The Commissioner Of Income Tax, Nashik v. Jalgaon District Central Co-Operative Bank Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAY BENCH AT AURANGABAD TAX APPEAL NO. 20 OF 2008 The Commissioner of Income Tax, Nashik ...Appellant Versus Jalgaon District Central Co-operative Bank Ltd. ...Respondent ..... Mr. Alok Sharma, advocate for the appellantMr. A.V. Deshmukh, advocate for respondent ..... CORAM : SMT. NISHITA MHATRE AND M.T. JOSHI, JJ. DATED : 8TH JULY, 2011 PER COURT:- 1 The question of law raised in the present appeal is whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in deciding that the income of amount earned by the bank on account of commission paid by M.S.E.B. for collection of M.S.E.B. bills relates to the business of banking and therefore, the bank is entitled to exemption under section 80p (2) (a) (i) of the Income Tax Act. The Tribunal has concluded that such commission qualifies for deduction under Section 80p (2) (a) (i) of the ta20.08 Income Tax Act. Accordingly, the Tribunal has dismissed the appeal filed by the department. 2The learned advocate appearing for the respondent has invited our attention to the judgment of the Division Bench of this Court at its Principal Seat in the case of Commissioner of Income Tax Vs. Ahmednagar District Central Co-operative Bank Ltd., 2004 MHLJ 853. While considering the very issue which is raised in the present case, the court has observed thus:- “6.At the outset, we would like to deal with the main contention advanced on behalf of the Department. Section 5(b) defines “banking” to mean acceptance of deposits for the purpose of lending or investment whereas, section 6(1) states, inter alia, that in addition to the business of banking, a banking company may engage in the following forms of business as enumerated in Section 6(1) (a) to (o). Therefore, there is a clear dichotomy between the business of banking and other forms of business. To take an example, under Section 6(1)(a) providing of safe deposit vaults to the customer is mentioned. In the case of Mehsana District Central Co-operative Bank Ltd. v. ITO [2001] 251 ITR 522, the Supreme Court has held that the income derived by the co-operative bank by way of rent from the customer for enjoying safe deposit vault as a facility, would squarely come under Section 6(1) (a) of the Banking Regulation Act and that such income derived by the assessee-bank from hiring out safe deposit vaults was income from the business of banking and, therefore, deductible under Section 80p (2) (a) (i) of the Income Tax Act. Now, in the present case, MSEB and MPCS are the public undertakings. Both these public undertakings were the customers of the assessee-banks. They were having current account with the assessee-bank. The assessee-bank undertook on behalf of these two customers and work of collecting electricity dues from the consumers of electricity who were charged bills by the two public undertakings. This was a facility given by the assessee-bank to the afore stated two public undertakings who were their customers. Banking, today, covers a large number of activities. With globalisation, banking is not restricted to receiving deposits for the purposes of lending. Banks offer various, collecting dues and charges for and on behalf of the Government, local authority, MTNL, BEST, MSEB, etc. Section 6 (1) (a) of the Banking Regulation Act is an enabling provision. It provides for various forms of business akin to banking. Therefore, Section 6 (1) states, inter alia, that in addition to the banking business, a banking company may engage in specified forms of business enumerated in Section 6 (1) (a) to (o). We are confining our case to the activity of the bank collecting charges for and on behalf of MSEB, MPCS for commission/fees. The construction put by the Department on the word “banking” is very narrow. It is true that, in this case, we are required to consider the benefit of exemption under Section 80p (2) (a) (i). It is equally true that the said section is required to be read in the strict sense. However, the judgment of the Supreme court in the case of Mehsana District Central Co-operative Bank Ltd. [2001] 251 ITR 522 shows that the word “banking” is not restricted only to accepting deposits from customers for the purposes of lending and that the word “banking” has been interpreted by the Supreme court to cover even rent charged by the banks for hiring out safe deposit vaults to its customers. In the circumstances, we hold that income earned by the assessee-bank by way of commission/fees from its customers being public sector undertakings would be exempt under Section 80p (2) (a) (i). Our view is also supported by Section 6(1) (b) of the Banking Regulation Act, 1949, which states that in addition to the business of banking, a banking company may engage itself as agent for Government or local authority or any other person for giving receipts and discharges that is to say for collecting electricity bills from the customers for and on behalf of the MSEB and MPCS.” 3In the present case also the aforesaid public undertaking are customers of the assessee bank and therefore, in our opinion, the aforesaid observations apply squarely to the present case. The Tax appeal is dismissed. ( M. T. JOSHI, J.) (SMT. NISHITA MHATRE, J.) rlj/