2010 (4) TMI 805 - AT - Income Tax

Applicability of provisions of Section 14A - exempted income versus deductible income - held that - it has not been disputed that income was derived by the assessee from co-operative banks and interest on deposits with the co-operative bank and the same are not exempt under section 10 and are includible in its income. Deduction if any is given by the statute under section 80P which pertains to deduction of income. The terms exempt income and deduction from income are two different propositions and a deduction from income will not amount to an exemption from income. Since both the above receipts of the assessee were not exempt and includible in income merely because deduction under section 80P is provided it cannot be assumed to be hit by section 14A. - Decided in favor of assessee.

Summary

Issues:
1. Disallowance under section 14A of the Income-tax Act.
2. Allowance of insurance premium not directly related to business.

Issue 1: Disallowance under section 14A of the Income-tax Act:
The Revenue appealed against the Commissioner of Income-tax (Appeals) order regarding the disallowance of Rs. 2,40,30,424 under section 14A. The Revenue argued that the disallowance was erroneous. The assessee earned income from dividends and interest on deposits with co-operative banks, which were not exempt under section 10. The Revenue contended that since these receipts were not exempt and were includible in income, they were not hit by section 14A. The Tribunal upheld the Commissioner's decision, stating that a deduction from income did not amount to an exemption from income. Therefore, the disallowance under section 14A was not applicable in this case.

Issue 2: Allowance of insurance premium not directly related to business:
The second ground raised was related to the allowance of insurance premium amounting to Rs. 2,40,92,736 under the "Sankat Haran Bima Yojana." The Revenue argued that this allowance was not directly related to the sale or consumption of fertilizers and that the insured individuals were not members of the assessee. The Tribunal referred to a previous decision in the assessee's own case for the assessment year 2004-05, where a similar claim was allowed. Following the precedent, the Tribunal confirmed the Commissioner's decision on this issue. Consequently, the appeal of the Revenue was dismissed.

In conclusion, the Tribunal upheld the Commissioner's decision to delete the disallowance under section 14A and allow the insurance premium amount. The Tribunal emphasized the distinction between exempt income and deduction from income in determining the applicability of section 14A. The decision was based on previous judgments and the direct nexus between the premium paid and the sales of the assessee society.