Income Tax Appellate Tribunal - Pune
Bragim Nivedita Saharart Bank Ltd. vs Ao on 19 December, 2002
Equivalent citations: (2004)89TTJ(PUNE)388
ORDER
US.S. Bedi, J.M. This is assessee's appeal directed against the order passed by the learned CITW-19, Pune, dated 30-5-2001 relevant to the assessment year 1998-99 wherein the following single effective ground has been raised.
"The learned Commissioner (Appeals) erred in holding that miscellaneous income, consisting of receipts from (a) sale of shares forms (b) sale of loan application forms (c) old record pulping charges and (d) demand drafts payable written back, of the assessee bank do not form income from banking activity since the said activities do not form part of banking activity of the assessee bank, The learned Commissioner (Appeals) further erred in not allowing the deduction under section 80P of the Income Tax Act, 1961 in respect of miscellaneous income."
2. The assessee is a bank, which accounted for miscellaneous receipts of Rs. 4,1j,726 the break-up of which is as under
Sale of shares forms 10,553 Sale of loan application forms 3,66,860 Old record pulping charges 3,255 Demand draft payable written back 33,058
3. The assessing officer -held that the foregoing receipts did not arise on account of banking activity performed by the assessee. Therefore, the same is not eligible for deduction under section 80P(2)(a)(i). The assessee took up the matter in appeal before the learned Commissioner (Appeals).
4. Before the learned Commissioner (Appeals), the Authorised Representative of the assessee submitted that the bank advances loans to its members. If a prospective borrower is not a member, he is admitted as a nominal member or ordinary member. The prospective borrower has to make applications for membership and loan in the forms prescribed by the bank. These forms are sold by the bank and the sale proceeds are credited as income of the bank. He further stated that the information obtained in the forms helps the bank in taking speedy and judicious decisions. He submitted that sale of membership forms and loan application forms therefore was integral to the banking activity and that income from such activity is eligible for deduction under section 8OP(2)(a)(i). He further submitted that the assessee destroyed its old records from time to time and the pulp is sold. Since the pulp is generated from the banking activity, the sale proceeds are eligible for deduction under section 80P. He next stated that as a part of banking activity the assessee issues demand drafts to its customers and amounts of demand drafts remaining unpaid for a long period are written back as income of the bank. He submitted that since issue of demand draft is a part of the banking activity, amount written back as income in this behalf is eligible for deduction under section 80P(2)(a)(i).
5. The learned Commissioner (Appeals) did not accept the submissions of the assessee and vide para 4.3 of his order, which reads as under:
"I have considered the submissions. Sale of application forms and loan application forms may be a part of the business of the co-operative bank but the same is not part of the banking activity. Similarly, pulp charges also cannot be a part of banking activity. Likewise, amount written back out of demand drafts not presented for payment also is not income of the banking activity. I rely upon the decision of the Gujarat High Court in Gujarat State Co-operative Bank Ltd. (supra) in support of my decision that the receipts of Rs. 4,13,726 accounted for by the assessee do riot constitute income from the banking activity. The alternative ground of the appellant that the assessing officer omitted to consider expenditure incurred for earning the receipts of Rs. 4,13,726 is accepted. The assessing officer is directed to call for details of expenses relating to the receipts of Rs. 4,13,726 and consider only income out of these receipts for the purposes of inclusion in the total income. Accordingly, this issue is restored to the file of the assessing officer for examination afresh. For statistical purposes, this ground of appeal is treated as partly allowed."
6. Still aggrieved, assessee filed further appeal.
7. The assessee sought to admit the following documents, which are mentioned at Sr. Nos. 4 to 7 of the paper book.
1. Xerox of RBI circular
2. specimen of share application form
3. specimen of loan application form
4. Letter of PDCC Bank, dated 12th May, 1998, and its English translation;
The above documents are necessary for consideration of the point at issue as such it was requested to admit them.
8. The learned departmental Representative has also been heard on this point.
9. After considering the arguments of both the sides on the point of additional evidence, I accept the request of the assessee's counsel and admit the documents sought to be admitted for the purposes of present appeal.
10. While arguing the case, on merits, the learned counsel for the assessee submitted that the assessee had earned income on sale of share forms, sale of loan application forms, old record pulping charges, and demand draft payable written back during the year under consideration.
11. The learned counsel further submitted that the assessing officer has treated the income/receipts described above as non-banking income and denied the deduction under section 80P of the Act. As far as sale of share forms is concerned, the assessee charges Rs. 10. It was submitted that the Co-op. Banks are prohibited from lending to non-members. It was submitted that the sale of forms is attributable to banking business.
12. Similarly, assessee charges Rs. 50 for per loan application form which contains the information such as, name, address and photograph of the borrower, amount of loan requested, purpose of loan and security for the said loan, name, address and consent of the guarantor, declaration required under section 45 of the Maharashtra Co-op. Societies Act, 1960 that the borrower will borrow only from the assessee-bank. It was therefore, submitted that income from such sale of forms is attributable to banking business.
13. Similarly, as regards old record it was submitted that the assessee is required to keep the record for a period of five years and certain personal record for the period of eight years, which is confidential in nature. Therefore, it was submitted that sale of old record for pulping is attributable to banking business only.
14. It was next submitted that the remission of liability can be treated as income only if the transaction falls within the parameters of section 41 of the Act and that section 41 has no application as the bank has not claimed any allowance or deduction when the demand draft is purchased.
15. The learned counsel for the assessee also relied upon the following cases:
1. Cambay Electric Supply Industrial Co. Ltd. v. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 87 (SC)
2. CIT v. Madurai District Central Co-op. Bank Ltd. (1984) 42 CTR (Mad) 27: (1984) 148 ITR 196 (Mad)
3. Gujarat State Co-op. Bank Ltd. v. CIT (2001) 167 CTR (Guj) 34
4. Pune Bench Tribunal decision in the case of Jalgaon District Central Co-op. Bank Ltd. v. ITO (1999) 65 TTJ (Pune) 464
5. CIT v. Bangalore Dist. Co-op. Central Bank Ltd. (1998) 148 CTR (SC) 226 It was thus pleaded for treating the said items to be income from banking activities in the order to entitle the assessee for deduction under section 8OP(2)(a).
16. The learned departmental Representative while relying upon the basis and reasoning as given by the authorities below has pleaded for confirmation of the impugned order. It was further submitted that by no means these items of income can be said to be relatable to regular banking activities arid receipts will not be income from banking business, as these are different and distinct. So the assessing officer is very much justified in making the disallowance and the learned Commissioner (Appeals) has rightly confirmed such action of the assessing officer. It was thus pleaded for further confirmation of the impugned order.
17. In order to counter the submissions of the learned departmental Representative, the learned counsel for the assessee submitted that loaning is a pre-requisite of the main banking activities and as per relevant provision these items of income if not taken to be derived from banking business, these are necessarily attributable to the banking business and the assessee as such entitled to deduction. Therefore, the findings of the authorities below in this regard are not tenable and are liable to be reversed.
18. After hearing both the sides and considering the material on record as well as the case law cited and the documentary evidence to which my attention was drawn, it is found imperative to reproduce the relevant provision of section 80P as under :
"80P(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee;
(2) The sums referred to in sub-section (1) shall be the following namely:
(a) in the case of a co-operative society engaged in-
(i) carrying on the business of banking or providing credit facilities to its members, or
(ii) to (vii) are irrelevant, in the present contest the whole of the amount of profits and gains of business attributable to any one or more of such activities.
Now adverting to the facts of the present case, it is undisputed that the assessee is a co-operative society and carrying on business of banking and providing credit facilities to its members. So far as items of miscellaneous income as detailed in the earlier part of this order are concerned, the same, in my view, are attributable to main business of the assessee, being, directly linked with it. As such, assessee is found to be entitled for deduction under section 80PM(a) of the Act, therefore, action of the authorities below in this regard is reversed and the assessing officer is directed to allow the claim of the assessee for deduction under section 80PM(a) with respect to the items of income mentioned above.
19. As a result, the appeal of the assessee gets accepted.