2003 (7) TMI 50 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income by way of commission from MSEB and MPCS is attributable to business of banking and as such relief under section 80P(1) read with section 80P(2)(a)(i) was allowable to the assessee? - we answer the above quoted question in the affirmative, i.e., in favour of the assessee-bank and against the Department.

Summary

Issues:
- Interpretation of the term "business of banking" under section 80P(2)(a)(i) of the Income-tax Act, 1961.
- Whether income earned by a cooperative bank from commission/fees is exempt under section 80P(2)(a)(i) when collected on behalf of public undertakings like MSEB and MPCS.

Analysis:
The judgment delivered by the High Court of BOMBAY addresses four references under section 256(1) of the Income-tax Act, 1961, concerning different assessment years. The primary issue revolves around whether the income earned by a cooperative bank from commission/fees, collected on behalf of public undertakings like MSEB and MPCS, is exempt under section 80P(2)(a)(i) as part of the "business of banking."

The Department argued that the definition of "banking" under section 5(b) of the Banking Regulation Act, 1949, should be the sole criteria for interpreting the term "business of banking" under section 80P(2)(a)(i). They contended that activities not falling under the definition of banking as per section 5(b) would not qualify for exemption under section 80P(2)(a)(i). The court, however, emphasized a broader interpretation, citing a Supreme Court judgment that included activities like renting safe deposit vaults as part of the banking business. The court highlighted that banking today encompasses various activities beyond traditional deposit-taking and lending.

The court examined the activities undertaken by the cooperative bank, such as collecting charges on behalf of MSEB and MPCS, as part of the banking business. They emphasized that section 6(1)(a) of the Banking Regulation Act allows banks to engage in activities akin to banking, supporting the view that such activities are integral to the banking business. The judgment rejected the Department's narrow interpretation of the term "banking" and upheld the exemption under section 80P(2)(a)(i) for the income earned from commission/fees collected for public undertakings.

Additionally, the court acknowledged the Department's argument that each activity/form of business listed in section 6(1) should be scrutinized individually for exemption under section 80P(2)(a)(i). However, they limited the judgment to the specific case at hand, aligning with the precedent set by the Supreme Court in a similar matter involving a cooperative bank.

In conclusion, the High Court ruled in favor of the assessee-bank, affirming that the income earned from commission/fees collected on behalf of public undertakings is exempt under section 80P(2)(a)(i) as part of the banking business. The judgment disposed of all references accordingly, with no costs imposed.