2015 (3) TMI 109 - HC - Income Tax

Entitlement to deduction u/s 80P(2)(a) - commission earned on electricity bill - Held that - The facility of collection of bills provided by the bank is found to qualify as banking activity and the commission has been thus allowed to be deducted under Section 80P(2)(a) of the said Act as held in CIT(A) V/S Ahmednagar District Central Co-operative Bank Ltd., Osmanabad District Central Co-operative Bank Ltd. and Latur District Central Co-operative Bank Ltd. 2003 (7) TMI 50 - BOMBAY High Court - Decided in favour of assessee. Commission derived from Cotton Hundi business - Held that - The cheques issued by the State Government to the cotton growing farmers as price of cotton purchased are immediately honoured by the assessee and the State Government then reimburses the assessee after some time. It is, therefore, obvious that the funds of the bank are used in the process and for such use the State Government is compensating it by paying the commission. Considering the law looked into supra, we find that the said commission also qualifies for such deduction. See CIT vs Nawanshahar Central Coop. Bank Ltd 2012 (9) TMI 404 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of the exact nature of activity carried out by the assessee for deduction under Section 80P(2)(a) of the Income Tax Act, 1961.
2. Eligibility of commission earned by the assessee from activities in addition to the business of banking for deduction under Section 80P(2)(a).

Issue 1: Interpretation of the exact nature of activity carried out by the assessee for deduction under Section 80P(2)(a) of the Income Tax Act, 1961:
The High Court of Bombay considered the nature of activities carried out by the assessee for the assessment years 2005-2006 and 2006-2007. The key question was whether the assessee was entitled to deduction under Section 80P(2)(a) of the Income Tax Act. The department argued that the banking activity should be strictly understood in a commercial sense, and activities not essential for banking purposes should not qualify for the deduction. On the other hand, the respondent contended that banking activity should be construed in common parlance, covering all legally permissible activities. The Court analyzed judgments of the Hon'ble Apex Court and a Division Bench of the Court to determine the scope of banking activities eligible for deduction under Section 80P(2)(a).

Issue 2: Eligibility of commission earned by the assessee from activities in addition to the business of banking for deduction under Section 80P(2)(a):
Regarding the commission earned by the assessee from activities beyond the core banking functions, the Court examined two specific scenarios. Firstly, the commission derived from the collection of electricity bills was deemed eligible for deduction under Section 80P(2)(a) based on a precedent involving a Cooperative Bank. Secondly, the commission earned due to the prepayment facility extended to farmers under the Cotton Monopoly Scheme was also considered eligible for deduction. The Court reasoned that since the bank's funds were utilized in the process, and the State Government compensated the bank for this service by paying the commission, it qualified for deduction under Section 80P(2)(a). Consequently, both issues were decided against the appellant, and the Income Tax Appeals were dismissed without costs.