GUJARAT CO OPERATIVE HOUSING FINANCE SOCIETY LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Tribunal has referred the following question of law for our opinion :

(2.) AS the question indicates, the assessment years involved are asst. yrs. 1968 69 and 1969 70, the relevant previous years being the years ended June 30, 1967, and June 30, 1968, respectively. The assessee is a co operative housing finance society engaged in the business of financing co operative housing societies. The assessee derived income from its business of advancing loans to co operative housing societies and it also derived income by way of interest from Govt. securities held by it. In the course of its assessment to income tax, for the relevant assessment years, the assessee claimed that since it was carrying on the business of providing credit facilities to its members, the whole of the profits and gains of business attributable to its activity of providing such credit was liable to be deducted in computing its total income under S. 80P(2)(a)(i) of the IT Act, 1961 (hereinafter referred to as "the Act"). The ITO allowed the deduction as claimed in respect of all income save and except income in the shape of interest derived from Govt. securities held by the assessee, which, in his view, was not comprehended within the allowable deduction under S. 80P(2)(a)(i). The assessee had alternatively claimed that, in any event, it was entitled to claim a deduction under s.19(ii) of the Act in respect of the interest payable on monies borrowed by it from the LIC for the purpose of investment in Govt. securities held by the assessee. The ITO found that there was no evidence to show that the amount borrowed from the LIC was invested in the acquisition of the Govt. securities which fetched the interest income. Under the circumstances, he also disallowed the claim for deduction based on the provisions of S. 19(ii). The assessee carried the matter in appeal before the AAC. The AAC was of the view that the balance sheet, a copy whereof was produced before him on behalf of the assessee, showed that the assessee had borrowed a loan of more than Rs. 15 crores from the LIC and paid interest to the said corporation to the extent of more than Rs. 80 lakhs and that since the amount so borrowed was partly invested in Govt. securities and partly in other activities, the assessee was entitled to partial relief under s. 19(ii). The AAC worked out the proportionate interest payable to the LIC on the borrowings made for the purpose of investment in Govt. securities at 76per cent of the total interest paid and allowed a proportionate deduction against the interest income. On further appeal by the Revenue, the Tribunal held that no specific link was established between the borrowings from the LIC and the investments made in Govt. securities and that, as such, the AAC was in error in allowing proportionate deduction. At the instance of the assessee, however, the Tribunal has stated a case in respect of the question set out above.

(3.) SO far as the first submission is concerned, we must say that it is not open to the assessee to advance, and, for us, to consider, the same in view of the fact that it cannot be said to arise out of the order of the Tribunal. The facts set out above would show that whereas the ITO had totally rejected the claim for deduction whether it was a deduction claimed under S. 19(ii) or S. 80P(2)(a) (i) the AAC allowed only a proportionate deduction under S. 19(ii). The claim, if any, for total deduction under S. 80P(2)(a)(i) must, therefore, be held to have been impliedly, if not expressly, rejected by the AAC. The assessee rested content with the decision of the AAC and it preferred no appeal before the Tribunal. In other words, the claim founded on the provisions of S. 80P(2)(a)(i) met its Waterloo before the AAC and it was thereafter not kept alive by preferment of an appeal. Apart from the assessee having not preferred an appeal against such decision, implied or express, of the AAC, no attempt was made on behalf of the assessee before the Tribunal to support the order of the AAC granting relief under S. 19(ii) on an alternative footing, namely, that having regard to the provisions of S. 80P(2)(a)(i), the proportionate deduction allowed should not at least be disturbed. The result, therefore, is that the controversy between the Revenue and the assessee founded on the claim based on the provisions of S. 80P(2)(a)(i) was not reflected in the proceedings before the Tribunal. Under such circumstances, we do not think it is open to the assessee to raise the said question for our consideration nor do we think, it is open to us to entertain such a plea in this limited jurisdiction. The submission on behalf of the assessee that it was under a bona fide belief that the controversy is covered by the question referred to us is founded on a total misapprehension and even if there was any such erroneous belief, that cannot provide a ground to widen the scope of the controversy before this Court.