Commissioner of Income Tax­-III vs Amravati District Central Cooperative Bank Ltd.

B.P. Dharmadhikari, J.—Heard Advocate Shri Anand Parchure for the Department and Advocate Shri K.P. Dewani for the assessee, in both the matters.

Only question is about the exact nature of activity carried on by the assessee. The activity to be looked into in both the matters is same. Earlier Appeal No.78 of 2009 is for the assessment year 2005-2006 while later one is for the assessment year 2006-2007.

The learned Counsel for the department has raised the following two questions as substantial questions of law, which are reproduced below :-

"i] Whether on the fact and in the circumstances of the case the learned ITAT was justified in holding that the assessee is entitled to deduction u/s 80P(2)(a) of an amount RS.39,32,829/- being commission derived from Cotton Hundi business even though such an activity is not carrying on the business of banking itself but an activity in addition to the activity of carrying on the business of banking?

ii] Whether on the fact and in the circumstances of the case the learned ITAT was justified in holding that the assessee is entitled to deduction u/s 80P(2)(a) of an amount Rs. 43,75,229/- being commission on electricity bill even though such as activity was in addition to the carrying on the business of banking?"

According to the learned Counsel, the provisions need to be understood in narrow sense and hence the banking activity must be understood strictly in commercial sense. He further states that the facility made available to the State Electricity Board or to the Cotton Growers Federation which is not an integral part of the banking activity or essential for the banking purpose, cannot qualify for deduction under Section 80P(2)(a) of the Income Tax Act, 1961 [for short, "''the said Act"''].

Advocate Shri K.P. Dewani, on the other hand, submits that the banking activity is to be construed in common parlance and all activities which an assessee can legally undertake are covered thereunder. He also submits that the questions sought to be urged are already covered by the judgment of the Hon''ble Apex Court as also by the Division Bench of this Court and hence are not substantial questions of law.

With the assistance of the respective Counsel, we have perused the judgment of the Hon''ble Apex Court in case Commissioner of Income Tax Vs. Nawanshahar Central Co-Op. Bank Ltd., . In this case, the Hon''ble Apex Court has considered the income from underwriting commission for eligibility under Section 80P. It has relied upon the earlier judgment in case of Commissioner of Income Tax, Jalandhar vs Nawanshahar Central Cooperative Bank Limited and dismissed the challenge as raised by the Department. Thus, the Hon''ble Apex Court has found that the income derived by the Cooperative Bank from underwriting commission and interest on PSEB Bonds and IDBI Bonds is eligible for the deductions.

The Division Bench of this Court in judgment reported at Commissioner of Income Tax Vs. Ahmednagar District Central Co-operative Bank Ltd., Osmanabad District Central Co-operative Bank Ltd. and Latur District Central Co-operative Bank Ltd., , has considered the commission earned by Ahmednagar Central Cooperative Bank for collecting the electricity dues from the customers of the then Maharashtra State Electricity Board. The facility of such collection of bills provided by the bank is found to qualify as banking activity and the commission has been thus allowed to be deducted under Section 80P(2)(a) of the said Act.

In this situation, it is apparent, that the question no.1 which is about the commission earned by the assessee on account of collection of electricity bills needs to be answered against the appellant.

Insofar as the second question is concerned, the commission is earned by the assessee because of the facility of prepayment extended by the bank to the farmers under the Cotton Monopoly Scheme introduced by the State Government for procurement of cotton. The cheques issued by the State Government to the cotton growing farmers as price of cotton purchased are immediately honoured by the assessee and the State Government then reimburses the assessee after some time. It is, therefore, obvious that the funds of the bank are used in the process and for such use the State Government is compensating it by paying the commission. Considering the law looked into supra, we find that the said commission also qualifies for such deduction. Hence, the second question is also answered against the appellant.

As such, we dismiss both the Income Tax Appeals. No costs.