Income Tax Appellate Tribunal - Pune
Nashik Dist Central Co-Op Bank Ltd., ... vs Department Of Income Tax on 26 December, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
Before Shri Shailendra Kumar Yadav, Judicial Member
and Shri R.K. Panda, Accountant Member
ITA No. 69, 70 and 71/PN/2013
(Asstt.Years : 1994-95, 1995-96 and 1997-98)
ACIT, Circle-1, Nashik .. Appellant
Vs.
The Nashik Dist. Central Co-op
Bank Ltd., Old Agra Road,
Nashik .. Respondent
PAN No.AAAAT3794P
Assessee by : Shri Nikhil Pathak
Revenue by : Smt. Garima Chouhary
Date of Hearing : 26-12-2013
Date of Pronouncement : 30-12-2013
ORDER
Per R.K. Panda, AM :
The above 3 appeals filed by the Revenue are directed against the separate orders dated 05-10-2012 of the CIT(A)-I, Nashik relating to Assessment Years 1994-95, 1995-96 and 1997-98 respectively. Since common issues are involved in all these appeals, therefore, these were heard together and are being disposed of by this common order. ITA No.69/PN/2013 (A.Y. 1994-95) :
2. In Ground of appeal No.1 the Revenue has challenged the order of the CIT(A) in allowing the deduction of Rs.78,94,686/- u/s.80P(2)(a) of the Act which was denied by the Assessing Officer. 2.1 Facts of the case, in brief, are that the assessee is an Apex district Cooperative Bank registered under the Maharashtra State Cooperative Societies Act, 1925 which was registered in the year 1943. It is also 2 registered under the Banking Regulation Act, 1949 and governed by the RBI regulations. The assessee filed return of income for the impugned assessment year on 18-10-1994 declaring total income of Rs.74,332/-. Subsequently, in response to notice u/s.148 the assessee stated that the Income Tax return which has already been filed may be treated as return in response to notice u/s.148. The Assessing Officer during the course of assessment proceedings noted that the assessee has declared commission and exchange income of Rs.78,94,686/- (Rs.92,15,862/- - Rs.13,21,176/-) and claimed the same as exempt. On being questioned by the Assessing Officer to give the break-up of income from commission and exchange the assessee gave the details which are as under :
"1. Assessment Year 93-94 - Commission received from
i) MSEB Rs.7,12,762/- and (ii) Zilla Parishad Rs.4,47,350/- in total Rs.11,60,112/-. This receipt was included in Commission and Vatav of Rs.64,10,648/- as disclosed on page No.39 of Annual Report of Financial Year 1992-93.
2. Assessment Year 94-95 - Commission received from
i) MSEB Rs.8,05,628/- and (ii) Zilla Parishad Rs.5,15,548/- in total Rs.13,31,171/-. This receipt was included in Rs.92,15,662/- amount disclosed as Commission and Vatav on page No.55 of Annual Report of Financial Year 1993-94.
3. The remaining part of commission and vatav for both these years from banking business. Nature of the receipt is as follows.
4. Commission is charged to account holders for clearing of cheques and receiving and making payments against cheques.
5. For purposes of Demand Drafts and for making payments against Demand Draft Commission is charged.
6. Incidental charges are collected from account holders which are credited to Commission and Vatav account".
2.2 However, the AO was not satisfied with the above explanation given by the assessee on the ground that the assessee has given a very general reply towards the commission and exchange income of 3 Rs.78,94,686/- and no head-wise details have been given. On being further questioned by the AO the assessee reiterated the same and submitted that the commission and exchange income has arised out of business of banking and hence it is not taxable. The AO did not accept the above reply of the assessee. He accordingly rejected the claim of exemption u/s.80P(2)(a) on this commission income. 2.3 The assessee appealed before the CIT(A) but without any success. On further appeal the Tribunal vide ITA No.732 and other connected appeals order dated 19-08-2005 for A.Yrs. 1993-94, 1998-99 and 1989-1990 restored the issue to the file of the CIT(A) for fresh adjudication. In appeal the Ld.CIT(A) following his order for A.Y. 1993-94 allowed the claim of the assessee. For the sake of convenience the relevant order of the CIT(A) for A.Y. 1993-94 is reproduced as under :
"7.2 I have carefully considered the facts of the case and the rival contentions. The contention of the appellant that the commission income in respect of bank cheques, demand drafts, etc. is income from banking business and hence is eligible for deduction u/s.80P(2)(a)(i) is found to be correct and hence accepted. As regards commission received from MSEB and Zilla Parishad for collection of bills amounting to Rs.11,60,112/- the appellant has claimed that the commission is allowable as per the decision of Hon'ble Bombay High Court in the case of Ahmednagar District Central Bank Ltd. reported in 264 ITR 38 wherein it has been laid down that commission received by Co- operative Society from collection of bills is income from banking business. However, it has been noticed that in the case under appeal the assessment order is passed u/s.147 after issuing notice u/s.148 for the reason that the income of the appellant has escaped assessment. The Hon'ble ITAT in para 8 of their order has stated/directed as under :
"It is a settled position of law that while passing the reassessment order u/s.147 no relief can be allowed with reference to the income already assessed. In the circumstances, therefore, the claim made by the assessee through the additional ground cannot be allowed. In taking this view we are fortified by the decision of the Supreme Court in the case of CIT Vs. Sun Engineering Works P. Ltd. 1992 198 ITR 297 and Madras High Court in the case of India Forge and Drop Stampings Ltd. Vs. CIT 1998 233 ITR 113".4
In the case under appeal, it is undisputed fact that in the return of income filed by the appellant the commission received from MSEB and ZP has been treated as not eligible for deduction u/s.80P of the Act. Hence, in view of the above direction/decision of Hon'ble ITAT the claim of the appellant that in view of the decision of Bombay High Court in the case of Ahmednagar District Central Bank Ltd. reported in 264 ITR 38 the commission received from MSEB and Zilla Parishad amounting to Rs.11,60,112/- is allowable u/s.80P is rejected. 7.3 In view of the above, the appellant gets relief of profit on commission income of Rs.52,50,536/- (the appellant has erroneously mentioned this figure as Rs.53,50,536/-) @ 9.28% being eligible for deduction u/s.80P(2)(a)(i) of the Act. The AO is directed accordingly. This ground of appeal is partly allowed".
2.4 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
3. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. The nature of commission income has already been given by the assessee before the AO which has been reproduced in the preceding paragraphs. We find the Hon'ble Bombay High Court in the case of CIT Vs. Ahmednagar District Central Co-operative Bank Ltd. and others reported in 264 ITR 38 has observed as under :
"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 5 the assessee-banks. They were having current account with the assessee-bank. The assessee-bank undertook on behalf of these two customers the 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 aforestated 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 facilities to its customers. They provide lockers, safe deposit vaults, finance for margin trading, 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 MSEB and MPCS."
3.1 Since commission income received on account of clearing of cheques, DD commission and other incidental charges received from the customers amount to income from banking business, therefore, in view of the decision of the jurisdictional High Court cited above the assessee is entitled to deduction u/s.80P(2)(a)(i) of the I.T. Act on such commission income. We further find although similar claim was rejected by the AO in A.Y. 1993-94 and the CIT(A) has allowed the claim, however, the Revenue is not in appeal against the said order of the CIT(A) as stated by the Ld. Counsel for the assessee and not controverted by the Ld. Departmental Representative. So far as the 6 decision of Hon'ble Supreme Court in the case of Madhyapradesh Co- op. Bank Ltd. Vs. Addl.CIT reported in 218 ITR 438 relied on by the Ld. Departmental Representative is concerned we find the same is not applicable to the facts of the present case. In that case, the issue before the Hon'ble Supreme Court was regarding the allowability of benefit of section 81 of the I.T. Act. on interest earned on securities earmarked against reserves and interest earned on providend fund deposits. Under this context, it was held that the said income is not entitled to special deduction. Therefore, the above decision is not applicable to the facts of the present case since the facts in that case are under altogether different footings. In this view of the matter, we uphold the order of the CIT(A) on this issue and the ground raised by the Revenue on this issue is dismissed.
4. The second ground by the revenue relates to the order of the CIT(A) in allowing the provision of Rs.30,000/- towards Education fund.
4.1 Facts of the case, in brief, are that the AO in the assessment order disallowed an amount of Rs.30,000/- being Education fund provision made by the assessee. In appeal the Ld.CIT(A) upheld the addition and on further appeal by the assessee the Tribunal restored the matter to the file of the Ld.CIT(A). The CIT(A) following his order for A.Y. 1993- 94 deleted the addition made by the AO. For the sake of ready reference the order of the CIT(A) on this issue for A.Y. 1993-94 is reproduced as under :
"8.1 I have carefully considered the facts of the case and the submissions of the appellant. On perusal of the same it has been noticed that the said contributions towards education fund Rs.30,000/-7
and State Cadre Fund Rs.21,30,500/- have been made by the appellant as statutorily required by the provisions of Maharashtra Co-operative Societies Act. It is undisputed fact that the appellant Co-operative Bank is registered under Maharashtra Co-operative Societies Act and is bound by the provisions of the said Act. In the following cases it has been laid down if any contribution is to be made to education fund or other fund as per statutory requirement then the said expenditure is allowable expenditure :
1. Krishna Sahakari Sakhar Karkhana Ltd. Vs. CIT (1998) 229 ITR 577 (Bom.).
2. Mahesana District Co-operative Milk Producers Union Ltd. Vs. CIT (2002) 258 ITR 780 (Guj.).
In view of the above facts and discussion and respectfully following the ratio laid down in the above mentioned decisions, I am of the considered view that the above expenditure claimed by the appellant at Rs.30,000/- and Rs.21,30,500/- is an allowable expenditure. The AO is directed accordingly. Ground No.2 is partly allowed". 4.2 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
5. We have considered the rival arguments made by both the sides. We find the issue has been decided in favour of the assessee by the decision of the Hon'ble Bombay High Court in the case of Krishna Sahakari Sakhar Karkhana Ltd. Vs. CIT reported in 229 ITR 577 wherein the Hon'ble High Court has held as under (Short notes) :
"Section 37 of the Income-tax Act, 1961, provides for deduction of any expenditure laid out or expended wholly and exclusively for the purposes of the business in computing the income chargeable under the head "Profits and gains of business or profession". The only exception is capital expenditure or personal expenses of the assessee or expenditure of the nature described in other sections of Chapter IV of the Act. The expression "for the purpose of the business" is wider in scope than the expression "for the purpose of earning profits". Its range is wide : it may take in not only the day to day running of a business but also the rationalisation of its administration and modernization of its machinery ; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title ; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for the carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. The only limitation is that it should be for the purpose of the business, that is to say, the expenditure incurred should be for the carrying on of business and the assessee should incur it in his capacity as a person carrying on the business. It cannot include sums spent for purposes unconnected with the business.8
The assessee was a co-operative society registered under the Maharashtra Co-operative Societies Act, 1960. It was engaged in the manufacture and sale of sugar. Under section 68 of the Maharashtra Co- operative Societies Act, it was required to make a contribution to the education fund of the State federal society at the prescribed rates. The assessee-society paid a sum of Rs. 50,000 in each of the two previous years relevant to the assessment years 1978-79 and 1979-80. The assessee claimed deduction of the above amounts and the Income-tax Officer allowed the deduction. However, the Commissioner of Income-tax disallowed the claim in revision proceedings and his action was upheld by the Tribunal. On a reference:
Held, that there was no dispute in this case about the fact that the expenditure incurred by the assessee by way of contribution to the education fund was not a capital expenditure or expenditure in the nature of personal expenses, or expenditure described in any of the sections in Chapter IV of the Act. It was clear from the provisions of section 68 of the Maharashtra Co-operative Societies Act read with rule 53 of the Rules that it was a statutory obligation of the co-operative society to contribute to the education fund. The contribution was not voluntary. The assessee was liable to pay to the education fund at the rate of 25 paise per ton of sugarcane crushed per year, subject, however, to the maximum of Rs. 50,000. This contribution the assessee had to pay because it was carrying on the business of running the sugar factory and was engaged in crushing sugarcane. If no sugarcane was crushed, no contribution was required to be paid to the education fund. That being so, it was clear that the contribution made by the assessee to the State federal society under section 68 of the Maharashtra Co-operative Societies Act read with rule 53 of the Rules was an expenditure directly connected or related to the carrying on of the assessee's business. Such an expenditure squarely fell within the scope and ambit of section 37 of the Act and the same was an allowable deduction".
5.1 Since the Ld.CIT(A) following the decision of the jurisdictional High Court has decided the issue in favour of the assessee, therefore, in absence of any contrary material brought to our notice against the decision of the jurisdictional High Court, we find no infirmity in the order of the CIT(A) allowing the claim of the assessee. Accordingly, this ground by the revenue is dismissed.
5.2 Other grounds being general in nature are dismissed. ITA No. 70/PN/2013 (A.Y. 1995-96) :
6. Ground of appeal No.1 relates to the order of the CIT(A) in allowing deduction of Rs.86,02,111/- u/s.80P(2)(a) of the I.T. Act. 9 6.1 After hearing both the sides, we find the above ground is identical to Ground of appeal No.1 by the Revenue in ITA No.69/PN/2013. We have already decided the issue and the ground raised by the Revenue has been dismissed. Following the same ratio, the first ground by the Revenue is dismissed.
7. The second ground by the Revenue relates to the order of the CIT(A) in allowing the provision of Rs.30,000/- towards Education fund and provision of Rs.25,98,000/- towards State Cadre Fund. 7.1 After hearing both the sides, we find the above ground is identical to ground of appeal No.2 in ITA No.69/PN/2013. Although in that ground the issue was only provision towards Education fund and there was no issue regarding provision towards State Cadre Fund, however, in our opinion, the provision towards State Cadre Fund will have the same treatment like provision towards Education fund. Therefore, this ground by the Revenue is also dismissed. 7.2 Other grounds being general in nature are dismissed. ITA No.71/PN/2013 (A.Y. 1997-98) :
8. The first ground by the Revenue relates to the order of the CIT(A) in allowing deduction of Rs.1,15,55,672/- u/s.80P(2)(a) of the I.T. Act.
8.1 After hearing both the sides, we find the above ground is identical to Ground of appeal No.1 by the Revenue in ITA No.69/PN/2013. We have already decided the issue and the ground 10 raised by the Revenue has been dismissed. Following the same ratio, the first ground by the Revenue is dismissed.
8.2 The second ground of appeal by the Revenue relates to the order of the CIT(A) in allowing provision of Rs.30,000/- towards Education Fund.
8.3 After hearing both the sides, the above ground is identical to ground of appeal No.2 in ITA No.69/PN/2013. We have already decided the issue and the ground raised by the Revenue has been dismissed. Following the same ratio, this ground by the Revenue is dismissed.
8.4 Other grounds being general in nature are dismissed.
9. In the result, all the 3 appeals filed by the Revenue are dismissed.
Pronounced in the Open court on 30-12-2013.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, dated : 30th December, 2013
Satish
Copy of the order is forwarded to :
1. The Assessee
2. The Department
3. The CIT(A)-I, Nashik
4. The CIT-I, Nashik
5. D.R. "A" Bench, Pune
6. Guard File
By order
// True Copy //
Senior Private Secretary,
Income Tax Appellate Tribunal, Pune