CIT Vs The Maratha Mandir Co-op. Bank Ltd. (Bombay High Court)- Interest income in the present case arose on account of giving advance rent to the landlord from whom premises were taken on rent for the purpose of carrying on banking business. Thus, the interest income in the present case is closely connected to the banking business carried on by the assessee. Thirdly, the Reserve Bank of India, controlling the banking business in India has issued guidelines on 18/6/1987 thereby permitting the co-operative banks to give advance rent to the landlords (from whom premises are taken for carrying on the business) subject to charging interest and other conditions set out therein. Thus. the interest income on advance rent is earned in accordance with the norms laid down by RBI and hence it would be income earned during the course of carrying on the business of banking.
CIT Vs The Maratha Mandir Co-op. Bank Ltd.
Decided by- Bombay High Court
Income Tax Appeal No. 4125 Of 2010
Dated: 21st July, 2011
ORAL JUDGMENT (PER J.P. DEVADHAR, J.)
1. The question of law raised by the revenue in this appeal reads thus:-
” Whether on the facts and circumstances and in law the Tribunal was justified in directing the assessing officer to include the interest on the amount of advance rent receipt amounting to Rs. 18,88,541/- for the purpose of deduction u/s.80P(2)(a)(i) of the I.T. Act ? ”
2. The assessment year involved herein is AY 2005-06.
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3. The respondent-assessee is a Co-perative Bank. The assessee had taken certain premises from the landlord for carrying on its banking business. At the request of the landlord, the assessee paid advance rent subject to payment of interest. The interest income so received was claimed as income from banking business eligible for deduction under Section 80P of the Act.
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4. The assessing officer rejected the claim of the assessee on the ground that the interest income received from advance rent cannot be said to be from the banking business as contemplated under Section 80P(2)(a)(i) of the Act.
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5. On appeal filed by the assessee, the CIT(A) held that the interest income was received in the course of banking business and hence eligible for deduction under Section 80P of the Act. ITAT has upheld the order of CIT(A). Hence, this appeal is filed by the revenue.
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6. Counsel for the revenue submitted that in view of the decision of the Apex Court in the case of Totgar’s Co-operative Sale Society Ltd. V/s. ITO reported in [2010] 322 ITR 283 (SC), the decision of the ITAT cannot be sustained.
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7. As rightly contended by the senior Counsel for the assessee the decision of the Apex Court in the case of Totgar’s Co-operative Sale Society Ltd. (supra) is distinguishable on facts, because, firstly the Apex Court itself (see para 11 of the judgment) has distinguished cases relating to co-operative banks from the cases relating to the Cooperative Sale Society. Secondly, the interest income in the present case arose on account of giving advance rent to the landlord from whom premises were taken on rent for the purpose of carrying on banking business. Thus, the interest income in the present case is closely connected to the banking business carried on by the assessee. Thirdly, the Reserve Bank of India, controlling the banking business in India has issued guidelines on 18/6/1987 thereby permitting the co-operative banks to give advance rent to the landlords (from whom premises are taken for carrying on the business) subject to charging interest and other conditions set out therein. Thus. the interest income on advance rent is earned in accordance with the norms laid down by RBI and hence it would be income earned during the course of carrying on the business of banking.
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8. In these circumstances, the decision of the ITAT in holding that the interest on advance rent is business income eligible for deduction under Section 80P of the Act cannot be faulted. As the interest income earned by the assessee is directly linked to the banking business carried on by the assessee, the decision of the Apex Court in the case of Totgar’s Cooperative Sale Society Limited (supra) would have no application to the facts of the present case.
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9. In the result, we see no merit in this appeal. Hence, the appeal is dismissed with no order as to costs.
NF
