JUDGMENT
S. H. Kapadia, J.
1. The above four references under Section 256(1) of the Income-tax Act, 1961, raise a common question of law which has been referred to us for our opinion. I. T. R. No. 153 of 1998 concerns the assessment year 1982-83, I. T. R. No. 280 of 1997 concerns the assessment years 1988-89 and 1989-90, 1. T. R. No. 428 of 1997 concerns the assessment years 1986-87 to 1989-90 and I. T. R. No. 149 of 1998 concerns the assessment year 1991-92.
2. For the sake of convenience, the facts in Income-tax Reference No. 153 of 1998 are set out hereinbelow.
3. The assessee Ahmednagar District Central Co-operative Bank Ltd., is a cooperative society carrying on business of banking. The whole amount of profits and gains attributable to the business of banking was not included by the assessee in its income under Section 80P(1) read with Section 80P(2)(a)(i) of the Act. During the assessment year 1982-83, the assessee-bank earned income by way of commission from the Maharashtra State Electricity Board and from Mula Pravara Co-operative Society (MFCS) for collecting electricity bills from the public on their behalf. It was contended by the assessee that the commission earned from the aforestated two public undertakings was income derived from business of banking and, as such, the said income was exempt under Section 80P(2)(a)(i) of the Act. According to the assessee, collection of electricity bills was a facility extended by the bank to its customers. According to the assessee, such an activity was a part of banking business. These contentions of the assessee were not accepted by the Income-tax Officer. The assessment order was confirmed by the Commissioner of Income- tax (Appeals) on the ground that the income by way of commission was not the income from banking business and, as such, the assessee was not entitled for exemption under Section 80P(2)(a)(i) of the Act. However, the Tribunal allowed the appeal. Hence, this reference.
4. In the circumstances, the following question has been referred to us for our opinion :
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income by way of commission from MSEB and MPCS is attributable to business of banking and as such relief under Section 80P(1) read with Section 80P(2)(a)(i) was allowable to the assessee ?”
Arguments :
5. Mr. R. V. Desai, learned senior counsel appearing on behalf of the Department, invited our attention to Section 5(b) as also Section 6(1)(b) of the Banking Regulation Act, 1949. He submitted that the word “banking” has been defined under Section 5(b) to mean acceptance of deposits from public repayable on demand or otherwise whereas, Section 6(1) states that in addition to the business of banking, a banking company may engage in one or more forms of business enumerated in Section 6(1)(a) to (o). He, therefore, contended that for the purposes of granting relief to the assessee under Section 80P(2)(a)(i) of the Income-tax Act, one has to interpret the word “banking” in Section 80P(1) read with Section 80P(2)(a)(i) in the light of Section 5(b) alone and the words “business of banking” in Section 80P(2)(a)(i) of the Income-tax Act are not referable to the forms of business of banking as enumerated in Section 6(1)(a) to (o). In other words, it was submitted that while claiming exemption/relief under Section 80P(2)(a)(i), the assessee has to show that the activity undertaken by the bank constituted a part of banking as defined under Section 5(b). However, if the activity in question does not form part of banking as defined under Section 5(b) then the assessee would not be entitled to the benefit of exemption under the said section by resorting to Section 6(1)(a) to (o). In the alternative, it was submitted that even if the court comes to the conclusion that the activities enumerated in Section 6(1)(a) to (o) form part of banking business even then one has to scrutinize the nature of each of the activities/forms of business enumerated in Section 6(1)(a) to (o) and on such verification if the Assessing Officer finds, on the facts, that the particular activity has a close proximity to banking business then alone such activities/forms of business under Section 6(1)(a) to (o) would attract the benefit of exemption under Section 80P(2)(a)(i).
Findings :
6. At the outset, we would like to deal with the main contention advanced on behalf of the Department. Section 5(b) defines “banking” to mean acceptance of deposits for the purpose of lending or investment whereas, Section 6(1) states, inter alia, that in addition to the business of banking, a banking company may engage in the following forms of business as enumerated in Section 6(1)(a) to (o). Therefore, there is a clear dichotomy between the business of banking and other forms of business. To take an example, under Section 6(1)(a) providing of safe deposit vaults to the customer is mentioned. In the case of Mehsana District Central Co-operative Bank Ltd. v. ITO [2001] 251 ITR 522, the Supreme Court has held that the income derived by the co-operative bank by way of rent from the customer for enjoying safe deposit vault as a facility, would squarely come under Section 6(1)(a) of the Banking Regulation Act and that such income derived by the assessee-bank from hiring out safe deposit vaults was income from the business of banking and, therefore, deductible under Section 80P(2)(a)(i) of the Income-tax Act. Now, in the present case, MSEB and MPCS are the public undertakings. Both these public undertakings were the customers of the assessee-banks. They were having current account with the assessee-bank. The assessee-bank undertook on behalf of these two customers the work of collecting electricity dues from the consumers of electricity who were charged bills by the two public undertakings. This was a facility given by the assessee-bank to the aforestated two public undertakings who were their customers. Banking, today, covers a large number of activities. With globalisation, banking is not restricted to receiving deposits for the purposes of lending. Banks offer various facilities to its customers. They provide lockers, safe deposit vaults, finance for margin trading, collecting dues and charges for and on behalf of the Government, local authority, MTNL, BEST, MSEB, etc. Section 6(1)(a) of the Banking Regulation Act is an enabling provision. It provides for various forms of business akin to banking. Therefore, Section 6(1) states, inter alia, that in addition to the banking business, a banking company may engage in specified forms of business enumerated in Section 6(1)(a) to (o). We are confining our case to the activity of the bank collecting charges for and on behalf of MSEB, MPCS for commission/fees. The construction put by the Department on the word “banking” is very narrow. It is true that, in this case, we are required to consider the benefit of exemption under Section 80P(2)(a)(i). It is equally true that the said section is required to be read in the strict sense. However, the judgment of the Supreme Court in the case of Mehsana District Central Co-operative Bank Ltd. [2001] 251 ITR 522 shows that the word “banking” is not restricted only to accepting deposits from customers for the purposes of lending and that the word “banking” has been interpreted by the Supreme Court to cover even rent charged by the banks for hiring out safe deposit vaults to its customers. In the circumstances, we hold that income earned by the assessee-bank by way of commission/fees from its customers being public sector undertakings would be exempt under Section 80P(2)(a)(i). Our view is also supported by Section 6(1)(b) of the Banking Regulation Act, 1949, which states that in addition to the business of banking, a banking company may engage itself as agent for Government or local authority or any other person for giving receipts and discharges that is to say for collecting electricity bills from the customers for and on behalf of MSEB and MPCS.
7. Before concluding, we wish to clarity that we find merit in the alternative argument advanced on behalf of the Department that each activity/form of business enumerated in Section 6(1) has to be scrutinised. That, per se, the activities/forms of business enumerated in Section 6(1)(a) to (o) may not attract the reliefs under Section 80P(2)(a)(i), We are, therefore, confining our judgment to the facts of this case which we have decided in the light of the judgment of the Supreme Court in the case of Mehsana District Central Co-operative Bank Ltd. [2001] 251 ITR 522.
ORDER
(a) Accordingly, we answer the above quoted question in the affirmative, i.e., in favour of the assessee-bank and against the Department.
(b) All the above references are accordingly disposed of with no order as to costs.