Allahabad High Court
Gorakhpur Kshetriya Gramin Bank vs Commissioner Of Income-Tax on 19 April, 2007
Equivalent citations: [2007]292ITR205(ALL)
Bench: R.K. Agrawal, Bharati Sapru
JUDGMENT
1. The Income-tax Appellate Tribunal, Allahabad, has referred the following questions of law under Section 256(1) of the Income-tax Act, 1961, hereinafter referred to as "the Act", for the opinion of this Court:
Whether, on the facts and circumstances of the case, the Tribunal is legally justified in holding that the income earned by the assessee-co-operative society from recovery of pay made from the staff, recovery of training cost and security forfeiture from staff is not attributable to its business of banking or providing credit facilities to its members and hence not deductible under Section 80P(2)(a)(1) of the Income-tax Act, 1961 ?
2. The reference relates to the assessment year 1988-89.
3. Briefly stated the facts giving rise to the present writ petition are as follows:
4. The assessee is a co-operative society engaged in the business of banking and providing credit facilities to its members. The receipts shown by it included the following items:
Rs.
(i) Pay recovered from resigned staff 20,377 (ii) Recovery of training cost 3,17,016 (iii) Security forfeiture 3,141
5. The Assessing Officer held that the aforesaid receipts aggregating Rs. 3,40,534 did not arise from banking business and as such were not liable to be deducted under Section 80P(a)(i) of the Income-tax Act, 1961, On appeal the learned Commissioner of Income-tax (Appeals) deleted the aforesaid addition to the total income of the assessee. In appeal before the Tribunal, it was pointed out on behalf of the Department that in respect of items at (i) and (iii) above, the matter is covered against the assessee and in favour of the Department by the order of the Tribunal dated February 6, 1992, for the assessment years 1983-84 and 1985-86 rendered in I.T.A. Nos. 360 and 825 (Alld) of 1988 and 336 (Alld) of 1989. No change in the facts and circumstances in the year under consideration having been brought to the notice of the Tribunal by the assessee, after reproducing the relevant observations in the Tribunal's earlier order dated February 6, 1992, and following the same, it was held that the receipts on account of pay recovered from staff (Rs. 20,377) and security forfeiture from staff (Rs. 3,141) are not to be deducted under Section 80P(2)(a)(i) of the Income-tax Act. To this extent, the order of the learned Commissioner of Income-tax (Appeals) was reversed. In so far as the recovery of training cost (Rs. 3,17,016) was concerned, while holding, following the view taken by the Tribunal in earlier years that activities were not relevant to banking business, the matter on this limited issue was set aside and restored to the file of the Assessing Officer with the observation that the amounts were mere reimbursement of expenses actually incurred by the assessee and it has therefore to be found out whether any surplus resulted to the assessee which could be included in its total income.
6. We have heard Shri Pankaj Bhatia, learned Counsel appearing on behalf of Shri Yashwant Sharma, learned Counsel for the applicant, and Shri Shamboo Chopra, learned Counsel appearing for the Revenue.
7. Learned Counsel for the applicant submitted that the applicant is engaged in the banking activities in connection with which it has to engage persons. The employees are required to be sent for training and further under the terms of the contract, if any person leaves the services without completing the term or without complying with the provisions of the notice period, the security is forfeited. These amounts are forfeited by the bank in the course of its normal activities as without the employees, the bank cannot carry out its business. He further submitted that under Clause (a) of Sub-section (2) of Section 80P of the Act, the income, which the applicant being the co-operative society, derives is attributable to the business of banking, is exempt from tax. The view of the Tribunal to the contrary is, therefore, clearly erroneous under law.
8. Shri Shamboo Chopra, learned standing counsel, on the other hand, submitted that the amount in question, namely, recovery of pay made from staff, recovery of training cost and forfeiting of security of employees by no stretch of imagination can be treated to be part of the banking business and, therefore, is not exempt under Section 80P(2)(a) of the Act.
9. It is not in dispute that the applicant is a co-operative society and is engaged in the business of banking. For carrying on the business of banking, it has to employ persons. It provides training to such employees and recovers the cost of training. Under the terms of the contract, if an employee leaves the service midway, then the applicant forfeits the amount of security furnished by such an employee.
10. For claiming exemption under Clause (a) of Sub-section (2) of Section 80P of the Act, the applicant is required to establish that the income is attributable to carrying on the business of banking. The business of banking cannot be carried out without the aid of the employees and, therefore, whatever amount the applicant has received either towards excess provision of pay recovered from resigned staff, training cost, recovery and forfeiture of security of employees is attributable to the activity of carrying on the business of banking. It is not the case of the Revenue that apart from carrying on the business of banking, the applicant is also running the training institute for training of persons in the banking industry for providing services of trained persons to other banks. Thus, there is no doubt in our mind that the entire income in respect of the aforesaid activities does form part and is attributable to the carrying on of the business of banking and consequently, exempt under Section 80P(2)(a) of the Act. It may be mentioned here that the apex court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT , has held that the expression attributed has to be given a very wide meaning.
11. We also find that in the case of CIT v. Ahmednagar District Central Cooperative Bank Ltd. , the Bombay High Court has held that the commission earned by a co-operative bank from Maharashtra State Electricity Board for collecting electricity bills from the public on their behalf is attributed to the business of banking and, therefore, exempt under Section 80(P)(2)(i) of the Act.
12. In the case of CIT v. Grain Merchants Co-operative Bank Ltd. , the Karnataka High Court has held that the rent received from the co-operative bank from letting out portions of building is exempt under the provisions of Section 80P of the Act.
13. We are in respectful agreement with the aforesaid view taken by the Bombay High Court and Karnataka High Court respectively.
14. In view of the foregoing discussions, we answer the above question referred to us in the negative, i.e., in favour of the assessee and against the Revenue. There shall be no order as to costs.