The Kalupur Commercial Co.Op.Bank Ltd., Ahmedabad V. The Income tax Officer,Ward-7(3), Ahmedabad

ITA 1124/AHD/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0705 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 07-07-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 15-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Section: 143(3)

Judgement Text

ITA NO . 1124 / AHD/20 1 1 A.Y. 200 6 - 07 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH, AHMEDABAD BEFORE SHRI ANIL CHATURVEDI , ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ITA NO. 1124 / AHD /201 1 ASSESSMENT YEAR : 200 6 - 07 THE KALUPUR COMMERCIAL CO - OP. VS. INCOME TAX OFFI CER, BANK LIMITED, WARD 7(2), AHMEDABAD. KALUPUR BANK BHAVAN, NR. INCOME TAX, ASHRAM ROAD, AHMEDABAD 380 014. [PAN A A A AT 9360 R ] (APPELLANT ) (RESPONDENT) A PPELLANT BY : SHRI S.N. SOPARKAR, A.R. RE SPONDENT BY : S HRI PRASOON KABRA, SR. D.R. DATE OF HEARING : 0 7 .0 7 . 20 16 DATE OF PRONOUNCEMENT : 23 . 0 8 .2016 O R D E R PER S.S. GODARA , J.M. TH IS ASSESSEE S APPEAL FOR A SSESSMENT Y EAR 200 6 - 07 , ARISE S FROM ORDER OF THE CIT(A) - VI , AHMEDABAD DATED 2 8 .0 3 .201 1 , PA SSED IN CASE NO.CIT(A) - VI/ ITO.WD.7(2)/18/08 - 09 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE RAISES FOLLOWING SUBSTANTIVE GROUNDS: - (1) THE LEARNED COMMISSIONER OF INCOME T A X ( A PPEALS ) VI, AHMEDABAD HAS ERRED BOTH IN LAW AND ON FACTS OF THE CA S E IN FRAMING APPELLATE ORDER U/S.250 OF THE I.T. ACT FOR A.Y. 2006 - 07 ON 28 TH DAY OF MARCH , 2011 (2) THE LEARNED CIT(A) XVI , AHMEDABAD HAS ERRED IN CONFIRMING THE ADDITIONS MADE BY ASSESSING OFFICER AS UNDER ON THE FINDING THAT SAID ACTIVITIES AR E NOT BANKING BUSINESS. ITA NO . 1124 / AHD/20 1 1 A.Y. 200 6 - 07 PAGE 2 OF 6 SR. NO. NATURE OF DISALLOWANCE AMOUNT (A) D E MAT CHARGES RS.1,58,61,020 (B) COMMISSION ON SP. ADHESIVE STAMPS RS.36,30,480 (C) INTEREST ON LOAN GIVEN TO EMPLOYEES RS.23,44,098 (3) THE LEARN ED CIT ( A ) HAS ERRED IN NOT ADJUDICATING UPON GROUND RELATING TO INITIATION OF PEN A LTY PROCEEDING 3. THE ASSESSEE IS A CO - OPERATIVE BANK. IT FILED RETURN ON 26.12.2006 DECLARING NIL INCOME. IT CLAIMED SECTION 80P DEDUCTION INTER ALIA ON DEMAT CHARGES, SPECIAL ADHESIVE STAMPS AND INTEREST INCOME DERIVED FROM LOANS GIVEN TO EMPLOYEES. THE ASSESSING OFFICER REJECTED THE SAME IN ALL THE ISSUES IN HIS ORDER DATED 30.12.2008 INTER ALIA HOLDING THAT DEMAT AND SPECIAL ADHESIVE STAMP COLLECTION CHARGES DID NOT FORM PART OF THE BANKING BUSINESS. HE CONCLUDED ON THE THIRD ISSUE OF INTEREST ON LOANS GIVEN TO EMPLOYEES THAT THE SAME WAS NOT ALLOWABLE UNDER SECTION 80P OF THE ACT. 4. THE CIT(A) CONFIRMS ASSESSING OFFICER S ACTION ON ALL THREE COUNTS AS UNDER : - 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND APPELLANT'S SUBMISSION. ASSESSING OFFICER DID NOT ALLOW DEDUCTION UNDER SECTIO N 80 P TO THE APPELLANT ON FOLLOWING INCOMES TREATING THE SAME AS NOT PART OF BANKING BUSINESS 1 - GEB BILL CO LLECTION COMMISSION R S. 72,240 2 - D MAT CHARGES R S. 1,58,61,020 3 - COMMISSION ON SPECIAL ADHESIVE STAMPS R S. 36,30,480 4 - INTERES T ON LOAN GIVEN TO EMPLOYEES R S. 23,44,098 SINCE RULE 6 (1) OF BANKING REGULATION ACT STARTS WITH' IN ADDITION TO THE BUSINESS OF BANKING' ASSESSING OFFICER TREATED OTHER ACTIVITIES REFERRED ABOVE AS NONBANKING ACTIVITIES AND DID NOT ALLOW DEDUCTION UNDER SECTION 80 P. IT IS NOT IN DISPUTE THAT ALL THE ACTIVITIES UNDERTAKEN BY THE BANKS OR PERMITTED FOR THE BANK BY RBI ARE NOT BANKI NG ACTIVITIES. BANKING ACTIVITY INVOLVES DEPOSIT AND LENDING OF MONEY AND THEREFORE ALL OTHER ACTIVITIES UNDERTAKEN BY THE BANK CANNOT BE TREATED AS BANKING ACTIVITY JUST BECAUSE RBI ALLOWS BANKS TO CARRY OH THESE ACTIVITIES IN ADDITION TO BUSINESS OF BANK ING. THEREFORE ALLOWABILITY OF DEDUCTION UNDER SECTION 80 P IN RESPECT OF INCOME FROM THESE ACTIVITIES IS TO BE DISCUSSED SEPARATELY. ITA NO . 1124 / AHD/20 1 1 A.Y. 200 6 - 07 PAGE 3 OF 6 1 - AS REGARDS INCOME FROM GEB BILL COLLECTION COMMISSION, APPELLANT SUBMITTED DECISION OF PUNE TRIBUNAL IN THE CASE O F AHMEDNAGAR DISTRICT CENTRAL CO - OPERATIVE BANK LTD . VS . ITO, 33 ITD 683. THIS DECISION IS CONFIRMED BY BOMBAY HIGH COURT REPORTED IN 132 TAXMAN 226. IN THE SAID DECISION COMMISSION INCOME FROM ELECTRICITY COMPANY FOR COLLECTION OF BILLS WAS TREATED AS IN COME ATTRIBUTABLE TO BUSINESS OF BANKING AND DEDUCTION UNDER SECTION 80 P WAS ALLOWED. SINCE FACTS OF THE APPELLANT ARE IDENTICAL AS FAR AS COMMISSION ON COLLECTION OF ELECTRICITY BILLS IS CONCERNED, THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDU CTION UNDER SECTION 80 P ON THIS INCOME. 2 - AS REGARDS D MAT CHARGES, APPELLANT TRIED TO LINK IT WITH SAFE DEPOSIT LOCKERS CHARGES ON WHICH HONOURABLE SUPREME COURT IN THE CASE OF MEHSANA DISTRICT CENTRAL CO - OPERATIVE BANK LTD HELD THAT THE PROVISION OF SAFE DEPOSIT VAULTS IS PART OF ORDINARY BANKING BUSINESS OF THE BANK. THEREFORE THE INCOME DERIVED FROM HIRING SAFE - DEPOSIT VAULT IS INCOME FROM BANKING BUSINESS ON WHICH DEDUCTION UNDER SECTION 80 P IS ALLOWED. HOWEVER THE DEPOSITORY FACILITY FOR SHARES A ND SECURITIES PROVIDED BY THE APPELLANT IS NOT PARALLEL TO PROVIDING SAFE DEPOSIT VAULTS. THESE SERVICES STARTED AFTER THE AFORESAID DECISION OF APEX COURT. THESE SERVICES ARE PROVIDED BY SHARE BROKERS ALSO WHO ARE NOT AT ALL CONNECTED WITH BANKING BUSINES S. SINCE D MAT SERVICES ARE RELATING TO TRANSACTIONS IN SHARES AND SECURITIES AND HANDLING OF DELIVERIES CONSEQUENT THEREOF, THESE ARE THE SERVICES RELATING TO CAPITAL MARKET. THE SERVICES ARE NOT REGULATED BY RBI BUT THE SAME IS GOVERNED BY SEBI. THEREFOR E BY NO STRETCH OF IMAGINATION D MAT SERVICES CAN BE TREATED AS PART OF BANKING BUSINESS. BANK MAY PROVIDE THE SERVICES FOR COMMISSION BUT THAT DOES NOT MEAN THAT IT WILL BECOME PART OF BANKING BUSINESS. SINCE THESE SERVICES HAVE NOTHING TO DO WITH BANKING BUSINESS, THESE ARE ALSO PROVIDED BY STOCKBROKERS AND SEBI AS AGAINST RBI REGULATES THE SERVICES, I DO NOT FIND ANY MERIT IN APPELLANT'S ARGUMENT. THE DECISION RELIED UPON DOES NOT APPLY TO INCOME FROM D MAT SERVICES. ACCORDINGLY APPELLANT IS NOT ENTITLED TO CLAIM DEDUCTION UNDER SECTION 80 P ON THIS INCOME. THE DISALLOWANCE IS THEREFORE CONFIRMED. 3 - AS REGARDS INCOME ON ACCOUNT OF SPECIAL ADHESIVE STAMP, THIS ACTIVI TY ALSO STARTED MUCH LATER AND T HE SAME IS NOT MENTIONED IN RULE 6 (1). THE SERVICES CAN BE PROVIDED BY STAMP VENDORS OR ANY PERSON AUTHORIZED TO PROVIDE THE SERVICES. THESE ARE NOT EXCLUSIVELY PROVIDED BY BANKS THEREFORE IF CANNOT BE SAID T HA T INCOME FROM T HE SERVI CE IS FROM BANKING BUSINESS. SINCE THERE IS NO BANKING ACTIVITY INVOLVED IN S ELLING SPECIAL ADHESIVE STAMPS AND THESE ARE NOT INCIDENTAL TO T HE BUSINESS OF BANKING, SUCH INCOME CANNOT BE CONSIDERED AS PART OF BANKING BUSINESS. ACCORDINGLY T HE DEDUCTION CLAIMED BY T HE APPELLANT IS NOT CORRECT AND ADDITION MADE BY T HE ASSESSING OFFIC ER IS CONFIRMED, 4 - AS REGARDS INTEREST ON LOAN EARNED FROM EMPLOYEES, T HE ISSUE IS CO VERED AGAINST THE APPELLANT BY T HE DECISION OF RAJAS T HAN HIGH COURT REFERRED BY T HE ASSESSING OFFICER. THE DECISION IS DATED 17 - 12 - 2008. IT IS HELD THAT ASSESSEE BANK CA NNOT TREAT ITS OWN STAFF AS MEMBERS OF T HE SOCIETY AND INTEREST INCOME EARNED BY ADVANCING HOUSING LOANS AND LOANS FROM PF DEPOSITS CANNOT BE EXEMPTED UNDER SECTION 80 P. APPELLANT SUBMITTED THAT ITS EMPLOYEES ARE NOMINAL MEMBERS HENCE THIS DECISION DOES N OT APPLY. I DO NOT AGREE WITH THE APPELLANT SINCE THE FACTS IN THAT DECISION AS WELL AS OF THE APPELLANT ARE SAME AND THEREFORE THIS DECISION SQUARELY ITA NO . 1124 / AHD/20 1 1 A.Y. 200 6 - 07 PAGE 4 OF 6 APPLIES TO THE APPELLANT. JUST BY MAKING EMPLOYEES NOMINAL MEMBERS, THEIR STATUS WILL NO T CHANGE. THEY WI LL REMAIN EMPLOYEES AND NOT MEMBERS. ACCORDINGLY THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFIRMED. 5. BOTH THE LEARNED REPRESENTATIVES STRONGLY RELIED ON THEIR RESPECTIVE PLEADINGS AGAINST AND IN SUPPORT OF THE CIT(A) S ORDER EXTRACTED HEREIN ABOVE. 6. WE COME TO THE FIRST ISSUE OF SECTION 80P DEDUCTION ON DEMAT CHARGES AMOUNTING TO RS.1,58,61,020/ - . THERE IS NO DISPUTE THAT THE STOCK & EXCHANGE BOARD OF INDIA (SEBI) HAS ALREADY CERTIFIED THE ASSESSEE UNDER THE (DEPOSITORIES AND PARTICIPANTS ) REGULATIONS. THE ASSESSEE COLLECTS DEMAT CHARGES IN QUESTION IN FURTHERANCE THEREOF FOR OPENING DEMAT ACCOUNTS I.E. DEMATERIALISED FORM OF ITS CUSTOMERS ACCOUNT IN RELATION TO SECURITY TRANSACTIONS AND DEPOSITORIES SERVICES. THE ASSESSEE HAS TO FOLLOW A FEE SC HEDULE IN THIS REGARD FOR COLLECTING THE IMPUGNED DEMAT CHARGES. WE DEEM IT APPROPRIATE TO EXTRACT SECTION 6(1) OF THE BANKING REGULATION ACT READING AS FOLLOWS : - 6. FORM AND BUSINESS IN WHICH B ANKING COMPANIES MAY ENGAGE (1) IN ADDITION TO THE BUSIN ESS OF BANKING, A BANKING COMPANY MAY ENGAGE IN ANY ONE OR MORE OF THE FOLLOWING FORMS OF BUSINESS, NAMELY, - (A) THE BORROWING, RAISING, OR TAKING UP OF MONEY; THE LENDING OR ADVANCING OF MONEY EITHER UPON OR WITHOUT SECURITY; AND DRAWING, MAKING, ACCEPT ING, DISCOUNTING, BUYING, SELLING, COLLECTING AND DEALING IN BILLS OF EXCHANGE, BUNDLES, PROMISSORY NOTES, COUPONS, DRAFTS, BILL OF LADING, RAILWAY RECEIPTS, WARRANTS, DEBENTURES, CERTIFICATES, SCRIPS AND OTHER INSTRUMENTS, AND SECURITIES WHETHER TRANSFERA BLE OR NEGOTIABLE OR NOT; THE GRANTING AND ISSUING OF LETTERS O F CREDIT, TRAVELLERS' CHEQUES AND CIRCULAR NOTES; THE BUYING, SELLING AND DEALING IN BULLION ARID SPECIE; THE BUYING AND SELLING OF FOREIGN EXCHANGE INCLUDING FOREIGN BANK NOTES ; THE ACQUIRING, HOLDING, ISSUING ON COMMISSION, UNDERWRITING AND DEALING IN STOCK, FUNDS, SHARES, DEBENTURES, DEBENTURE STOCK, BONDS, OBLIGATIONS, SECURITIES AND INVESTMENTS OF ALL KINDS: THE PURCHASING AND SELLING OF BONDS, SCRIPS OR O THER FORMS OF SECURITIES ON BEHALF OF CONSTITUENTS OR OTHERS ; THE NEGOTIATI NG OF LOAN AND ADVANCES; THE R ECEIVING OF ALL KINDS OF BONDS, SCRIPS OR VALUABLES ON DEPOSIT OR FOR SAFE CUSTODY OR OTHERWISE; PROVIDING OF SAFE DEPOSIT VAULTS; THE COLLECTING AND TRANSMITTING OF MONEY AND SECURITIES ; ( B ) ACTING S AGENTS FOR ANY GOVERNMENT OR LOCAL A U T HORITY OR ANY OTHER PERSON OR PERSONS; THE C A RRYING ON OF AGENCY BUSINESS OF ANY DESCRIPTION INCLUDING T HE ITA NO . 1124 / AHD/20 1 1 A.Y. 200 6 - 07 PAGE 5 OF 6 CLEARING AND FORWARDING OF GOODS, GIVING OF RECEIPTS AND DISCHARGES AND OTHERWISE ACTING AS AN ATTORNEY ON BEH A LF OF CUSTOMERS, BUT EXCLUDING THE BUSINESS OF A [MANAGING AGENT OR S ECRET A RY AND TRE A SURER] OF A COMP A NY. 6.1 A PERUSAL OF THE ABOVE EXTRACTED PROVISION MAKES IT CLEAR THAT THESE DEMAT CHARGES ARE FOR MAINTAINING DEMATERIALISED FORM OF ASSESSEE S INVESTMENTS MADE IN SECURITIES AT ITS CUSTOMER S 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 CHARGE S COLLECTION. H ON BLE APEX COURT IN (2001) 251 ITR 522 (SC) MEHSANA DISTRICT CO - OPERATIVE BANK VS. ITO ALLOWS SECTION 80P DEDUCTION IN CASE OF SAFE DEPOSIT VAULTS COVERED UNDER SECTION 6 EXTRACTED HEREINABOVE. WE DRAW SUPPORT THEREFROM TO OBSERVE THAT TH E 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. 7. WE COME TO THE NEXT ISSUE OF ASSESSEE S INCOME ON ACCOUNT OF SPECIAL ADHESIVE STAMP FRANKIN G CHARGES OF RS.36,30,480/ - AS DERIVED @ 1% COMMISSION THEREUPON. PAGE 19 OF THE PAPER BOOK CONTAINS FRANKING MACHINE AUTHORISATION AS ISSUED BY THE CHIEF CONTROLLING REVENUE AUTHORITIES, GUJARAT STATE, GANDHI NAGAR. WE NOTICE THAT THIS AMOUNT S TO CONFERR ING 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 IMPUG NED SECTION 80P DEDUCTION. 8. THIS LEAVES US WITH THE THIRD AND FINAL ISSUE OF SECTION 80P DEDUCTION ON INTEREST INCOME OF RS.23,44,098/ - ON LOANS GIVEN TO EMPLOYEES. BOTH THE LOWER AUTHORITIES HOLD THAT THE SAME IS NOT ADMISSIBLE IN CASE OF INTEREST EA RNED FROM EMPLOYEES AS PER HON BLE RAJASTHAN HIGH COURT S DECISION ( 2009) 221 CTR 395 CIT VS. SIROHI SBV BANK LTD. THEY ITA NO . 1124 / AHD/20 1 1 A.Y. 200 6 - 07 PAGE 6 OF 6 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 MEMBER S. 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 PRO VISION TO BE LIBERALLY CONSTRUED. WE C O N C LUDE 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. 9. OUR VIEW IS THAT THE LATTER STATUS IS NOT SIGNIFICAN T 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. 10. IN THE RESULT, THIS ASSESSEE S APPEAL SUCCEEDS. P RONOUNCED IN THE OPEN COURT TODAY ON THE 23 RD DAY OF AUGUST , 2016. SD/ - SD/ - ANIL CHATURVEDI S.S. GODARA (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, THE 23 RD DAY OF A UGUST , 2016 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMIS SIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD