WHEN SUCH STOCK IN TRADE WAS WRONGLY TAKEN AWAY IT RETAINED THE CHARACTER OF ITS CIRCULATING CAPITAL AND ON THE REFUND OF SUCH AMOUNT THE CIRCULATING CAPITAL STOOD RESTORED AN D FOR WRONGFUL DEPRIVATION OF SUCH MONEY THE INTEREST SO EARNED SHOULD BE CONS IDERED AS FALLING UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. WE ARE NOT AGREEABLE WITH THIS CONTENTION. THE CRITERIA TO DETERMINE THE HEAD UNDE R WHICH A PARTICULAR INCOME SHALL FALL IS NOT TO ASCERTAIN WHETHER OR NOT THE C IRCULATING CAPITAL OF THE ASSESSEE WAS INVESTED BUT WHAT THE NATURE AND CHARACTER OF INCOME WHICH RESULTS FROM SUCH DEPLOYMENT OF CIRCULATING CAPITAL. IF FOR EXAMPLE T HE ASSESSEE A BANK UTILIZES ITS CIRCULATING CAPITAL IN THE PURCHASE OF A BUILDING O R LAND APPURTENANT THERETO THE ANNUAL VALUE OF SUCH BUILDING SHALL FALL UNDER THE HEAD `INCOME FROM HOUSE PROPERTY AND NOT `PROFITS AND GAINS OF BUSINESS O R PROFESSION FOR THE REASON THAT THE NATURE OF INCOME WHICH RESULTS FROM THE PURCHAS E OF BUILDING FALLS UNDER THE HEAD OF RENTAL INCOME. IT IS SEEN THAT EVEN IN THE INSTANT CASE THE ASSESSEE EARNED INCOME FROM HOUSE PROPERTY TO THE TUNE OF RS.18 985 WHICH WAS HELD BY THE ASSESSING OFFICER TO BE FALLING UNDER THE HEAD `I NCOME FROM HOUSE PROPERTY WHICH ACTION HAS NOT BEEN ASSAILED IN FURTHER APPEA LS THEREBY ALLOWING THE FINALITY TO ATTACH TO THAT ASPECT OF THE MATTER. IT IS NOT T HE CASE OF THE ASSESSEE THAT THE BUILDING FROM WHICH RENTAL INCOME WAS EARNED WAS NOT PURCHASED BY INVESTING ITS MONEY. PROCEEDING FURTHER SUPPOSING THE BUILDING W HOSE ANNUAL WAS ASSESSED UNDER CHAPTER IV-C IS SUBSEQUENTLY TRANSFERRED A ND THERE RESULTS INCOME ON SUCH TRANSFER. GOING BY THE YARDSTICK OF THE LD. AR SUC H GAIN SHOULD ALSO BE ASSESSED UNDER THE HEAD OF BUSINESS INCOME BECAUSE THE CIRCU LATING CAPITAL OF THE BUSINESS WAS UTILIZED FOR ITS PURCHASE. OBVIOUSLY IT IS NOT SO AS THE RESULTANT INCOME ON THE TRANSFER OF BUILDING BEING THE CAPITAL ASSET SHAL L FALL UNDER THE HEAD `CAPITAL GAINS. GOING STILL FURTHER IF THE ASSESSEE PARKS SOME OF ITS MONEY BEING THE ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 18 CIRCULATING CAPITAL OF ITS BANKING BUSINESS IN SOME NON-BANKING BUSINESS THE INCOME SO RESULTING WOULD NOT BECOME INCOME FROM TH E BANKING BUSINESS SO AS TO BE ELIGIBLE FOR DEDUCTION U/S 80P. IN THE LIKE MAN NER IF THE ASSESSEE ENGAGED IN BANKING BUSINESS COMES INTO THE POSSESSION OF SOM E FUNDS WHICH ARE NOT ITS CIRCULATING CAPITAL AND THE SAME ARE UTILIZED IN T HE BANKING BUSINESS THE INCOME FROM THE USER OF SUCH FUNDS SHALL RETAIN THE CHARA CTER OF INCOME FROM BANKING BUSINESS NOTWITHSTANDING THE FACT THAT THE MONEY SO USED WAS NOT ITS CIRCULATING CAPITAL. IT WILL BE INCOME FROM BANKING BUSINESS E LIGIBLE FOR DEDUCTION U/S 80P SUBJECT TO THE FULFILLMENT OF THE OTHER COND ITIONS OF THE SECTION. THE HONBLE SUMMIT COURT IN THE CASE OF CIT VS. KARNATAKA STATE CO-OPERATIVE APEX BANK [(2001) 251 ITR 194 (SC)] HAS HELD TO THIS EXTENT BY LAYING DOWN THAT THE PLACEMENT OF SUCH FUNDS BEING IMPERATIVE FOR THE PU RPOSE OF CARRYING ON THE BANKING BUSINESS THE INCOME DERIVED THERE FROM WOU LD BE INCOME FROM ASSESSEES BUSINESS. THERE IS NOTHING IN THE PHRASEOLOGY OF TH AT PROVISION WHICH MAKES IT APPLICABLE ONLY TO INCOME DERIVED FROM WORKING OR CIRCULATING CAPITAL. FROM THIS JUDGMENT IT CAN BE NOTICED THAT THE DEPLOYMENT OF C IRCULATING CAPITAL OR NON- CIRCULATING CAPITAL IS NOT A RELEVANT FACTOR IN DET ERMINING THE HEAD UNDER WHICH THE INCOME SHALL FALL. IT IS IN FACT THE NATURE AND CHARACTER OF INCOME. WHEN INCOME RESULTS FOR CARRYING ON OF BUSINESS IT FALLS UND ER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE HONBLE SUPREME COURT IN THE CASE OF MEHSANA DISTRICT CENTRAL CO-OPERATIVE BANK LTD. VS. ITO [(2 001) 251 ITR 522 (SC)] HAS HELD THAT THE LOCKER RENT RECEIVED BY THE ASSESSEE WAS A PART OF ORDINARY BANKING BUSINESS AS SHOWN BY SECTION 6(1)(A) OF THE BANKING (REGULATION) ACT 1949 AND THEREFORE THE INCOME DERIVED BY THE ASSESSEE BANK FROM HIRING OUT OF SAFE DEPOSIT VAULTS WAS INCOME FROM BANKING BUSINESS AND DEDUCTI BLE U/S.80P(2)(A)(I). FROM THESE JUDICIAL PRONOUNCEMENTS IT CAN BE DISCERNED THAT IF THE INCOME RESULTS FROM THE ACTIVITIES SPECIFIED IN THE BANKING (REGULATIO N) ACT 1949 THE SAME WOULD FALL UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION. WE HAVE ALSO PERUSED THE RELEVANT PART OF BANKING REGULATION ACT 1949. THE LD. AR COULD NOT POINT OUT ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 19 ANY CLAUSE TREATING THE PAYMENT OF INCOME-TAX AS PA RT OF BANKING BUSINESS WHICH OBVIOUSLY CANNOT BE THE CASE. 7.9. WE DO NOT FIND ANY SUBSTANCE IN TH E CONTENTION OF THE LEARNED A.R. THAT RETURN BY THE INCOME-TAX DEPARTMENT OF ITS CIRCULA TING CAPITAL ALONG WITH INTEREST WOULD AMOUNT TO THE DROPPING OF INTEREST ON SUCH R EFUND UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION FOR THE SOLE REASON THAT IF THE DEPARTMENT HAD NOT TAKEN AWAY ITS CIRCULATING CAPITAL THEN IT WO ULD HAVE BEEN DEPLOYED FOR THE PURPOSE OF BANKING BUSINESS AND INCOME FROM WHICH WOULD HAVE BEEN CHARACTERIZED AS THE BUSINESS INCOME. IN OUR CONSI DERED OPINION THE MATERIAL CONSIDERATION IS TO SEE WHAT HAS ACTUALLY HAPPENED AND NOT WHAT COULD HAVE HAPPENED. IT IS POSSIBLE THAT INSTEAD OF DISCHARGI NG INCOME-TAX LIABILITY THE ASSESSEE HAD UTILIZED SUCH AMOUNT ALTERNATIVELY ON THE PURCHASE OF ANY BUILDING OR FOR SOME NON-BANKING ACTIVITY OR MAY NOT HAVE AT AL L DEPLOYED IT IN THE BUSINESS FOR THE ONE REASON OR THE OTHER. IN THESE SITUATIONS EI THER NO INCOME WOULD HAVE RESULTED AT ALL OR IT WOULD HAVE FALLEN UNDER ANY OTHER HEAD OF INCOME. HENCE NO HYPOTHETICAL SITUATION CAN BE CONTEMPLATED FOR TAKI NG THE DECISION AS TO WHAT SORT OF INCOME COULD HAVE RESULTED IF THE FUNDS HAD BEEN US ED IN ONE WAY OR THE OTHER BY COMPLETELY DISREGARDING THE NATURE OF ACTUAL INCOME EARNED. IT IS IN FACT THE REAL CHARACTER AND NATURE OF THE RESULTING INCOME WHICH NEEDS TO BE EXAMINED IN PREFERENCE TO THE IMAGINARY SITUATION. 7.10. FROM THE ABOVE DISCUSSION IT IS CR YSTAL CLEAR THAT THE CONSIDERATION FOR DETERMINING THE HEAD UNDER WHICH A PARTICULAR INCOM E SHALL FALL IS NOT THE UTILIZATION OF CIRCULATING CAPITAL BUT THE NATURE AND CHARACTER OF INCOME WHICH ARISES FROM THE EXPLOITATION OF SUCH FUNDS. AS DI SCUSSED ABOVE THERE ARE PRESENTLY FIVE HEADS OF INCOME. FOR AN INCOME TO PLUNGE UNDE R THE HEAD `SALARIES WHAT IS ESSENTIAL IS THAT IT SHOULD FIT INTO ANY OF THE TH REE CLAUSES OF SECTION 15 SUCH AS IT SHOULD BE DUE FROM AN EMPLOYER OR FORMER EMPLOYER. ONCE THE CONDITIONS OF THIS ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 20 SECTION ARE SATISFIED THE MATTER ENDS AND THE AMOU NT BECOMES CHARGEABLE TO TAX UNDER THIS HEAD. SIMILARLY AN INCOME TO FALL UNDER THE HEAD `INCOME FROM HOUSE PROPERTY IT IS VITAL THAT THE SAME SHOULD BE THE ANNUAL VALUE OF PROPERTY CONSISTING OF ANY BUILDING OF LAND APPURTENANT THERETO OF WHICH THE ASSESSEE IS OWNER. THUS THE CONDITIONS OF SECTION 22 SHOULD BE FULFILLED. W HEN SUCH CONDITIONS ARE SATISFIED THERE REMAINS NO NEED TO EXAMINE ANY THING FURTHER. IN A CASE WHERE THE ASSESSEE A BUILDER LET OUT HIS PROPERTY FOR SOME TIME PENDING SALE THE DISPUTE AROSE ABOUT THE HEAD UNDER WHICH SUCH RENTAL INCOME SHALL FALL. THE HONBLE SUPREME COURT IN EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. VS . CIT (1961) 42 ITR 49 (SC) AND S.G. MERCANTILE CORP. P. LTD. VS. CIT (1 972) 83 ITR 700 (SC) HELD THAT SUCH INCOME WAS TAXABLE UNDER THE HEAD `INCOM E FROM HOUSE PROPERTY AND NOT `BUSINESS INCOME. THUS IT CAN BE SEEN THAT ONC E THE CONDITIONS OF SECTION 22 ARE SATISFIED THE INCOME HAS TO BE CLASSIFIED UNDE R THAT HEAD AND OTHER MATTERS EVEN IF HAVING SOME BEARING GO OUT OF CONSIDERATIO N. SIMILARLY AN INCOME TO COME WITH THE AMBIT OF CHAPTER IV-E IT IS FUNDAMENTAL THAT IT SHOULD BE PROFIT OR GAIN ARISING FROM THE TRANSFER OF CAPITAL ASSET. IF THE RE IS INCOME FROM THE TRANSFER OF CAPITAL ASSET THE SAME IS TAXABLE UNDER THIS HEAD NOTWITHSTANDING THE FACT THAT THE FUNDS FOR THE ACQUISITION OF SUCH CAPITAL ASSET WER E BUSINESS OR NON-BUSINESS. IN THE LIKE MANNER FOR AN INCOME TO BE CHARGED UNDER THE H EAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER CHAPTER IV-D IT IS RE QUIRED THAT THE SAME SHOULD BE COVERED IN ANY OF THE CLAUSES OF SECTION 28 UNLES S IT IS THE CASE OF SOME SPECIAL PROVISIONS OF THIS CHAPTER. WHEN THE INCOME FALLS U NDER ANY OF THE ABOVE FOUR HEADS EXCLUSIVELY IT IS CLASSIFIED ACCORDINGLY. IF HOWEVER THERE IS INCOME OF ANY OTHER KIND WHICH IS NOT TO BE EXCLUDED FROM THE TOT AL INCOME UNDER THE ACT THE SAME IS CHARGEABLE TO INCOME TAX UNDER THE RESIDUAL HEAD NAMELY `INCOME FROM OTHER SOURCES U/S.56. SUB-SECTION (1) OF SECTION 56 IS COUCHED GENERALLY TO BRING WITHIN ITS PURVIEW ANY SUCH INCOME WHICH IS CHARGEA BLE TO INCOME-TAX BUT DOES NOT FALL UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14 ITEMS A TO E. SUB-SECTION (2) OF SECTION 56 ENLISTS ITEMS MENTIONED IN CLAUSES (I) T O (VIII) WHICH SHALL BE CHARGED TO ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 21 INCOME-TAX UNDER THE LAST HEAD OF INCOME WITHOUT PREJUDICE TO THE GENERALITY OF THE PROVISIONS OF SUB-SECTION (1). FROM THE ABOVE D ISCUSSION IT IS DISCERNIBLE THAT INCOME IS INCLUDED IN ANY OF THE FIRST FOUR HEADS IF THE CONDITIONS OF THE RELEVANT SECTIONS ARE SATISFIED. IF HOWEVER THE INCOME RESU LTS WHICH IS OTHERWISE NOT EXCLUDED FROM TOTAL INCOME BUT IS NOT INCLUDIBLE I N THE ABOVE SPECIFIC HEADS THEN IT IS CHARGEABLE UNDER THE RESIDUAL HEAD OF `INCOME FROM OTHER SOURCES. 7.11. COMING BACK TO THE POINT IN QUESTION WE FIND THAT THE INTEREST ON INCOME-TAX DOES NOT SATISFY THE CONDITIONS OF SECTI ON 28(I). IT IS NOT THE CASE OF THE ASSESSEE NOR IT CAN BE THAT IT IS GOVERNED BY ANY OTHER CLAUSE OF SECTION 28 . IN VIEW OF THE FACT THAT INTEREST ON INCOME-TA X REFUND IS NOT EXCLUDED FROM THE TOTAL INCOME UNDER THIS ACT IT SHALL BE S UBJECTED TO TAX UNDER THE LAST HEAD OF `INCOME FROM OTHER SOURCES. 7.12. NOW WE WILL DEAL WITH OTHER CONTENTIONS R AISED ON BEHALF OF THE ASSESSEE TO BOLSTER HIS SUBMISSION THAT INTEREST ON INCOME TAX REFUND IS TAXABLE UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PR OFESSION. THE LEARNED COUNSEL FOR THE ASSESSEE HEAVILY BANKED UPON THE JUDGMENTS IN DONALD MIRANDA & ORS. (SUPRA) AND R.B.JODHAMAL KUTHIALA (SUPRA) HOLDING THAT THE INTEREST ON INCOME TAX REFUND SHALL DRAW ITS COLOUR FROM THE NATURE OF PAY MENT AND SINCE THE TAX WHEN PAID WAS DEDUCTIBLE EXPENDITURE UNDER THE BUSINESS HEAD AND ACCORDINGLY THE REFUND OF SUCH TAX WITH INTEREST SHALL ALSO FALL UN DER THE HEAD OF BUSINESS INCOME AND NOT THE MISCELLANEOUS HEAD OF INCOME. IT IS BEY OND DOUBT THAT IN THE CASE OF R.B. JODHAMAL KUTHIALA (SUPRA) IT HAS BEEN HELD THAT THE INTEREST ON REFUND OF TAX SHALL FALL UNDER THE HEAD OF BUSINESS INCOME AND NO T THE RESIDUAL HEAD. BUT IT IS IMPORTANT TO NOTE THE BACKGROUND OF FACTS IN WHIC H IT WAS SO HELD. IN THE CASE OF DONALD MIRANDA & ORS.(SUPRA) THE FIRM WAS CARRYING ON THE BUSINESS AND WAS ASSESSED TO INCOME-TAX UNDER THE PROVISIONS OF INCO ME-TAX ACT 1918. IT WAS DISSOLVED IN 1945. IN RESPECT OF THE CHARGEABLE AC COUNTING PERIOD FROM 24 MARCH ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 22 1944 TO 24 MARCH 1945 THE FIRM WAS TAXED TO EXCES S PROFIT TAX UNDER THE EXCESS PROFITS TAX ACT 1940. IN ACCORDANCE WITH THE PROV ISIONS OF EXCESS PROFIT TAX ACT THE FIRM BECAME ENTITLED TO REFUND OF PORTION OF EX CESS PROFIT TAX. THE SHARE OF THREE PARTNERS WAS DETERMINED. THE ASSESSEE CLAIMED THAT THE AMOUNT REFUNDED WAS BUSINESS PROFIT AND HENCE EXEMPT FROM TAX U/S.25(4 ) OF THE ACT. THE ITO REJECTED THE SUBMISSION. THE TRIBUNAL HELD THAT THE SUM WHIC H WAS REFUNDED WAS INCOME FROM BUSINESS AND WAS THEREFORE EXEMPT FROM INCOME- TAX U/S.25(4) OF THE ACT. THE HIGH COURT HELD THAT THE AMOUNT SO REFUNDED WAS INC OME FROM OTHER SOURCES. WHEN THE MATTER FINALLY CAME UP BEFORE THE HONBLE SUPREME COURT IT WAS HELD THAT THE AMOUNT OF REFUND WOULD BE INCOME FROM BUSI NESS ASSESSABLE U/S.10 OF THE INCOME-TAX ACT AND NOT INCOME FROM OTHER SOURCES U/ S.12. IT IS RELEVANT TO CONSIDER THAT THE AMOUNT OF EXCESS PROFIT TAX PAYABLE IN RES PECT OF BUSINESS FOR CHARGEABLE ACCOUNTING PERIOD WAS ALLOWABLE BY WAY OF RELIEF IN COMPUTING THE PROFITS AND GAINS OF THE BUSINESS AND WAS DEDUCTIBLE AS AN EXPE NSE INCURRED IN THAT PERIOD. IT WAS IN THE LIGHT OF THESE FACTS THAT THE HONBLE SU PREME COURT HELD THAT WHEN IT WAS DEPOSITED WITH THE CENTRAL GOVERNMENT IT WAS A PORT ION OF THE PROFIT OF THE BUSINESS OF THE ASSESSEE AND WHEN IT WAS RETURNED TO THE ASS ESSEE IT MUST BE RESTORED TO THE CHARACTER OF BEING PART OF THE PROFITS OF THE BUSIN ESS. FROM THE FACTS OF THAT CASE IT CAN BE SEEN THAT THE RATIO DECIDENDI OF THE JUDGMENT IS QUA THE TREATMENT OF REFUND OF INCOME-TAX AND NOT INTEREST ON SUCH INCOME-TAX R EFUND. THE TAX PAYABLE BY THE ASSESSEE WAS DEDUCTIBLE FROM BUSINESS PROFITS AND I T WAS ONLY WHEN THE EXCESS AMOUNT WAS REFUNDED THAT IT WAS HELD TO BE INCOME F ROM BUSINESS. IN THE CASE OF R.B.JODHAMAL KUTHIALA (SUPRA) THE HONBLE PUNJAB & HARYANA HIGH COURT FOLLOWED THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF DONALD MIRANDA & ORS.(SUPRA) AND HELD THAT THE EXCESS PROFIT TAX PAID WAS DEDUC TIBLE AND WHEN REFUND WAS RECEIVED THERE FROM IT WOULD BE T HE INCOME FROM BUSINESS. APART FROM REFUND THE ASSESSEE WAS ALSO GRANTED INTERES T WHICH WAS HELD TO BE FALLING UNDER THE HEAD INCOME FROM BUSINESS. IT IS SIGNIFIC ANT TO NOTE THAT THESE TWO JUDGMENTS ARE BASED ON INDIAN INCOME TAX ACT 1922 AND EXCESS PROFIT TAX ACT ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 23 1940. WHEN THE PROVISIONS OF THE RELEVANT STATUTE P ROVIDED FOR ALLOWING DEDUCTION ON THE PAYMENT OF EXCESS PROFIT TAX AGAINST THE BU SINESS INCOME IT WAS NATURAL THAT THE REFUND OF EXCESS TAX OR INTEREST ON SUCH REFUND DRAWING COLOUR FROM SUCH REFUND WOULD ALSO FALL UNDER THE SAME HEAD. IT I S SIMPLE AND PLAIN THAT WHEN A PARTICULAR DEDUCTION IS CLAIMED IN EXCESS THE REVE RSAL OF SUCH DEDUCTION SHALL LEAD TO THE ENHANCEMENT OF THE SAME INCOME. FOR EXAMPLE IF THERE IS A BUSINESS INCOME OF RS. 100 AFTER THE CLAIM FOR DEDUCTION ON ACCOUNT OF SALARIES OF RS. 25 AND SUBSEQUENTLY IT COMES TO THE NOTICE THAT THE CORREC T SALARY PAYABLE WAS TO THE TUNE OF RS. 20 ONLY THE REFUND OF RS.5 WILL AUGMENT THE BUSINESS INCOME TO RS. 105. THE INCOME IF ANY UNDER OTHER HEADS WILL REMAIN UNALTERED WITH THIS RECEIPT OF THE REFUND OF RS.5. APPLYING THE SAME ANALOGY TO THE ABOVE TWO JUDGMENTS WE FIND THAT WHEN THE ASSESSEE PAID TAX (EQUAL TO RS. 25 IN OUR ABOVE EXAMPLE) THE SAME WAS ALLOWED AS DEDUCTION AGAINST THE BUSINESS INCOME. HOWEVER WHEN SUBSEQUENTLY THE REFUND OF THE EXCESS TAX PAID OR I NTEREST THEREON (EQUAL TO RS. 5 IN OUR ABOVE EXAMPLE) WAS RECEIVED IT WAS BUT NATURA L THAT THE BUSINESS INCOME THAT WAS EARLIER COMPRESSED STOOD SWELLED ACCORDINGLY. HOWEVER IN THE PRESENT APPEAL WE ARE CONSIDERING THE PROVISIONS OF INCOME-TAX ACT 1961 IN WHICH PAYMENT OF INCOME-TAX IS NOT DEDUCTIBLE UNDER THE HEAD `PROFIT S AND GAINS OF BUSINESS OR PROFESSION. LOGICALLY THE REFUND OF INCOME-TAX WOU LD ALSO NOT BECOME LIABLE FOR TAXATION UNDER THE SAME HEAD. IN THAT VIEW OF THE MATTER THE INTEREST ON INCOME-TAX REFUND WOULD ALSO FORM PART OF INCOME-TAX REFUND W HICH CAN NOT BE CHARGED TO TAX UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS O R PROFESSION. IF THE AMOUNT OF INCOME TAX HAD BEEN ALLOWABLE AGAINST THE BUSINESS INCOME UNDER THE INCOME TAX ACT 1961 THEN CLEARLY THE REFUND OF TAX AND INTER EST ON SUCH REFUND SHOULD HAVE BEEN CHARGEABLE UNDER THE HEAD OF BUSINESS INCOME. IT IS NO BODYS CASE THAT THE INTEREST ON INCOME-TAX REFUND IS NOT CHARGEABLE TO INCOME-TAX. THE CONTROVERSY IS CENTERED ONLY ON THE DETERMINATION OF THE HEAD UNDE R WHICH SUCH INTEREST SHALL FALL. AS THE INTEREST IN INCOME-TAX REFUND IS OTHERWISE C HARGEABLE TO INCOME-TAX BUT DOES ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 24 NOT SATISFY THE CONDITIONS OF SECTION 28 IT WILL COME TO BE RECOGNIZED UNDER THE HEAD `INCOME FROM OTHER SOURCES. 7.13. THE LEARNED A.R. HAS CONTENDED WIT H VEHEMENCE THAT THE PAYMENT OF INCOME TAX WAS IN RELATION TO THE CARRYING ON THE B ANKING BUSINESS AND HENCE INTEREST ON REFUND OF INCOME SHOULD ALSO BE CONSIDE RED AS BUSINESS INCOME. IF IT IS ACCEPTED AND TAKEN TO A LOGICAL CONCLUSION THEN IT WOULD MEAN THAT A PERSON HAVING THE ONLY SOURCE OF INCOME AS `SALARIES SHOULD ALSO CLASSIFY THE INTEREST ON INCOME- TAX REFUND UNDER THE HEAD SALARIES AND CLAIM STAN DARD DEDUCTION THEREON. IN THE SAME MANNER IF THE ONLY SOURCE OF A PERSONS INCOME IS FROM CAPITAL GAIN AND DUE TO WRONGFUL DENIAL OF SOME OTHERWISE ELIGIBLE DEDUC TION SOME EXCESS TAX IS COLLECTED THEN THE INTEREST ON ITS REFUND SHOULD ALSO BE CATEGORIZED UNDER THE HEAD `CAPITAL GAINS. EVIDENTLY IT IS NOT CORRECT BEC AUSE THE INTEREST ON INCOME-TAX REFUND BEING A SEPARATE INCOME DOES NOT SATISFY E ITHER THE CONDITIONS OF SECTION 15 OR 45 AS THE CASE MAY BE. IT THEREFORE EMERGES THAT THE NATURE OF INCOME ON WHICH INCOME TAX WAS WRONGLY COLLECTED IS NOT DETER MINATIVE OF THE NATURE OF INTEREST INCOME WHICH RESULTS FROM THE REFUND OF S UCH EXCESS TAX. THE PROPOSITION THAT THE INTEREST DRAWS COLOUR FROM THE PRINCIPAL A MOUNT SHOULD BE APPLIED IN THE RELEVANT CONTEXT ONLY AND IS NOT UNIVERSALLY APPLIC ABLE. CONSIDER THE CASE OF AN ASSESSEE HAVING AGRICULTURAL INCOME ALONE. IF SOME AMOUNT OUT OF SUCH OTHERWISE EXEMPT INCOME IS UTILIZED IN PURCHASING FDRS IN A BANK THE INTEREST ON SUCH INCOME SHALL BE CHARGEABLE TO TAX UNDER THE ACT AND NOT BECOME AGRICULTURAL INCOME SIMPLY ON THE GROUND THAT THE EXEMPT INCOME WAS USED FOR THE PURCHASE OF FDRS. FOR ANY RECEIPT TO BECOME AGRICULTURAL INCOM E IT NEED TO SATISFY THE CONDITIONS AS LAID DOWN IN SECTION 2(1A). IT IS ONL Y IF SUCH CONDITIONS ARE SATISFIED THAT THE INCOME WILL BE CONSIDERED SO AND NOT BECAU SE OF THE REASON OF HAVING SOME NEXUS WITH THE AGRICULTURAL INCOME. ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 25 7.14. THE LEARNED DEPARTMENTAL REPRESENTAT IVE HAS ALSO PLACED ON RECORD AN ARGUMENT THROUGH WRITTEN SUBMISSIONS THAT THAT TH E INTEREST INCOME SPECIFICALLY FALLS U/S.56(2)(ID) OF THE ACT AND HENCE THERE IS N O QUESTION OF CONSIDERING SUCH INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINES S OR PROFESSION. CLAUSE (ID) OF SECTION 56(2) PROVIDES THAT INCOME BY WAY OF INTEREST ON SECURITIES IF THE INC OME IS NOT CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFIT S AND GAINS OF BUSINESS OR PROFESSION SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD `INCOME FROM OTHER SOURCES. A BARE PERUSAL OF THIS PROVISION INDICAT ES THAT WHAT IS REFERRED TO IN THIS CLAUSE IS INTEREST ON SECURITIES AND NOT OTHER INTE REST. SECTION 2(28B) DEFINES INTEREST ON SECURITIES TO MEAN - (I) INTEREST ON ANY SECURITY OF THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT; (II) INTEREST ON DEBENTURES OR OTHER SECURITIES FOR MONE Y ISSUED BY OR ON BEHALF OF A LOCAL AUTHORITY OR A COMPANY OR A CORPO RATION ESTABLISHED BY A CENTRAL STATE OR PROVINCIAL ACT; 7.15. FROM THE ABOVE DEFINITION OF INT EREST ON SECURITIES WE FIND THAT THE PAYMENT OF INCOME-TAX DOES NOT FALL IN ANY OF THE T WO SUB-CLAUSES OF SECTION 2(28B). WHEREAS SUB-CLAUSE (II) REFERS TO INTEREST ON DEBENTURES OR OTHER SECURITIES ISSUED BY OR ON BEHALF OF A LOCAL AUTHORITY OR COMP ANY ETC. SUB-CLAUSE (I) REFERS TO INTEREST ON SECURITY OF THE CENTRAL GOVERNMENT OR T HE STATE GOVERNMENT. ON PAYMENT OF INCOME-TAX NO DEBENTURE OR ANY OTHER SE CURITY IS ISSUED BY THE CENTRAL GOVERNMENT SO AS TO GIVE THE ASSESSEE A RIGHT TO D RAW INTEREST THERE FROM. RATHER THE PAYMENT OF INCOME-TAX IS THE DISCHARGE OF A ST ATUTORY LIABILITY AND ONLY WHERE ON THE DETERMINATION OF THE FINAL TAX LIABILITY IT IS FOUND THAT THERE WAS SOME EXCESS DEPOSIT OR COLLECTION OF TAX THAT THE REFUND BEC OMES DUE TO THE ASSESSEE ALONG WITH INTEREST. THUS THE INTEREST ON INCOME-TAX CAN NOT BE HELD TO BE INTEREST ON ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 26 SECURITIES SO AS TO MERIT INCLUSION IN CLAUSE (ID) OF SECTION 56(2). THIS CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THEREFORE FAILS. IN SUCH A SITUATION THE GENERAL PROVISION CONTAINED IN SUB-SECTION (1) OF S ECTION 56 COVERING EVERY INCOME WHICH IS NOT OTHERWISE EXCLUDED FROM THE TOTAL INC OME SHALL ENVELOP INTEREST ON INCOME TAX REFUND. 7.16. WE HAVE DISCUSSED ABOVE THE JUDGM ENTS RELIED ON BY THE LD. AR IN DONALD MIRANDA & ORS. (SUPRA) AND R.B.JODHAMAL KUTHIALA (SUPRA) AND HELD THEM TO BE NOT APPLICABLE UNDER THE IT ACT 1961. IN THE ORDERS OF THE TRIBUNAL RELIED ON BY THE LEARNED A.R. HOLDING THAT THE INT EREST ON INCOME-TAX REFUND FALLS UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PR OFESSION THE BENCHES HAVE LITERALLY FOLLOWED THE AFORE-NOTED TWO JUDGMENTS WH ICH ARE FOUND TO BE NOT APPLICABLE IN THE IT ACT 1961. THOSE CASES WERE N OT ARGUED BEFORE THE BENCHES FROM THE ANGLE IN WHICH THE LD. DRS HAVE ARGUED BE FORE US. HOWEVER THE JUDGMENTS OF THE HONBLE HIGH COURT AND ORDERS PASS ED BY THE VARIOUS BENCHES OF THE TRIBUNAL RELIED ON BY THE LEARNED DEPARTMENTA L REPRESENTATIVE AS NOTED EARLIER CORRECTLY SUPPORT THE VIEW THAT THE INTERE ST ON INCOME-TAX REFUND FALLS UNDER THE HEAD `INCOME FROM OTHER SOURCES. IT IS NOT TRUE AS CONTENDED BY THE LEARNED A.R. THAT THE TRIBUNAL ORDERS HOLDING THE INTEREST ON INCOME-TAX REFUND DROPPING UNDER THE MISCELLANEOUS HEAD OF INCOME R ENDERED IN THE CONTEXT OF SECTION 80HHC WERE NOT APPLICABLE IN THE CONTEXT OF SECTION 80P. IT IS TRUE THAT THERE IS A DIFFERENCE IN THE PHRASEOLOGY OF THESE T WO SECTIONS. BUT IN THESE ORDERS THE BENCHES HAVE GIVEN FINDING FIRSTLY ABOUT TH E HEAD OF INCOME UNDER WHICH INTEREST ON INCOME TAX REFUND SHALL FALL AND ONLY T HEN THEY HAVE CONSIDERED THE QUESTION OF THE ALLOWABILITY OR OTHERWISE OF DEDUCT ION U/S 80HHC ON SUCH INTEREST. THE RENDERING OF THESE ORDERS IN THE CONTEXT OF A D IFFERENT SECTION WILL NOT DILUTE THE FINDING WHICH IS TO THE EFFECT OF THE INCLUSION OF INTEREST ON INCOME-TAX REFUND UNDER THE HEAD `INCOME FROM OTHER SOURCES. THE QU ESTION OF ALLOWING DEDUCTION ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 27 U/S.80HHC IN THOSE ORDERS IS ONLY SECONDARY. FURTHE R THE JUDGMENTS IN SMT. B. SESHAMMA (SUPRA) AND TRAVANCORE TEA & ESTATE LTD. (SUPRA) HOLDING INTEREST ON INCOME-TAX REFUND AS COMING UNDER THE HEAD `INCOME FROM OTHER SOURCES ARE NOT IN THE CONTEXT OF SECTION 80HHC. WE THEREFORE APPRO VE THE VIEW TAKEN BY VARIOUS BENCHES OF THE TRIBUNAL HOLDING THAT INTEREST ON IN COME-TAX REFUND FALLS UNDER THE HEAD `INCOME FROM OTHER SOURCES AND WITH RESPECT DIFFER WITH THE ORDERS HOLDING CONTRARY VIEW. 7.17. THE LEARNED FIRST APPELLATE AUTHORITY HA S GIVEN A FINDING THAT THERE IS A DIFFERENCE BETWEEN THE INTEREST ON INCOME-TAX REFUN D RESULTING FROM THE EXCESS DEDUCTION OF TAX AT SOURCE AND THE EXCESS COLLECTIO N OF TAX BY WAY OF ASSESSMENT. WE ARE NOT CONVINCED WITH THIS FINDING BECAUSE IN BOTH THE CASES IT IS ONLY THE PAYMENT OF INCOME-TAX BE IT AT THE CALL OF THE RE VENUE OR THE VOLUNTARY PAYMENT BY THE ASSESSEE PURSUANT TO ASSESSMENT. THERE IS N O QUALITATIVE DIFFERENCE BETWEEN INTEREST ON INCOME-TAX REFUND RESULTING DUE TO EXCE SS DEDUCTION OF TAX AT SOURCE OR EXCESS COLLECTION OF TAX BY WAY OF ASSESSMENT. HOWE VER WE AGREE WITH THE CONCLUSION DRAWN IN THE IMPUGNED ORDER ON THE POINT THAT THE INTEREST ON INCOME TAX REFUND FALLS UNDER THE HEAD `INCOME FROM OTHER SOURCES AS IN OUR OPINION THAT INTEREST ON THE REFUND OF INCOME-TAX DOES NOT AND CAN NEVER FALL UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION IRRES PECTIVE OF THE FACT THAT THE ASSESSEE IS IN BANKING OR NON-BANKING BUSINESS. CO NSEQUENTLY WE UPHOLD THE VIEW OF THE LD. FIRST APPELLATE AUTHORITY THAT SUCH INTE REST IS CHARGEABLE TO TAX UNDER THE HEAD `INCOME FROM OTHER SOURCES. ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 28 II. MEANING OF EXPRESSION `PROFITS AND GAINS OF BUSINESS AS USED IN SECTION 80P. 8.1. THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED THAT EVEN IF INTEREST ON INCOME-TAX REFUND IS HELD TO BE FALLING UNDER THE H EAD `INCOME FROM OTHER SOURCES STILL IT WILL REMAIN BUSINESS INCOME BECAUSE OF THE DEPLOYMENT OF THE BUSINESS FUND. HE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME CO URT IN THE CASE OF CIT VS. COCANADA RADHASWAMI BANK LTD. [(1965) 57 ITR 306 (S C)] IN WHICH IT WAS HELD THAT THOUGH FOR THE PURPOSE OF COMPUTATION OF INCOM E INTEREST ON SECURITIES WAS SEPARATELY CLASSIFIED BUT INCOME BY WAY OF INTERES T FROM SECURITIES DID NOT CEASE TO BE PART OF THE INCOME FROM BUSINESS IF THE SECURITI ES WERE PART OF THE TRADING ACTIVITIES. FOR THE SAME PROPOSITION HE ALSO RELIED ON AN ORDER PASSED BY THE MADRAS BENCH OF THE TRIBUNAL IN ITO VS. TAMIL NADU CO-OP. STATE LAND DEVELOPMENT BA NK LIMITED [(1981) 11 TTJ (MAD.) 202] IN WHICH IT WAS HELD THAT THE DIVIDEND INCOME FROM THE SHARES PURCHASED WOULD BE BUSINESS INCOME EVEN THOUGH IT WAS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURC ES. THE LEARNED COUNSEL STATED THAT THE TAX WAS IN RELATION TO THE BUSINESS OF BANKING AND WHEN THE SAID AMOUNT WAS REFUNDED WITH INTEREST THE INTEREST SO RECEIVED CONSTITUTED PROFITS AND GAINS OF THE BUSINESS OF BANKING. HE CONTENDED THA T SUCH INTEREST WILL QUALIFY FOR DEDUCTION U/S.80P EVEN IF IT DOES NOT COME WITHIN T HE AMBIT OF THE HEAD `INCOME FROM OTHER SOURCES. 8.2. SOUNDING A CONTRA NOTE THE LD. DR E MPHASIZED THAT THE SINCE THE INTEREST ON INCOME TAX REFUND DOES NOT FALL UNDER THE BUSINE SS HEAD OF INCOME SO THE QUESTION OF ALLOWING ANY DEDUCTION U/S 80P THEREON IS OUSTED. HE STATED THAT ONLY THE INCOME FROM THE BANKING ACTIVITY OF THE ASSESSE E WOULD ENTITLE IT TO DEDUCTION U/S.80P. HE RELIED ON THE RECENT JUDGMENT OF THE R AJASTHAN HIGH COURT IN THE CASE OF CIT VS. SIROHI S.B.V. BANK LTD. [(2009) 221 CTR (RA J.) 395] IN WHICH IT WAS HELD THAT INTEREST ON LOAN EXTENDED TO EMPLOYEES WA S NOT IN THE CAPACITY OF THE BANKER BUT FROM AN EMPLOYER TO EMPLOYEES. INTEREST EARNED BY THE ASSESSEE ON ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 29 VARIOUS LOANS EXTENDED TO ITS EMPLOYEES ON PROVIDEN T FUND AND HOUSE BUILDING LOANS WERE HELD TO BE NOT ELIGIBLE FOR DEDUCTION U /S.80P(2)(A)(I). HE SUBMITTED THAT SIMILAR VIEW WAS ALSO TAKEN IN BIHAR RAJYA SAHKARI BHOOMI VIKAS CO-OPERATIVE BANK LTD. VS. CIT [(2009) 313 ITR 247 (PATNA)] . 8.3. WHEN THE ATTENTION OF THE LD. DR WAS DRAW N TOWARDS THE LANGUAGE OF SECTION 80P(2) GRANTING DEDUCTION ON THE `PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO BANKING BUSINESS AND FURTHER THIS EXPRESSION STANDS SPECIFICALLY INCLUDED IN THE DEFINITION OF `INCOME U/S 2(24) HE CAME OUT WITH THE ARGUMENT THAT CLAUSE (VIIA) OF SECTION 2(24) SPECIFICALLY DEALS WITH THE PROFITS AND GAINS OF ANY BUSINESS OF BANKING AND HENCE THERE WAS NO NEED TO GO BY CLAUSE (I) OF SECTION 2(24) IN THE PRESENT CONTEXT. 8.4. WE HAVE HEARD THE ARGUMENTS PUT FORTH BY BOTH THE SIDES ALONG WITH THE CASE LAW RELIED UPON. HAVING HELD ABOVE THAT THE IN TEREST ON INCOME-TAX REFUND DOES NOT FALL UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION IT REMAINS TO BE EXAMINED AS TO WHETHER DEDUCTION U/S. 80P IS RESTRICTED ONLY TO THE INCOME FALLING UNDER THIS HEAD. THE RELEVANT PAR T OF SECTION 80P(2)(A)(I) HAS BEEN SET OUT ABOVE ACCORDING TO WHICH THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH AC TIVITIES SHALL BE DEDUCTED UNDER SUB-SECTION (1) OF SECTION 80P. IN THIS APPEAL WE A RE CONCERNED ONLY WITH THE ACTIVITY OF CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS BEING SUB-CLAUSE (I) OF CLAUSE (A). A CA SUAL LOOK AT THIS PART OF THE PROVISION INDICATES THAT THE DEDUCTION IS AVAILABLE IN RESPECT OF A CO-OPERATIVE SOCIETY WHICH IS ENGAGED IN (I) CARRYING ON THE BUS INESS OF BANKING OR (II) PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE WORD OR HAS BEEN USED BETWEEN CARRYING ON THE BUSINESS OF BANKING AND PROVIDING CREDIT FACI LITIES TO ITS MEMBERS. IT IS INDICATIVE OF THE INTENTION OF THE LEGISLATURE THAT INCOME FROM EITHER OF THESE TWO ACTIVITIES QUALIFIES FOR DEDUCTION U/S.80P. WHEREAS THE SCOPE OF THE EXPRESSION ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 30 `PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS RES TRICTED AND THE NARROW CONFINED ONLY TO PROVIDING CREDIT FACILITIES TO ITS MEMBERS THE AMBIT OF THE EXPRESSION CARRYING ON THE BUSINESS OF BANKING IS MUCH WIDER . THE LATER EXPRESSION INCLUDES NOT ONLY PROVIDING CREDIT FACILITIES TO ITS MEMBERS BUT ALSO DOING OTHER ACTIVITIES WHICH ARE PERMISSIBLE AS PER THE BANKING REGULATION ACT. SUCH ACTIVITIES MAY INCLUDE INCOME ARISING FROM INVESTMENT OF FUNDS IN GOVERNMENT SECURITIES AND ALSO INCOME FROM PROVIDING SAFE DEPOSIT VAULTS ETC. ALL THE ACTIVITIES MENTIONED IN THE BANKING REGULATION ACT WHICH A BANK IS ENTITLED TO CARRY ON FALL WITHIN THE REALM OF THE EXPRESSION `CARRYING ON THE BUSINESS OF BANK ING. COMING BACK TO THE POINT IN QUESTION IT IS SEEN THAT THE BENEFIT OF DEDUCTIO N U/S.80P IS THUS ELIGIBLE NOT ONLY IN RESPECT OF PROFITS AND GAINS FROM PROVIDING CRED IT FACILITIES TO ITS MEMBERS BUT ON A MUCH WIDER SCALE IN RESPECT OF PROFITS AND GAINS FROM THE BUSINESS OF BANKING. 8.5. IT IS FURTHER WORTH NOTICING THAT WHAT IS DEDUCTIBLE U/S.80P IS THE AMOUNT OF `PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO CARRYING ON THE BUSINESS OF BANKING. THE EMPLOYMENT OF THE EXPRESSION `PROFITS AND GAINS OF BUSINESS IS TO BE SEEN IN CONTRADICTION TO THE EXPRESSION `INCOME CHA RGEABLE UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE LATER EX PRESSION IS USED IN SEVERAL SECTIONS OF THE ACT INCLUDING 56 71 72 80E 80HH C(BAA) 139 145 184 185 ETC. THE SCOPE OF INCOME UNDER THIS EXPRESSION IS STRIC TLY CONFINED TO ITEMS WHICH FALL UNDER CHAPTER IV- D. IF THERE IS SOME INCOME WHICH ALBEIT HAS SOME NEXUS WITH THE BUSINESS BUT IS NOT COVERED U/S 28 TO 44DB THA T SHALL GO OUT OF RECKONING FOR THE PURPOSES OF THAT SECTION. ON THE OTHER HAND THE EXPRESSION PROFITS AND GAINS OF BUSINESS IS WIDER IN SCOPE AND ENCOMPASSES NOT ONLY THE INCOME CHARGEABLE UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PR OFESSION BUT ALSO OTHER INCOMES WHICH HAVE SOME RELATION WITH THE BUSINESS THOUGH NOT DIRECTLY FROM THE CARRYING ON OF THE BUSINESS. SO WHEN THE LEGISLATURE HAS CHO SEN TO EMPLOY THE LATER EXPRESSION IN SECTION 80P IT IS AMPLY DEMONSTRATE D THAT IT DID NOT INTEND TO RESTRICT THE AMOUNT OF DEDUCTION TO INCOME FALLING UNDER THE HEAD `PROFITS AND GAINS OF ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 31 BUSINESS OR PROFESSION BUT IT INTENDED TO PROVIDE DEDUCTION ON THE PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO CARRYING ON OF TH E BUSINESS OF BANKING. WHEN WE REFER TO SECTION 2(24) DEFINING INCOME IT CAN BE SEEN THAT THE VERY FIRST CLAUSE OF THIS SUB-SECTION IS PROFITS AND GAINS. CLAUSES (V ) (VA) (VB) (VC) (VD) (VE) AND (XII) ARE THE ITEMS OF INCOME WHICH SPECIFICALLY FA LL UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION BUT ARE SEPARATELY INCLUDED IN THE DEFINITION OF INCOME. FROM HERE IT BECOMES EVIDENT THAT `PROFITS AND GAINS CANNOT BE CONSIDERED AS SYNONYMOUS WITH THE INCOME UNDER THE HEAD `PROFI TS AND GAINS OF BUSINESS OR PROFESSION. IF IT HAD BEEN SO THEN THERE WAS NO NE ED FOR SEPARATELY INCLUDING THESE ITEMS WITH IN THE SCOPE OF INCOME U/S 2(24). FROM HERE IT FOLLOWS THAT CLAUSE (I) OF SECTION 2(24) REFERRING TO `PROFITS AND GAINS AS U SED IN SECTION 80P(2) SHOULD NOT RECEIVE RESTRICTIVE MEANING AS REFERRING ONLY TO T HE INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. 8.6. IN THE ABSENCE OF ANY DEFINITION OF THE E XPRESSION `PROFITS AND GAINS GIVEN IN THE ACT WE HAVE TO GO BY ITS MEANING AS UNDERST OOD GENERALLY. AT THIS JUNCTURE IT WILL BE RELEVANT TO CONSIDER THE MEANING OF THE TWO TERMS `PROFITS AND `GAINS WHICH ARE UNDER CONSIDERATION. THE LAW LEXICON BY P .RAMANATHA AIYAR DEFINES THE TERM `PROFIT AS UNDER:- PROFIT IS THE ACQUISITION BEYOND EXPENDITURE; EXCE SS OF VALUE RECEIVED FOR PRODUCING KEEPING OR SELLING OVER COS T; HENCE PECUNIARY GAIN IN ANY TRANSACTION OR OCCUPATION; EMOLUMENT. THE TERM GAIN HAS BEEN DEFINED IN THE SAME LEGAL DICTIONARY AS UNDER:- GAIN MEANS ACQUISITION. IT IS NOT LIMITED TO PECUN IARY GAIN OR COMMERCIAL PROFITS. ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 32 8.7. FROM THE MEANING OF THESE TWO SEPARAT E TERMS WHICH MAKE ONE COMPOSITE PHRASE `PROFITS AND GAINS AS USED IN SEC TION 80P IT IS NOTED THAT THE TERM `PROFIT IS THAT WHICH ACCRUES FROM THE THING AND WHICH FLOWS OUT OF THE TRADE OR OCCUPATION BUT THE TERM `GAIN IS OF WIDER IMP ORT THAN THE WORD PROFIT. GAIN IS A GENERAL TERM INCLUDING PECUNIARY AND NON-PECUN IARY BENEFITS BUT PROFIT IS SPECIFIC. IN OTHER WORDS THE TERM `GAIN IS GENUS O F WHICH THE TERM `PROFIT IS ITS SPECIES. THUS IT IS EXPLICITLY CLEAR THAT `GAIN IS WIDER TERM AND INCLUDES ITEMS OTHER THAN `PROFITS ALSO. COMING BACK TO THE CON TEXT WE FIND THAT THE EMPLOYMENT OF EXPRESSION `PROFITS AND GAINS IN SEC TION 80P(2) DEMONSTRATES THE INTENTION OF THE LEGISLATURE THAT THE BENEFIT OF DE DUCTION IS NOT CONFINED TO THE INCOME ARISING DIRECTLY FROM THE BANKING BUSINESS ( AS COVERED BY `PROFITS) WHICH FALLS UNDER THE HEAD `PROFITS AND GAINS OF BUSINES S OR PROFESSION BUT ALSO INCLUDES OTHER ITEMS OF INCOME (AS COVERED BY `GAINS) WHI CH HAVE SOME RELATION WITH THE BUSINESS OF BANKING EVEN THOUGH THEY DO NOT FALL UN DER THE HEAD OF BUSINESS INCOME. THE INSTANCES OF SUCH INCOME WHICH FALL WI THIN THE TERRITORY OF `GAINS MAY BE ANYTHING WHICH HAVE SOME RELATION BUT DO NOT DIRECTLY EMANATE FROM THE CARRYING ON OF THE BUSINESS OF BANKING. THE HONBL E SUPREME COURT IN COCANADA RADHASWAMI BANK LTD. (SUPRA) HAS HELD THAT THE INTEREST ON SECURITIES EVEN IF SEPARATELY CLASSIFIABLE UNDER A DIFFERENT HEAD S HALL NOT CEASE TO BE A PART OF THE INCOME FROM BUSINESS. OUR VIEW IS FORTIFIED BY THE JUDGMENT OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HYCRON INDIA LTD. [(2008) 308 ITR 251 (RAJ.)]. IN THAT CASE THE ASSESSEE RECEIVED INTEREST FROM SI STER CONCERN ON ADVANCE AGAINST PURCHASE OF GOODS. THE QUESTION WAS ABOUT ELIGIBILITY OF EXEMPTION U/S.10B IN WHICH THE EXPRESSION USED IS ` PROFITS AND GAINS. THE HONBLE HIGH COURT AFTER DISCUSSING THE ISSUE AT LENGTH CAME TO THE CONCLUSION THAT THE EXPRESSION PROFITS AND GAINS AS USED IN SECTION 2(24) IS NOT CONFINED TO THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION. IT WAS HELD THAT THE INTEREST SO RECEIVED BY THE ASSESSEE FROM ITS SISTER CONCERN WAS COVERED WITH IN THE EXPRESSION `PROFITS AND GAINS AND HENC E THE EXEMPTION WAS AVAILABLE ON ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 33 IT. IN THE CASE OF TAMIL NADU CO-OP. STATE LAND DEVELOPMENT BANK LIMIT ED (SUPRA) A CO-OPERATIVE BANK PURCHASED SHARES FROM A FINANCI AL INSTITUTIONS. DIVIDEND FROM THOSE SHARES WAS HELD TO BE BUSINESS INCOME THOUGH ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. 8.8. NOW WE WILL DEAL WITH THE CONTENTION RAI SED BY THE LD DR ABOUT THE CLAUSE (VIIA) OF SECTION 2(24) COVERING THE PROFIT S AND GAINS OF AY BUSINESS OF BANKING. IT IS ON THE STRENGTH OF THIS PROVISION TH AT THE LD. DR CAME OUT WITH AN ARGUMENT THAT THE CLAUSE (I) OF SECTION 2(24) BEIN G `PROFITS AND GAINS SHOULD BE KEPT OUT OF VIEW WHILE CONSIDERING THE SCOPE OF DED UCTION U/S 80P. WE ARE NOT INCLINED TO ACCEPT THIS PROPOSITION FOR THE REASON THAT CLAUSE (VIIA) HAS BEEN INSERTED TO SECTION 2(24) BY THE FINANCE ACT 2006 WITH EFFE CT FROM 1.4.2007. IF THE VIEW POINT OF THE LEARNED DEPARTMENTAL REPRESENTATIVE IS ACCEPTED THEN IT WOULD MEAN THAT IN THE ABSENCE OF SUCH CLAUSE IN THE DEFINITIO N OF INCOME THE PROFITS AND GAINS FROM THE BUSINESS OF BANKING WERE NOT INTENDED TO BE INCLUDED IN THE TOTAL INCOME IN THE PERIOD ANTERIOR TO SUCH INSERTION. OBVIOUSLY IT IS NOT THE CASE FOR THE REASON THAT DEDUCTION U/S.80P IS AVAILABLE WITH EFFECT FRO M 1.4.1968 AND PRIOR TO THAT SECTION 81 PROVIDING SIMILAR BENEFIT WAS THERE ON THE STATUTE WHICH WAS DELETED BY THE FINANCE (NO.2) ACT 1967. IT THEREFORE SH OWS THAT THE BENEFIT OF DEDUCTION IN RESPECT OF INCOME OF CO-OPERATIVE SOCIETIES IS N OT A NEW PROVISION BUT IS COMING OVER DECADES. THE QUESTION OF GRANTING DEDUCTION UN DER A PARTICULAR SECTION PRE- SUPPOSES THE OTHERWISE INCLUSION OF SUCH INCOME IN THE GROSS TOTAL INCOME. IT THEREFORE TRANSPIRES THAT THE PROFITS AND GAINS OF BANKING BUSINESS CARRIED ON BY CO- OPERATIVE SOCIETY WERE INCLUDIBLE IN THE TOTAL INCO ME DE HORS CLAUSE (VIIA) OF SECTION 2(24). IN THE ABSENCE OF SPECIFIC CLAUSE (VIIA) IN THE PRE-INSERTION ERA BUT FROM THE USING OF THE EXPRESSION `PROFITS AND GAINS IN SECT ION 80P(2) IT IS CLEARLY INDICATED THAT THE PROFITS AND GAINS OF BUSINESS OF BANKING BY THE CO-OPERATIVE SOCIETIES WERE VERY MUCH INCLUDIBLE IN THE TOTAL INCOME EVEN PRIOR TO THE INSERTION OF CLAUSE (VIIA). HERE IT IS IMPORTANT TO NOTE THAT SIMULTANEOUS WIT H THE INSERTION OF CLAUSE (VIIA) TO ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 34 2(24) BY THE FINANCE ACT 2006 WITH EFFECT FROM 1.4 .2007 THE LEGISLATURE ALSO INSERTED SUB-SECTION (4) OF SECTION 80P TO PROVIDE THAT THE PROVISIONS OF SECTION 80P SHALL NOT APPLY IN RELATION TO ANY CO-OPERATIVE BAN K OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATI VE AGRICULTURAL AND RURAL DEVELOPMENT BANK. WHEN WE VIEW THE INSERTION OF CLA USE (VIIA) TO SECTION 2(24) IN JUXTAPOSITION TO SUB-SECTION (4) OF SECTION 80P WIT H EFFECT FROM 1.4.2007 IT BECOMES ABUNDANTLY CLEAR THAT THE SCOPE OF THE BENEFIT OF D EDUCTION U/S.80P HAS BEEN CURTAILED AND RESTRICTED ONLY TO PRIMARY AGRICULTUR AL CREDIT SOCIETIES AND PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BAN KS. THE INSTANTANEOUS INSERTION OF CLAUSE (VIIA) TO SECTION 2(24) IS BY WAY OF ABUN DANT CAUTION TO ENSURE THAT THE PROFITS AND GAINS OF ANY BUSINESS OF BANKING CARRIE D ON BY THE CO-OPERATIVE SOCIETY WITH ITS MEMBERS ARE OTHERWISE INCLUDIBLE IN THE TO TAL INCOME BUT THE BENEFIT OF SECTION 80P IS RESTRICTED ONLY TO THE PRIMARY AGRIC ULTURAL CREDIT SOCIETIES AND PRIMARY CO-OPERATIVE AGRICULTURAL RURAL DEVELOPMENT BANKS. 8.9. GOING BY THE MEANING OF THE TWO TERMS PROFITS AND GAINS AS DISCUSSED ABOVE WE NEED TO FIND OUT WHETHER THE IN TEREST ON INCOME-TAX REFUND FALLS UNDER ANY OF THESE TWO WORDS. IN ORDER TO QUA LIFY FOR INCLUSION IN THE WORD GAINS OF A BANKING BUSINESS IT IS OF PARAMOUNT IM PORTANCE THAT THERE SHOULD BE RELATION OF THE INCOME WITH THE BANKING BUSINESS. WE ARE DEALING WITH A CASE IN WHICH THE ASSESSEE WAS CARRYING ON BANKING BUSINESS OVER THE YEARS AND TAX WAS COLLECTED BY THE REVENUE IN RELATION TO SUCH BANKIN G BUSINESS. THUS THERE IS A NEXUS BETWEEN THE PAYMENT OF INCOME TAX ITS REFUND AND INTEREST ON SUCH REFUND WITH THE BUSINESS OF BANKING. IF IT HAD BEEN A CAS E OF PARKING OF THE FUNDS OF BANKING BUSINESS IN SOME NON-BANKING ACTIVITY THE RESULTING INCOME WOULD HAVE RELATION ONLY WITH THE NON-BANKING BUSINESS AND T HE NEXUS OF INCOME WITH THE BANKING BUSINESS HAD BEEN LACKING. BUT FOR THE CAR RYING ON OF THE BANKING BUSINESS THE ASSESSEE WOULD NOT HAVE PAID THE INC OME TAX WHICH WAS REFUNDED TO IT. SINCE INCOME TAX WAS PAID IN RELATION TO THE BA NKING BUSINESS THE INTEREST ON ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 35 INCOME-TAX REFUND WILL BE CONSIDERED AS `GAIN (NOT `PROFIT) OF BANKING BUSINESS COVERED WITHIN THE EXPRESSION `PROFITS AND GAINS OF BANKING BUSINESS. WE THEREFORE HOLD THAT INTEREST ON REFUND OF INCOME -TAX WOULD BE COVERED WITHIN THE EXPRESSION PROFITS AND GAINS OF BUSINESS NOTWITHS TANDING THE FACT THAT IT FALLS UNDER THE HEAD `INCOME FROM OTHER SOURCES. III. SCOPE OF PHRASE `ATTRIBUTABLE TO ELIGIBLE B USINESS 9.1. THE LEARNED SR. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE LEARNED FIRST APPELLATE AUTHORITY ERRED IN HOLDING THAT THE INTER EST ON INCOME-TAX REFUND WAS NOT ATTRIBUTABLE TO THE BANKING BUSINESS. HE STATED TH AT THE PHRASE ATTRIBUTABLE TO HAS A WIDER CONNOTATION THAN THE PHRASE DERIVED FROM . FOR THIS SUBMISSION HE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. CIT [(1978) 113 ITR 84 (SC)] . HE SUBMITTED THAT THE LEARNED CIT(A) WAS NOT CORRECT IN INTERPRETING THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF INDIA LEATHER CORPORATION PVT. LTD (SUPRA) AS LAYING DOWN THAT THE INTEREST ON INCOME-TAX REFUND WAS NO T ATTRIBUTABLE TO THE BANKING BUSINESS. HE CONTENDED THAT THE TRIBUNAL IN ASSES SEES OWN CASE HAS TAKEN VIEW IN ITS FAVOUR IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR ON THE REASONING THAT THE INTEREST ON INCOME-TAX REFUND WAS PROFITS AND GAINS ATTRIBUTABLE TO THE BANKING BUSINESS. HE STATED THAT EVEN IF IT WAS HELD THAT T HE INTEREST ON INCOME-TAX REFUND DID NOT FALL UNDER THE HEAD `PROFITS AND GAINS OF B USINESS OR PROFESSION STILL THE INTEREST ON INCOME-TAX REFUND SHALL QUALIFY FOR DED UCTION U/S.80P ON THE GROUND THAT THE PHRASE `ATTRIBUTABLE TO HAS BEEN USED IN SUB- SECTION (2) OF SECTION 80P WHICH HAS MUCH WIDER SCOPE THAN THE PHRASE DERIVED FROM . HE STATED THAT ANY INCOME HAVING RELATION WITH THE BANKING BUSINESS WHETHER DIRECTLY OR INDIRECTLY WOULD CALL FOR INCLUSION IN THE AMOUNT ELIGIBLE FOR DEDUC TION. HE RELIED ON THE ORDER PASSED BY MUMBAI BENCH OF THE TRIBUNAL IN ABHYUDAY A CO-OP. BANK LTD. VS. ITO IN ITA NO.4252/MUM/2000 IN WHICH THE ASSESSEE WAS ALLOWED DEDUCTION U/S 80P ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 36 ON THE AMOUNT OF INTEREST ON INCOME TAX REFUND BY HOLDING THAT SUCH INTEREST WAS ATTRIBUTABLE TO THE BANKING BUSINESS. HE ALSO RELI ED ON ANOTHER ORDER OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN PUNJAB STATE CO -OPERATIVE BANK (SUPRA). 9.2. IN THE OPPUGNATION THE LEARNED DE PARTMENTAL REPRESENTATIVE STATED THAT FOR AN INCOME TO BE ATTRIBUTABLE TO A PARTICULAR SO URCE IT IS RELEVANT THAT THE INCOME MUST SPRING FROM SUCH SOURCE. HE CONTENDED THAT THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF INDIA LEATHER CORPORATION PVT. LTD. (SUPRA) WAS DIRECTLY APPLICABLE IN THIS CASE AS RIGHTLY HELD BY THE AUTHORITIES BELOW AND RESULTANTLY THE INTEREST ON INCOME-TAX REFUND COULD NOT BE CALLED AS INCOME ATTRIBUTABLE TO BANKING BUSINESS. HE RELIED ON THE JUDGMENT OF THE HONBLE RAJASTHAN HIGH COURT IN SIROHI S.B.V.BANK LTD. (SUPRA) IN WHICH IT WAS HELD THAT INTEREST ON LOANS EXTENDED TO EMPLOYEES AGAINST PRO VIDENT FUND WERE NOT PART OF THE BANKING ACTIVITY OF THE BANK. HE STATED THAT TH E DEDUCTION U/S.80P(2)(1)(I) WAS HELD TO BE NOT AVAILABLE ON SUCH INTEREST INCOME. H E ALSO RELIED ON THE JUDGMENT OF THE HONBLE PATNA HIGH COURT IN BIHAR RAJYA SAHKARI BHOOMI VIKAS CO-OPERATIVE BANK LTD. (SUPRA) IN WHICH AGAIN INTEREST FROM INVESTMENTS OF THE EMP LOYEES PROVIDENT FUND WAS HELD TO BE NOT INCOME EARNED FRO M BANKING BUSINESS. IN THE LIGHT OF THESE TWO JUDGMENTS IT WAS CONTENDED THAT THE VIEW ADOPTED BY THE LEARNED CIT(A) BE UPHELD. 9.3. WE HAVE HELD ABOVE THAT INTEREST ON INCOME TAX REFUND IS GAIN OF BANKING BUSINESS. NOW WE NEED TO DECIDE THE LARGER QUESTION AS TO WHETHER OR NOT SUCH INTEREST INCOME IS ATTRIBUTABLE TO BUSINESS O F BANKING. AT THE VERY OUTSET IT IS RELEVANT TO NOTE THAT UNDER CHAPTER VI-A-C BEING DEDUCTIONS IN RESPECT OF CERTAIN INCOMES CONTAINS SECTIONS 80HH TO 80RRB. IN SOME OF THE SECTIONS SUCH AS 80HH 80HHA 80HHB 80HHE ETC THE LEGISLATURE HAS EMPLOYED THE PHRASE `DERIVED FROM. AT THE SAME TIME IN CERTAIN OTHER SECTIONS INCLUDING SECTION 80P THE PHRASE `ATTRIBUTABLE TO HAS BEEN USED. ORDINA RILY THE PHRASE DERIVED FROM ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 37 HAS A RESTRICTED MEANING. IN ORDER TO BE COVERED WI THIN THE AMBIT OF THIS PHRASE THERE SHOULD BE A DIRECT NEXUS BETWEEN THE TWO ENDS PRECEDED AND SUCCEEDED BY THIS PHRASE. IN OTHER WORDS THE INCOME SHOULD D IRECTLY SPRING FROM SUCH SOURCE AND THE RELATION BETWEEN THE SOURCE AND THE INCOME SHOULD BE THAT OF THE FIRST DEGREE AND NOT INCIDENTAL OR REMOTE. HOWEVER THE O THER PHRASE `ATTRIBUTABLE TO HAS A WIDER RANGE AND BRINGS WITHIN ITS FOLD NOT ONLY THE ITEMS OF INCOME HAVING DIRECT NEXUS BUT ALSO THE ITEMS OF INCOME HAVING SOME COMM ERCIAL OR CASUAL CONNECTION WITH THE SOURCE. HOWEVER IT IS ESSENTIAL THAT THE INCOME AND SOURCE SHOULD NOT BE ALIEN TO EACH OTHER. IN THE CASE OF CIT VS. STERLING FOODS [(1999) 237 ITR 579 (SC)] IT HAS BEEN HELD THAT THE SALE CONSIDERATION OF IM PORT ENTITLEMENTS WOULD NOT CONSTITUTE PROFITS AND GAINS `DERIVED FROM THE AS SESSEES INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF COMPUTING DEDUCTION U/S.80HH AS T HE SOURCE OF IMPORT ENTITLEMENTS WAS THE EXPORT PROMOTION SCHEME OF TH E CENTRAL GOVERNMENT AND NOT THE INDUSTRIAL UNDERTAKING. IN THIS CASE THE SECTIO N BEFORE THE HONBLE SUPREME COURT WAS 80HH IN WHICH THE PHRASE DERIVED FROM H AS BEEN USED. IT IS IN THIS CONTEXT THAT THE HONBLE SUPREME COURT HELD THAT TH E PROFIT FROM SALE OF IMPORT ENTITLEMENT WAS NOT DERIVED FROM THE INDUSTRIAL UND ERTAKING. THE CASE OF ASHOK LEYLAND LTD. VS. CIT [(1997) 224 ITR 122 (SC)] WAS DEALING WITH SECTION 80E AND 80-I WHICH AT THE MATERIAL TIME USED THE PHRASE `AT TRIBUTABLE TO .. PRIORITY INDUSTRY. IN THIS CASE THE ASSESSEE WAS ENGAGED I N THE MANUFACTURING OF TRUCKS AND ALSO SPARE-PARTS OF THOSE VEHICLES. IT WAS ALSO IMP ORTING THE SPARE PARTS FROM ABROAD AND SELLING THE SAME TO THE PERSONS PURCHASING TRUC KS FROM IT. THE ASSESSEE EARNED SOME PROFIT ON THE SALE OF SPARE PARTS BESIDES PROF ITS ACCRUING FROM THE SALE OF TRUCKS. THE ITO TOOK THE VIEW THAT THE IMPORT AND SALE OF SPARE PARTS WAS NOT ATTRIBUTABLE TO THE INDUSTRY CARRIED ON BY THE ASSE SSEE AND THEREFORE THE INCOME ARISING THERE FROM WOULD NOT QUALIFY FOR THE BENEFI T OF DEDUCTION U/S.80E / 80-I. THE HONBLE HIGH COURT UPHELD THE VIEW OF THE ASSESSING OFFICER. HOWEVER WHEN THE MATTER TRAVELLED TO THE HONBLE SUPREME COURT IT N OTED THE DISTINCTION BETWEEN THE AMBIT OF THE PHRASE `DERIVED FROM AND `ATTRIBUTAB LE TO. THE HONBLE SUPREME ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 38 COURT HELD THAT THE PROFITS AND GAINS ARISING FROM IMPORT AND SALE OF SPARE PARTS WERE ATTRIBUTABLE TO THE INDUSTRY AS IT WAS INTEGRA LLY CONNECTED WITH THE PRIORITY INDUSTRY SET UP AND RUN BY THE ASSESSEE. IT IS THE REFORE OBSERVED THAT EVEN THOUGH THE INCOME FROM IMPORT AND SALE OF SPARE PARTS WAS NOT DERIVED FROM PRIORITY INDUSTRY STILL THE HONBLE SUPREME COURT GRANTED D EDUCTION U/S.80E / 80-I ON THE GROUND THAT THE PHRASE `ATTRIBUTABLE TO WAS USED IN THE LANGUAGE OF SECTION. 9.4. IT WILL NOT BE OUT OF PLACE TO CONSIDER TH E JUDGMENT IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. (SUPRA). THE HONBLE SUPREME COURT APPRECIATED THE DISTINCTION BETWEEN THE PHRASE `ATTRIBUTABLE TO A ND `DERIVED FROM IN THE FOLLOWING WORDS:- AS REGARDS THE ASPECT EMERGING FROM THE EXPRESSION ATTRIBUTABLE TO OCCURRING IN THE PHRASE PROFITS AND GAINS ATTR IBUTABLE TO THE BUSINESS OF THE SPECIFIED INDUSTRY (HERE GENERATIO N AND DISTRIBUTION OF ELECTRICITY) ON WHICH THE LEARNED SOLICITOR-GENE RAL RELIED IT WILL BE PERTINENT TO OBSERVE THAT THE LEGISLATURE HAS DELIB ERATELY USED THE EXPRESSION ATTRIBUTABLE TO AND NOT THE EXPRESSION DERIVED FROM. IT CANNOT BE DISPUTED THAT THE EXPRESSION ATTRIBUT ABLE TO IS CERTAINLY WIDER IN IMPORT THAN THE EXPRESSION DER IVED FROM. HAD THE EXPRESSION DERIVED FROM BEEN USED IT COULD H AVE WITH SOME FORCE BEEN CONTENDED THAT A BALANCING CHARGE ARISIN G FROM THE SALE OR OLD MACHINERY AND BUILDINGS CANNOT BE REGARDED AS P ROFITS AND GAINS DERIVED FROM THE CONDUCT OF THE BUSINESS OF GENERAT ION AND DISTRIBUTION OF ELECTRICITY. IN THIS CONNECTION IT MAY BE POINTED OUT THAT WHENEVER THE LEGISLATURE WANTED TO GIVE A REST RICTED MEANING IN THE MANNER SUGGESTED BY THE LEARNED SOLICITOR-GENER AL IT HAS USED THE EXPRESSION DERIVED FROM AS FOR INSTANCE IN SEC TION 80J. IN OUR VIEW SINCE THE EXPRESSION OF WIDER IMPORT NAMELY ATTRIBUTABLE TO HAS BEEN USED THE LEGISLATURE INTENDED TO COVER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINE SS OF GENERATION AND DISTRIBUTION OF ELECTRICITY. (EMPHASIS SUPPLIED BY US) ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 39 9.5. ON GOING THROUGH THE RATIO OF THE A FORE-NOTED JUDGMENT OF THE HONBLE SUMMIT COURT IT IS MANIFEST THAT THE EXPRESSION AT TRIBUTABLE TO IS OF WIDER AMPLITUDE AND COVERS RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS. THUS IT IS NOT NECESSARY THAT AN INCOME MUST BE THE RESULT OF ACTUAL CONDUCT OF THE BUSINESS SO AS TO BE CHARACTERIZED A S ATTRIBUTABLE TO THE BUSINESS. IF THERE IS SOME COMMERCIAL CONNECTION OF THE INCOME W ITH THE BUSINESS THE SAME WOULD BE HELD TO BE `ATTRIBUTABLE TO THE BUSINESS. 9.6. NOW WE WILL EXAMINE THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF INDIA LEATHER CORPORATION PRIVATE LIMITED (SUPRA) WHICH IS THE BACKBONE OF THE DEPARTMENTAL STAND TO THE EFFECT TH AT THERE MUST BE DIRECT CONNECTION BETWEEN THE INCOME AND THE SOURCE SO AS TO BE CHARACTERIZED AS ATTRIBUTABLE TO THAT. THE FACTS OF THAT CASE ARE TH AT THE ASSESSEE WAS CARRYING ON THE BUSINESS OF TANNING HIDES AND SKINS BY CHEMICAL PRO CESS AND SELLING THE RESULTANT LEATHER AS WELL AS PURCHASE AND SALE OF LEATHER ON COMMISSION BASIS. IN THE RELEVANT YEAR THE TOTAL PROFIT OF THE ASSESSEE WAS RS.5.05 L AKHS WHICH INCLUDED A SUM OF RS.3.73 LAKHS EARNED FROM THE SALE OF CHEMICALS IMP ORTED ON THE STRENGTH OF LICENSES GRANTED ON THE BASIS OF EXPORT OF LEATHER HIDES AND SKINS IN EARLIER YEARS. THE ASSESSEE CLAIMED THAT IT WAS A COMPANY WHOSE MA IN BUSINESS WAS MANUFACTURE OF LEATHER AND PROCESSING OF HIDES AND SKINS WITH C HEMICAL PROCESS AND THE PROVISIONS OF SECTION 104 OF THE INCOME-TAX ACT 19 61 DID NOT APPLY IN VIEW OF SUB- SECTION (4) OF SECTION 104. THE ITO HELD THAT PROFI T OF RS.3.73 LAKHS EARNED FROM THE SALE OF IMPORTED CHEMICALS COULD NOT BE SAID T O BE ATTRIBUTABLE TO ITS ACTIVITY OF MANUFACTURE OR PROCESSING OF GOODS AND CONSEQUENTLY THE ASSESSEE WAS NOT A COMPANY FALLING WITHIN THE PURVIEW OF SECTION 104(4 ) SINCE THE INCOME ATTRIBUTABLE TO SUCH ACTIVITY WAS LESS THAN 51% OF ITS TOTAL INC OME. HE THEREFORE LEVIED ADDITIONAL TAX U/S.104. WHEN THE MATTER FINALLY CAM E UP BEFORE THE HONBLE SUPREME COURT IT OBSERVED THAT EVEN THOUGH THE PHRA SE ATTRIBUTABLE TO WAS USED IN SECTION 104 BUT THE INCOME MUST BE DIRECTLY CO NNECTED WITH MANUFACTURE OR ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 40 PROCESSING OF GOODS FOR THE PURPOSES OF EXPLANATION TO SECTION 104(4). IT THEREFORE HELD THAT THE INCOME FROM SALE OF CHEMIC ALS WAS NOT ATTRIBUTABLE TO THE BUSINESS OF MANUFACTURE OR PROCESSING AND THE LEVY OF ADDITIONAL TAX WAS JUSTIFIED. ON THE PERUSAL OF THE FACTS OF THIS CASE IT CAN BE EASILY NOTICED THAT THE ASSESSEE HAD LESS THAN 10% OF INCOME FROM THE GOODS MANUFACTURED BY IT. THE REMAINING 90% WAS FROM TRADING OF GOODS. THE QUESTION FOR CONSIDE RATION BEFORE THE HONBLE SUPREME COURT WAS WHETHER OR NOT THE INCOME FROM SA LE OF CHEMICALS WAS ATTRIBUTABLE TO THE BUSINESS OF MANUFACTURE OR PROC ESSING. THUS THE SOURCE WHICH WAS UNDER CONSIDERATION OF THE HONBLE SUPREME COUR T WAS THE `MANUFACTURE OR PROCESSING OF GOODS AND NOT THE `BUSINESS OF EXPOR T AS SUCH. IN ORDER TO AVOID THE PAYMENT OF ADDITIONAL TAX IT WAS NECESSARY FOR TH E PURPOSE OF U/S.104(4) THAT THE ASSESSEE SHOULD HAVE AT LEAST 51% OF ITS INCOME FRO M `MANUFACTURE OR PROCESSING OF GOODS. AS THE INCOME FROM MANUFACTURE OR PROCESSI NG IN THAT CASE WAS ONLY 10% IT WAS UNDER THOSE CIRCUMSTANCES THAT THE COURT HEL D AS NOT SATISFYING THE BENCH MARK CONDITION OF 51% FROM THE `MANUFACTURE OR PRO CESSING OF GOODS. UNDOUBTEDLY THE SOURCE FROM WHICH ELIGIBLE INCOME W AS TO BE CONSIDERED AS `ATTRIBUTABLE TO WAS THE `MANUFACTURING AND PROCES SING AND NOT THE WHOLE BUSINESS AS SUCH. OBVIOUSLY THERE WAS NO RELATION BETWEEN PR OFIT FROM SALE OF IMPORTED CHEMICALS AND THE MANUFACTURING AND PROCESSING OF G OODS IN EXCESS OF 10% OF TOTAL INCOME. NEITHER THERE WAS DIRECT NOR SOME CASUAL CO NNECTION BETWEEN THE PROFIT FROM SALE OF IMPORTED GOODS AND THE MANUFACTURE OR PROCESSING OF THE GOODS. IN THE ABSENCE OF ANY RELATION WORTH THE NAME BETWEEN THE TWO THE HONBLE SUPREME COURT HELD THAT THE INCOME WAS NOT ATTRIBUTABLE TO MANUFACTURE OR PROCESSING OF GOODS. WHILE HOLDING SO IT FURTHER HELD : IT IS NO DOUBT TRUE THAT THE WORD ATTRIBUTABLE TO HAVE A WIDER MEANING THAN THE WOR DS `DERIVED FROM. BUT AT THE SAME TIME IT CANNOT BE IGNORED THAT NORMALLY THE WO RD ATTRIBUTABLE EMPLOYS THAT FOR A RESULT TO BE ATTRIBUTABLE TO ANYTHING IT MUS T BE WHOLLY OR IN MATERIAL PART CAUSED BY THAT THING. A CASUAL CONNECTION IS NECESSARY . ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 41 9.7. ON THE SURVEY OF AFORE-NOTED JUDGMENTS RENDERED BY THE HIGHEST COURT OF THE COUNTRY IT CAN BE SEEN THAT THE SCOPE OF THE PHRASE ATTRIBUTABLE TO IS WIDER THAN DERIVED FROM. WHEREAS IN THE CASE OF LATER THE RELATION OF THE INCOME WITH THE SOURCE MUST BE DIRECT AND THAT OF THE FIRST DEG REE BUT IN THE FORMER EVEN SOME COMMERCIAL OR CASUAL CONNECTION SUFFICIES THE TEST. AS EVERY INCOME OF ASSESSEE FALLING UNDER THE HEAD `PROFITS AND GAINS OF BUSINE SS OR PROFESSION MAY NOT BE NECESSARILY `DERIVED FROM THE INDUSTRIAL UNDERTAK ING SIMILARLY IT IS NOT NECESSARY THAT ONLY THE ITEMS OF INCOME FALLING UNDER THE HE AD `PROFITS AND GAINS OF BUSINESS OR PROFESSION ARE `ATTRIBUTABLE TO THE PROFITS AND GAINS OF BUSINESS. WE HAVE NOTED ABOVE THAT THE SCOPE OF THE EXPRESSION `CARRY ING ON BANKING BUSINESS AS USED IN SECTION 80P(2)(A)(I) IS WIDER THAN THE LATER EXP RESSION USED IN THE SAME SUB- CLAUSE OF `PROVIDING CREDIT FACILITIES TO ITS MEMBE RS AND DUE TO THE USING OF THE WORD OR BETWEEN THE TWO THE BENEFIT OF SECTION 8 0P(2)(A)(I) HAS TO BE GRANTED IN RESPECT OF PROFITS AND GAINS ATTRIBUTABLE TO THE BU SINESS OF BANKING AS A WHOLE AND NOT MERELY PROVIDING CREDIT FACILITIES TO ITS MEMBE RS. IT WAS WHILE CARRYING ON THE BUSINESS OF BANKING THAT THE ASSESSEE CLAIMED DEDUC TION U/S.80P IN EARLIER YEARS WHICH WAS NOT ALLOWED BY THE ASSESSING AUTHORITY AN D THE DEMAND WAS CREATED. WHEN FINALLY THE ORDER OF THE ASSESSING AUTHORITY W AS FINALLY SET ASIDE THE ASSESSEE BECAME ENTITLED TO THE REFUND OF INCOME-TAX DUE TO THE GRANT OF DEDUCTION U/S.80P FROM THE BUSINESS OF BANKING. IT IS NOT AS IF THE F UNDS OF THE BANKING BUSINESS WERE USED FOR ANY OTHER NON-BUSINESS PURPOSE OR SOME O THER NON- BANKING ACTIVITY. RATHER THE AMOUNT OF INCOME-TAX ON WHICH INTEREST WAS GRANTED WAS UTILIZED TO SATISFY THE DEMAND RAISED IN RELATION TO THE BANKIN G BUSINESS. IT IS BUT FOR THE BANKING BUSINESS THAT THE INCOME-TAX WAS ORIGINALLY PAID AND SUBSEQUENTLY THE AMOUNT WAS REFUNDED ALONG WITH INTEREST. THE DIRECT NEXUS OF INTEREST ON INCOME- TAX REFUND IS WITH THE PAYMENT OF INCOME-TAX BUT W HEN WE TRY TO TRACE THE RELATION BETWEEN INCOME TAX AND THE INCOME ON WHICH IT WAS P AID IT COMES TO LIGHT THAT THE SAME WAS FOR THE BUSINESS OF BANKING. THUS THERE E XISTS A COMMERCIAL AND CASUAL CONNECTION BETWEEN THE INTEREST ON INCOME-TAX REFU ND AND THE BANKING BUSINESS. IT ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 42 IS STILL FURTHER IMPERATIVE TO NOTE THAT THE AMOUNT OF INCOME-TAX COLLECTED BY THE AUTHORITIES WAS FOR THE DENIAL OF DEDUCTION U/S.80P AND NOT ON ANY OTHER COUNT NOT RELATED TO ANY ACTIVITY OTHER THAN THE BANKING ACTI VITY. WITH THE RESTORATION OF DEDUCTION U/S.80P WHICH HAS COMMERCIAL CONNECTIO N WITH THE BUSINESS OF BANKING THE INTEREST ON INCOME-TAX REFUND CAN BE R IGHTLY SAID TO HAVE CASUAL CONNECTION WITH SUCH BANKING ACTIVITY. BEFORE CONCL UDING ON THE ABOVE ISSUE WE NEED TO EMPHASIZE THAT IN THE PRESENT CASE THE ASS ESSEE DID NO OTHER ACTIVITY EXCEPT THE ONE SPECIFIED IN SECTION 80P(2)(A)(I) OF THE A CT. BUT FOR THE ACTION OF THE REVENUE IN BRINGING TO TAX THE INTEREST INCOME THE ASSESSEE WOULD HAVE NOT PAID INCOME TAX WHICH WAS REFUNDED LATER CONSEQUENT TO THE ORDER OF THE TRIBUNAL HOLDING THAT THE INTEREST INCOME IS INCOME WHICH IS ENTITLED TO DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. WE HAVE ALSO TAKEN NOTE OF THE FACT THAT THE ASSESSEE DOES NOT HAVE ANY OTHER TAXABLE INCOME EXCEPT INCOME FRO M HOUSE PROPERTY. IN THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE PURPOSE OF ALLOWING DEDUCTION U/S 80P(2)(A)(I) TO A CO-OPERATIVE SOCIETY WOULD BE FR USTRATED IF IN PECULIAR CIRCUMSTANCES SUCH AS THE ONE PREVAILING IN THE PR ESENT CASE THE ASSESSEE IS COMPELLED TO PAY TAX ON ITS INCOME DUE TO CIRCUMST ANCES BEYOND ITS CONTROL. THE ABOVE FACTOR HAS WEIGHED HEAVILY IN OUR MIND IN THE CONCLUSION WHICH WE HAVE REACHED IN THE PRESENT CASE. IN VIEW OF THE FACT TH AT THE EXPRESSION `ATTRIBUTABLE TO HAS BEEN USED IN SECTION 80P VIS--VIS THE `BUSINES S OF THE BANKING WE HAVE ABSOLUTELY NO DOUBT IN OUR MIND THAT SUCH INTEREST IS ATTRIBUTABLE TO THE BANKING BUSINESS AND THERE CANNOT BE ANY QUESTION OF DENIAL OF DEDUCTION U/S.80P ON SUCH INTEREST. 9.8. THE CASES OF SIROHI S.B.V.BANK LTD. (SUPRA) AND BIHAR RAJYA SAHKARI BHOOMI VIKAS CO-OPERATIVE BANK LTD.(SUPRA) RELIED ON BY THE LD. DR ARE NOT GERMANE TO THE ISSUE INVOLVED IN THE INSTANT APPEAL . IN THOSE TWO CASES LOANS WERE ADVANCED TO THE EMPLOYEES NOT IN THE CAPACITY OF TH E BANKER BUT IN THE CAPACITY OF EMPLOYER AND SUCH LOANS WERE IN THE FORM OF LOANS A GAINST PROVIDENT FUND DEPOSITS. ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 43 IT WAS IN THAT CONTEXT THAT THE DEDUCTION WAS DENIE D ON THE GROUND THAT THE INTEREST WAS NOT RECEIVED FROM EMPLOYEES WHO WERE NOT ITS ME MBERS AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S.80P(2). IN THOSE CASES THE ACTION OF THE ASSESSEE IN PROVIDING LOANS TO ITS EMPLOYEES AGAINST PROVIDENT FUND WAS F OUND TO BE OUTSIDE THE AMBIT OF THE BUSINESS ACTIVITY OF THE ASSESSEE ELIGIBLE FOR DEDUCTION U/S.80P. ON THE OTHER HAND WE ARE CONCERNED WITH A CASE IN WHICH THE INTE REST HAS BEEN AWARDED ON THE REFUND OF INCOME-TAX WHICH WAS PAID IN RELATION T O INCOME FROM BANKING BUSINESS OTHERWISE ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I). 10. WE THEREFORE ANSWER THE QUESTION I N AFFIRMATIVE AND HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80P(2)(A)(I) ON THE AMOUNT OF INTEREST RECEIVED U/S 244A ON THE REFUND OF TAX. 11. BEFORE PARTING WITH THIS APPEAL WE WISH TO PLACE ON RECORD THE APPRECIATION FOR THE ILLUMINATING ARGUMENTS PUT FOR WARD BY BOTH THE SIDES ON THE ISSUE WHICH ASSISTED US IN DISPOSAL OF THE MATTER QUICKLY. WE WANT TO MAKE IT CLEAR THAT WE HAVE TAKEN INTO CONSIDERATION THE RATIO DECIDENDI OF ALL THE DECISIONS RELIED ON BY THE RIVAL PARTIES. THE OMISSION OF REFERENCE TO SOME OF THE CASES IN THE ORDER IS EITHER DUE TO THEIR IRRELEVANCE OR TO RELIEVE TH E ORDER FROM THE REPETITIVE NATURE OF DECISIONS. 12. IN THE RESULT THE APPEAL IS ALLOWED. ORDER PRONOUNCED ON THIS 22 ND DAY OF JANUARY 2010. SD/- SD/- SD/- (B.RAMAKOTAIAH) (N.V.VASUDEVAN) (R.S.SYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI : 22 ND JANUARY 2010. DEVDAS* ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 44 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A)-XXI MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI. ITA NO.7108/MUM/2004 (SB) THE MAHARASHTRA STATE CO-OP. BANK LIMITED. 45 DATE INITIAL 1. DRAFT DICTATED ON 13.01.2010 & ONWARDS SR.PS 2. DRAFT PLACED BEFORE AUTHOR SR.PS 3. DRAFT PROPOSED AND PLACED BEFORE THE HONBLE SECOND MEMBER 18.01.2010 4. DRAFT PROPOSED AND PLACED BEFORE THE HONBLE THIRD MEMBER 18.01.2010 5. DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER 18.01.2010 6. DRAFT DISCUSSED/APPROVED BY 3 RD MEMBER 22.01.2010 JM/AM 7. APPROVED DRAFT COMES TO THE SR.PS/PS 22.01.2010 SR.PS/PS 8. KEPT FOR PRONOUNCEMENT ON 22.01.2010 SR.PS 9. FILE SENT TO THE BENCH CLERK 22.01.2010 SR.PS 10. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 11. DATE OF DISPATCH OF ORDER. ***