2016 (10) TMI 86 - AT - Income Tax

Section 80P deduction inter alia on DEMAT charges, special adhesive stamps and interest income derived from loans given to employees - Held that - A perusal of the section 6(1) of the Banking Regulation Act makes it clear that these demat charges are for maintaining dematerialised form of assessee s investments made in securities at its customers behest. Learned Departmental Representative seeks to cover the same in the constituents category hereinabove. We find no merit in this plea since it is not a case of constituents demat charges collection. Hon ble apex court in Mehsana District Co-operative Bank vs. ITO 2001 (8) TMI 15 - SUPREME Court allows section 80P deduction in case of safe deposit vaults covered under section 6 extracted hereinabove. We draw support therefrom to observe that the assessee s demat charges in question are very much covered under the said statutory provision making it entitled to claim section 80P deduction in question. Income on account of special adhesive stamp franking charges as derived @ 1% commission thereupon the paper book contains franking machine authorisation as issued by the Chief Controlling Revenue authorities, Gujarat State, Gandhi Nagar. We notice that this amounts to conferring the assessing authority of an agent of State Government as provided under section 6(1)(b) of the Banking Regulations Act hereinabove. We accept assessee s arguments by quoting Hon ble apex Court s decision hereinabove to hold it entitled for the impugned section 80P deduction. Interest income on loans given to employees - Both the lower authorities hold that the same is not admissible in case of interest earned from employees as per decision in CIT vs. Sirohi SBV Bank Ltd 2008 (9) TMI 112 - HIGH COURT RAJASTHAN . They nowhere hold that the said employees are not assessee s members. The CIT(A) deals with this aspect to observe that the assessee has advanced the impugned loans to its nominal members. We have perused section 25 of the Gujarat State Co-operative Society s Act 1961 prescribing such nominal members. There is nothing in section 80P of the Act to the contrary so as to decline the impugned deduction. We reiterate that it is a deduction provision to be liberally construed. We conclude in these facts that the assessee has derived the impugned interest income by advancing loans to its nominal members who are also working as its employees. Our view is that the latter status is not significant once the former condition of membership as prescribed under section 80P of the Act is qualified. We reverse both lower authorities finding on all three issues. - Decided in favour of assessee

Summary

Issues involved:
1. Disallowance of section 80P deduction on various incomes
2. Confirmation of additions made by Assessing Officer
3. Adjudication upon the initiation of penalty proceeding

Analysis:

Issue 1: Disallowance of section 80P deduction on various incomes
The appellant, a Co-operative Bank, filed a return for the assessment year 2006-07 claiming section 80P deduction on DEMAT charges, special adhesive stamps, and interest income from loans to employees. The Assessing Officer rejected these claims, stating that these activities were not part of banking business. The CIT(A) upheld the Assessing Officer's decision, considering activities like DEMAT charges, commission on special adhesive stamps, and interest on loans to employees as non-banking activities. The CIT(A) reasoned that since these activities were not part of banking business and were not regulated by RBI, they did not qualify for section 80P deduction. The decision was based on the interpretation of the Banking Regulation Act and relevant case laws.

Issue 2: Confirmation of additions made by Assessing Officer
The CIT(A) confirmed the Assessing Officer's disallowance of section 80P deduction on various incomes, including GEB Bill collection commission, DEMAT charges, commission on special adhesive stamps, and interest on loans given to employees. The CIT(A) referred to specific case laws and interpretations of banking activities to support the decision. The Assessing Officer's actions were upheld based on the premise that these activities did not fall under the purview of banking business as defined by the Banking Regulation Act.

Issue 3: Adjudication upon the initiation of penalty proceeding
The CIT(A) did not adjudicate upon the ground relating to the initiation of penalty proceedings, which was raised by the appellant. However, the primary focus of the judgment was on the disallowance of section 80P deduction on various incomes claimed by the appellant. The judgment extensively discussed the nature of the activities in question, their relation to banking business, and the applicability of section 80P deduction based on statutory provisions and legal precedents.

In conclusion, the appellate tribunal reversed the lower authorities' findings on all three issues, allowing the appellant's appeal and granting the section 80P deduction on the contested incomes. The judgment highlighted the importance of interpreting statutory provisions liberally in favor of the taxpayer and emphasized the need to align with established legal principles and precedents in determining the eligibility for tax deductions in such cases.