S. 80P(2)(a)(i) — Interest on income-tax refund — Assessable under the head ‘Income from other sources’ — Since it is covered within the expression ‘profits and gains attributable to banking business’, deduction u/s.80P(2)(a)(i) is available.

The assessee received interest u/s.244A of Rs.34.33 crores
which was included in its total income under the head “Income from Business” and
deduction was claimed u/s.80P(2)(a)(i). This interest has arisen upon favourable
order of Tribunal for earlier assessment years and the resultant refund of
assessment dues collected. The AO denied the deduction u/s.80P(2)(a)(i) in
respect of the same.

Upon further appeal, the CIT(A) confirmed the order of the AO
and has held as under :

(i) The interest was assessable under the head ‘Income from
other sources’.

(ii) The interest on income-tax refund was not attributable
to the banking business.

(iii) The favourable decision of the Tribunal in assessee’s
own case for A.Y. 2001-02 was distinguishable, because in that case the issue
was about the interest u/s.244A arising out of excess deduction of tax at
source.

The principle of consistency qua the judicial forums is not
unexceptionable. 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-raising or non-consideration of an important argument by the
earlier Bench having bearing on the issue, then the earlier view cannot be
thrust upon it and in such a case a reference should be made to a larger Bench.
The appeal in the present case needs to be decided on merits rather than
following the earlier view taken by the Tribunal in its own case. Upon merits,
three issues were identified :

(1) Head of income under which interest on income-tax
refund falls :

In order to categorise income under the head ‘Profits and
gains of business of profession’, it is imperative that income should have
arisen from business carried on by the assessee and Business refers to a
systematic, real and organised activity conducted with a view to earn income.
Payment of income-tax is an event which takes place after the determination of
profits of the business for the year. Eventually when the income-tax was
refunded along with interest u/s.244A, that would also, naturally, be an event
after the determination of income on year-to-year basis. Payment of income-tax
cannot be held to be a business activity or a transaction done during carrying
on of the business. There cannot be an intention of the assessee to earn income
by paying income-tax. Interest on refund of income-tax does not and can never
fall under the head ‘Profits and gains of business or profession’, irrespective
of the fact that the assessee is in banking or non-banking business.

(2) Meaning of expression ‘profits and gains’ of
business as used in S. 80P :

The use of the expression ‘profits and gains of business’ in
S. 80P(2) is to be seen in contradiction to the expression ‘income chargeable
under the head ‘Profits and gains of business or profession’. The latter
expression is used in several Sections of the Act including S. 80E, S.
80HHC(baa), etc. The employment of the expression ‘profits and gains’ in S.
80P(2) demonstrates the intention of the Legislature that the benefit of
deduction 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 business or profession’, but also includes other items of income (as
covered by ‘gains’), which have some relation with the business of banking even
though they do not fall under the head of business income. Since income-tax was
paid in relation to the banking business, the interest on income-tax refund will
be considered as ‘gain’ (not ‘profit’) of banking business covered within the
expression ‘profit and gains’ of banking business.

(3) Scope of phrase ‘attributable to’ eligible business
:

The scope of the phrase ‘attributable to’ is wider than
‘derived from’. Whereas in the case of the latter, the relation of the income
with the source must be direct and that of the first degree, but in the former
even some commercial or casual connection suffices the test. The expression
‘attributable to’ covers ‘receipts from sources other than the actual conduct of
the business’. The income-tax, on which interest was granted, was utilised to
satisfy the demand raised in relation to the banking business. It is for the
banking business that income-tax was originally paid and subsequently the amount
was refunded along with interest. There exists a commercial and causal
connection between the interest on income-tax refund and the banking business
and hence it can be regarded as attributable to the banking business.