Case Law Details
Brief of the Case
Bombay High court held In the case of CIT vs. Amravati District Central Cooperative Bank Ltd. that following the judgment of (2003) 264 ITR (38) (Bom.) (CIT vs. Ahmednagar District Central Cooperative Bank Ltd.) , commission earned by the Co-operative banks for collecting the electricity dues from the customers and commission earned for extending prepayment facility to the farmers under a state govt. scheme are qualify for deduction u/s 80P(2)(a).
Facts of the Case
The question issued in this appeal to find out the exact nature of the activity carried out by the assessee. The revenue has raised 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?”
Contention of the Assessee
The ld. Counsel of the assessee submitted that the banking activity is to be construed in common parlance and all activities which an assessee can legally undertake are covered. He also submits that the questions raised are already covered by the judgment of the Hon’ble Apex Court naming (2012) 349 ITR 689 (SC) (CIT vs. Nawanshahar Central Co-op. Bank Ltd.) and also by the judgment of Division Bench of this Court naming (2003) 264 ITR (38) (Bom.) (CIT vs Ahmednagar District Central Co-op. Bank Ltd.) and hence are not substantial questions of law.
Contention of the Revenue
Revenue declined deductions on the ground that the provisions need to be understood in narrow sense and banking activity must be understood strictly in commercial sense. He further states that the activities which are not integral part of the banking activity or also not essential for the banking activities, can not be qualify for deduction under section 80P(2)(a) of Income Tax Act, 1961.
Held by ITAT
Assessee is entitled for deduction u/s 80P(2) for both i.e. commission earned for collecting the electricity dues from the customers and the commission earned from the Cotton Hundi business as these activities are part of banking activities.
Held by High Court
Following the judgment of (2003) 264 ITR (38) (Bom.) (CIT vs. Ahmednagar District Central Cooperative Bank Ltd.) it is apparent that the commission earned by the assessee on account of collection of electricity bill is covered u/s 80P(2)(a). In this judgment it was held that the facility of such collection by the bank is qualified as banking activity and thus commission earned on such activity is allowed for deduction.
Also commission earned from cotton hundi business is allowed for deduction.This commission is earned by the assessee for extending the facility of prepayment allowed to the farmers under cotton monopoly scheme introduced by the state government. The funds of the banks are used in this process and only for such use the state government is compensating by paying the commission. So, it will be also a banking activity and is allowed for deduction.
Accordingly, the both appeals were dismissed.
