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TMI Blog2008 (9) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... All the three appeals relate to same assessee. These appeals were admitted on different dates, framing substantial question of law, though in different language, however the substantial question of law, involved in all the three appeal is as under: "Whether in the facts and circumstances of the case, the amount of interest earned by the respondent Bank on various loans extended to its employees from deposit of P.F. and Housing loan is eligible to be exempted under Section 80P (2) (a) (i) of the Act, 1961." 2. The necessary facts are that the assessee is a co-operative society, and carries on banking activities, including providing credit facilities to its members. In the relevant assessment years, certain additions were made by the assessing officer on account of interest, received by the assessee, on loans, given to the staff of the assessee, being PF loans, and House loans. The Assessing officer, denied the claim of exemption of these amounts, under Sec. 80 P(2) (a) (i). Then on appeal, in some matters, learned Commissioner accepted the contention of the assessee, and found it to be exempted, while in another cases, the view taken by the assessing officer, was upheld. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of the agricultural produce grown by of its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to "whether the interest in question can be said to be the amount of profits and gains of the business attributable to carrying on the business of banking by the assessee." 9. Then, we may refer to the provisions of Sec. 5 of the Bank Regulation Act, 1949. Clause (b) whereof defines the expression "banking" as under:- "banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order of otherwise; 10. Then chapter part 2 provides for the business of banking companies, and Sec. 6, enumerates the forms of business, for which banking companies may engage. For the present purpose, relevant clause would be, clause (a) and Clause (j) thereof, which read as under:- "(a) the borrowing, raising, or taking up of money; the lending or advancing of money either upon or without security; the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hoondees, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scripts and other instruments and securities whether transferabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated in Clause (a) of Sec. 6, have to be undertaken, with the public at large, and not confined to the members or share holders, or otherwise, limited category of the persons. Section 6 also catalogs various other activities, where it is intended to comprehend limited dealings also, and where such activities provides, it is provided with specific constrains. In that regard, we may come to clause (j),which permits, establishing and supporting or aiding in the establishment and support of associations, institutions, funds, trust and companies calculated to benefit the employees or ex-employees of the company, or the dependents, or connections, of such persons; granting pensions and allowances, and making payments towards insurance; subscribing to or guaranteeing moneys for charitable or benevolent objects. Again these activities are not intended to be qua the public, but it is intended to be, for the purpose of employees, or ex- employees of the companies or the dependents of such persons. Thus, where the activity was permitted to be undertaken by the Bank, as a form of business, in which it may engage, qua the employees, it was specifically provided in Sec. 6 (j). 13. With this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be any part of the banking activity of assessee as a bank, as such. 16. Firstly, this type of activity is not comprehended by Sec. 6 (j) of the Act of 1945. Secondly, it is not a part of the scheme of the Bank, as the Bank, where this facility is provided to the employees of the assessee bank, who happened to be bank, as an employer to the employees, and one of the facility is available, only to the confirmed permanent employee of the assessee. Thirdly the Registrar, as such, is not concerned with any banking activity of the assessee society. The Registrar as such has control over the assessee, being a cooperative society, under the provisions of Rajasthan Co-operative Society Act only, and the Registrar has not given any directions to the assessee Society, in the matter of undertaking banking activity, rather the scheme has been approved only for providing facilities to the employees by the employer, the assessee, who happens to be the Bank. 17. In other words, the activity of the bank, in advancing loans to be house building loans, or the PF loans, was not the advancement to the customers of the bank, as such, who may have happened to be the employees, as well; but th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from carrying on the business of bank, the assessee is also running any training institute for training of the persons, in the banking industry, for providing services of trained persons to other banks. 20. In this case the learned judge of the Allahabad High court relied upon the judgment of the Bombay High court in CIT Vs. Ahmednagar District Central Co-operative Bank Ltd., where the commission earned by the 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, likewise, reliance was also placed on a judgment of Karnataka High Court in CIT Vs. Grain Merchants Co-operative Bank Ltd where rent received form the Co-operative bank from letting out portions of building was exempt. 21. In our view, this judgment does not help the case of the assessee. So far as the judgment in Grain Merchants case is concerned, income considered therein is covered by different clauses of Sec. 80P, and therefore that is of no relevance. While in Ahmednagar District Central Co-operative Bank's case there was no doubt, that the amounts came to the assessee in its functioning, as a bank o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was found, that the assessee Cooperative Bank was to place part of its funds with the State Bank or the Reserve Bank of India, to enable it to carry on its Banking business, and it was held, that that being so, any income derived from fund, so placed, arise from the business, carried on by it, and the amount is exempt. It was further held that placement of such fund, being imperative, for the purpose of carrying on banking business, the income derived therefrom, would be income, from the assessee's business. Thus, we find that it could be one category of income, capable of being claimed exemption, if the income was to arise from an act, which was imperative for assessee, to be done for the purpose of carrying on its banking business. We may repeat, that advancing loan against PF deposit, or advancing house building loan, was not at all imperative for the assessee Bank, to enable it to carry on its banking business. 25. In our view, an advancement of loan to the employee was not in the capacity of the banker, but was in the capacity of it being an employer to its employees, in the form of loan against PF deposits, and for the loan for house building. Admittedly, interest in que ..... X X X X Extracts X X X X X X X X Extracts X X X X
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