2007 (4) TMI 212 - HC - Income Tax

Deduction u/s 80P(a)(i) - Income earned by co-operative society which is not attributable to its business of banking or providing credit facilities to its members - Eligible to deduction u/s 80P? - HELD THAT - It is not the case of the Revenue that apart from carrying on the business of banking the applicant is also running the training institute for training of persons in the banking industry for providing services of trained persons to other banks. Thus there is no doubt in our mind that the entire income in respect of the aforesaid activities does form part and is attributable to the carrying on of the business of banking and consequently exempt u/s 80P(2)(a) of the Act. It may be mentioned here that the apex court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT 1978 (4) TMI 1 - SUPREME COURT has held that the expression attributed has to be given a very wide meaning. We also find that in the case of CIT v. Ahmednagar District Central Cooperative Bank Ltd. 2003 (7) TMI 50 - BOMBAY HIGH COURT the Bombay High Court has held that the commission earned by a co-operative bank from Maharashtra State Electricity Board for collecting electricity bills from the public on their behalf is attributed to the business of banking and therefore exempt u/s 80(P)(2)(i) of the Act. Thus we answer the above question referred to us in the negative i.e. in favour of the assessee and against the Revenue.

Summary

Issues:
Interpretation of section 80P(2)(a)(i) of the Income-tax Act, 1961 regarding the deductibility of income earned by a cooperative society from recovery of pay made from staff, recovery of training cost, and security forfeiture from staff in the context of its banking business.

Analysis:
The High Court was tasked with determining the legal justification of the Income-tax Appellate Tribunal's decision regarding the deductibility of income earned by a cooperative society from certain activities under section 80P(2)(a)(i) of the Income-tax Act, 1961. The Tribunal had reversed the Commissioner's decision, holding that income from recovery of pay, training cost, and security forfeiture from staff was not attributable to the business of banking and thus not deductible. The Tribunal referred to its earlier orders in similar cases to support its decision. The Court noted that the Tribunal had reversed the Commissioner's order regarding pay recovery and security forfeiture but set aside the decision on training cost for further assessment by the Assessing Officer to determine any surplus. The Court heard arguments from both sides, with the applicant's counsel contending that these activities were essential for the banking business and thus exempt under section 80P(2)(a)(i), while the Revenue's counsel argued otherwise.

The Court acknowledged that the cooperative society was engaged in banking activities, necessitating the engagement of staff, training, and security measures. It emphasized that for income to be exempt under section 80P(2)(a)(i), it must be attributable to the banking business. The Court agreed with the applicant that these activities were integral to banking operations and thus exempt from taxation under section 80P(2)(a)(i). It highlighted the wide interpretation of the term "attributed" as per legal precedents. Citing relevant case laws, the Court supported its interpretation, referring to cases where income from related activities was deemed exempt under section 80P of the Act. The Court found these judgments in agreement with its stance.

In conclusion, the Court ruled in favor of the assessee, holding that the income earned from recovery of pay, training cost, and security forfeiture from staff was indeed attributable to the business of banking and therefore exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961. The Court cited legal precedents and reasoned arguments to support its decision. No costs were awarded in this judgment.