Translate
Text Highlighter

Bookmark

PDF

Share

Report a problem
AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • A.K Mathur C.J
  • S.K Kulshrestha, J.
Acts
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Click here to upload
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • A.K Mathur C.J
  • S.K Kulshrestha, J.
Acts
See more information ...
Smart Summary

Analytical Summary of the Opinion — Income-tax Reference (Section 256(1))

Factual and Procedural Background

This is an income-tax reference under Section 256(1) of the Income-tax Act, 1961, initiated by the Revenue. The Tribunal referred four specific questions of law to this court concerning whether various items of income received by the assessee (a co-operative society primarily engaged in banking) for assessment years 1983-84 to 1986-87 were exempt under Section 80P of the Income-tax Act, 1961.

The assessee filed returns claiming exemption under Section 80P. The Assessing Officer treated certain receipts as income from other sources and made additions. The assessee appealed to the Deputy Commissioner of Income-tax (Appeals), who, following earlier Tribunal orders in the assessee's own case for prior years, deleted the additions and allowed the appeals. The Department (Revenue) appealed to the Tribunal, which, relying on its prior decisions and decisions of the High Court of Madhya Pradesh, dismissed the departmental appeals. The Department then caused the present reference to this court on the four questions of law.

Legal Issues Presented

  1. Whether the Tribunal was correct in law in holding that the income from locker rent (Rs. 9,496; Rs. 18,340; Rs. 17,310; Rs. 20,116 for assessment years 1983-84 to 1986-87 respectively) is entitled to exemption under Section 80P of the Income-tax Act, 1961?
  2. Whether the Tribunal was correct in law in holding that the income from house rent (Rs. 4,239 and Rs. 11,007 for assessment years 1984-85 and 1985-86 respectively) is entitled to exemption under Section 80P of the Income-tax Act, 1961?
  3. Whether the Tribunal was correct in law in holding that the income from miscellaneous receipts (Rs. 10,373; Rs. 6,984; Rs. 14,662; Rs. 8,002 for assessment years 1983-84 to 1986-87 respectively) is entitled to exemption under Section 80P of the Income-tax Act, 1961?
  4. Whether the Tribunal was correct in law in holding that the income from interest on securities earmarked to reserve fund and gratuity (Rs. 61,400; Rs. 52,775; Rs. 49,625; Rs. 50,820 for assessment years 1983-84 to 1986-87 respectively) is entitled to exemption under Section 80P of the Income-tax Act, 1961?

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT v. Dhar Central Co-operative Bank [1984] 149 ITR 438 Held that, in a normal situation, various receipts (commission, brokerage by dealing in bills of exchange, subsidy from Government, admission fee from members, incidental charges and financial penalties) are attributable to banking/business of providing credit and hence deductible under Section 80P. The court relied on this decision to support the conclusion that the assessee's miscellaneous receipts, described by the Tribunal as attributable to banking business, were exempt under Section 80P.
Bhopal Co-operative Central Bank v. CIT [1988] 169 ITR 573 (Division Bench) Held that income from locker rent cannot be correlated to any of the activities which fall within the definition of "banking" and hence is not entitled to exemption under Section 80P(2)(a)(i) but will be governed by Section 80P(2)(c). The court directly applied this Division Bench judgment to answer Question (i), concluding locker rent is governed by Section 80P(2)(c) and not by the enumerated banking activities in Section 80P(2)(a)(i).
CIT v. Bhopal Co-operative Central Bank Ltd. [1987] 164 ITR 713; [1988] 172 ITR 423 This opinion cites these decisions of the High Court of Madhya Pradesh as authorities relied upon by the Tribunal; the text does not reproduce specific headnotes for these entries. The Tribunal had followed these decisions when maintaining the orders of the Deputy Commissioner of Income-tax (Appeals); the court noted these authorities as part of the background for the Tribunal's view.
CWT v. Jambukumarsingh Kasliwal [1987] 166 ITR 623 Listed among authorities relied upon by the Tribunal; the opinion does not state a specific principle from this decision. Referenced as one of the decisions the Tribunal followed in dismissing departmental appeals; no further distinct application is detailed in the opinion.
M.P. Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 (Supreme Court) Interpreted Section 81 (now Section 80P) and held that securities earmarked to reserve funds (including interest on Government securities placed with SBI or RBI) are not part of the business of banking and therefore interest thereon is not exempt under Section 81/80P. The court relied on this Supreme Court decision to answer Question (iv), holding that interest on such securities is not exempt and answering the question against the assessee and in favour of the Revenue.
CIT v. P.K. Jhaveri [1990] 181 ITR 79 (SC) Mentioned by the assessee's counsel in argument; the opinion does not quote a specific rule from this case within the text. The court observed that this decision (and similar ones cited by the assessee's counsel) did not provide assistance on the reference and did not alter the court's reliance on the Supreme Court decision in M.P. Co-operative Bank Ltd.
Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 (SC) Mentioned by the assessee's counsel in argument; the opinion does not reproduce a specific principle from this case within the text. The court noted that this authority, cited by the assessee's counsel, did not assist in answering the reference in light of the Supreme Court's later decision on Section 81/80P.

Court's Reasoning and Analysis

The court addressed each of the four referred questions by applying statutory language of Section 80P (and its subclauses) and by relying on earlier authoritative decisions. The court's approach was to identify whether each item of income was "attributable to" activities enumerated in Section 80P(2)(a)(i) to (v) (the provisions describing activities that qualify as banking or providing credit facilities), and to apply binding or persuasive precedents where those interpretive questions had already been resolved.

Question (i) — Locker rent

The court relied on the Division Bench decision in Bhopal Co-operative Central Bank v. CIT [1988] 169 ITR 573, which held that income from locker rent cannot be correlated to any activities falling within the definition of "banking" for the purposes of Section 80P(2)(a)(i) and is instead governed by Section 80P(2)(c). On that basis the court answered the question in accordance with that judgment.

Question (ii) — House rent

The court examined the enumerated activities in Section 80P(2)(a)(i)–(v) and concluded that house rent does not fall within any of those clauses; therefore house rent cannot be said to be attributable to banking activities. The court answered Question No. 2 against the assessee and in favour of the Revenue.

Question (iii) — Miscellaneous receipts

The court observed that the nature of the miscellaneous receipts was not specified in the opinion text, but that the Tribunal had described them as attributable to the banking business. Because there were concurrent findings by the three courts below that these receipts were attributable to banking activity, and because this view was supported by the Division Bench decision in CIT v. Dhar Central Co-operative Bank [1984] 149 ITR 438 (which exemplified that various incidental receipts are attributable to banking), the court adopted the same view and held these receipts to be exempt under Section 80P.

Question (iv) — Interest on securities (earmarked to reserve fund and gratuity)

The court relied on the Supreme Court decision in M.P. Co-operative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438, which interpreted Section 81 (now Section 80P) and held that securities earmarked to reserve funds (including Government securities placed with SBI or RBI) are not part of the business of banking and thus interest thereon does not qualify for exemption. The court applied that authority and answered Question No. (iv) against the assessee and in favour of the Revenue. The court considered, and rejected as unhelpful to this reference, the points raised by the assessee's counsel invoking other Supreme Court decisions.

Holding and Implications

The court answered the reference as follows:

  1. Question No. (i) (locker rent): Answered in accordance with Bhopal Co-operative Central Bank v. CIT — the court followed that Division Bench judgment. (Result: As per the cited authority, locker rent is governed by Section 80P(2)(c) rather than Section 80P(2)(a)(i).)
  2. Question No. (ii) (house rent): Answered against the assessee and in favour of the Revenue. House rent does not fall within the clauses enumerating banking activities and is therefore not exempt under Section 80P.
  3. Question No. (iii) (miscellaneous receipts): Answered in favour of the assessee and against the Revenue. The receipts were held to be attributable to banking activity and therefore exempt under Section 80P, consistent with concurrent findings below and the authority of CIT v. Dhar Central Co-operative Bank.
  4. Question No. (iv) (interest on securities earmarked to reserve fund and gratuity): Answered in favour of the Revenue and against the assessee. The Supreme Court's decision in M.P. Co-operative Bank Ltd. v. Addl. CIT precludes exemption for interest on such securities under Section 80P.

Reference is answered accordingly.

Consequences: The direct effect is that specific items of income (house rent and interest on the specified securities) are not exempt and are liable to tax treatment as held; miscellaneous receipts described as attributable to banking are exempt under Section 80P; locker rent is treated under Section 80P(2)(c) consistent with the Division Bench authority cited. The opinion relies on and applies existing Tribunal, High Court and Supreme Court authorities rather than announcing a new doctrinal principle; it therefore does not purport to create a novel precedent beyond the application of the cited decisions.

Show full summary ...

    Commissioner Of Income-Tax v. Jila Sahakari Kendriya Bank Maryadit

    1. This is an income-tax reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue and the Tribunal has referred the following four questions of law for answer by this court :

    " (i) Whether, on the facts and in the circumstance's of the case, the Tribunal is correct in law in holding that the income from locker rent at Rs. 9,496, Rs. 18,340, Rs. 17,310 and Rs. 20,116 for assessment years 1983-84, 1984-85, 1985-86 and 1986-87 are entitled to exemption under Section 80P of the Income-tax Act, 1961 ?

    (ii) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the income from house rent at Rs. 4,239 and Rs. 11,007 for assessment years 1984-85 and 1985-86 are entitled to exemption under Section 80P of the Income-tax Act, 1961 ?

    (iii) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the income from miscellaneous receipts at Rs. 10,373, Rs. 6,984, Rs. 14,662 and Rs. 8,002 for assessment years 1983-84, 1984-85, 1985-86 and 1986-87 are entitled to exemption under Section 80P of the Income-tax Act, 1961 ?

    (iv) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the income from interest on securities earmarked to reserve fund and gratuity at Rs. 61,400, Rs. 52,775, Rs. 49,625 and Rs. 50,820 for assessment years 1983-84, 1984-85, 1985-86 and 1986-87 are entitled to exemption under Section 80P of the Income-tax Act, 1961 ?"

    2. The assessee is a co-operative society primarily engaged in the banking business. The assessee filed returns claiming exemption under Section 80P of the Income-tax Act, 1961. The assessee had other sources of income which were not in the nature of banking. The Assessing Officer added income from other sources. Against the orders of the Income-tax Officer, the assessee went in appeal to the Deputy Commissioner of Income-tax (Appeals), who following the orders of the Tribunal dated May 6, 1986, in I. T. A. No. 219/(Nag) of 1982 for the assessment year 1977-78, dated February 6, 1987, in I. T. A. Nos. 761 to 763/(Nag) of 1984 and I. T. A. Nos. 975 and 976/(Nag) of 1985 for the assessment years 1978-79 to 1982-83, respectively, in the assessee's own case, held that no part of the income was taxable, deleted the additions and allowed the assessee's appeals. Aggrieved by the orders of the Deputy Commissioner of Income-tax (Appeals), the Department went in appeal to the Tribunal.

    3. The Tribunal observed that the issue in controversy is covered by the decisions of the Tribunal and by the decisions of the High Court of Madhya Pradesh in CIT v. Dhar Central Co-operative Bank [1984] 149 ITR 438 ; CIT v. Bhopal Co-operative Central Bank Ltd. [1987] 164 ITR 713 ; CIT v. Bhopal Co-operative Central Bank Ltd. [1988] 172 ITR 423 and CWT v. Jambukumarsingh Kasliwal [1987] 166 ITR 623. The Tribunal following the aforesaid decisions of the Tribunal and of the High Court of Madhya Pradesh maintained the orders of the Deputy Commissioner of Income-tax (Appeals) and dismissed the departmental appeals. Against these orders, the Department approached the Tribunal for making reference to this court and, accordingly, the aforesaid four questions of law have been referred by the Department to this court for answer.

    4. So far as the first question whether the Tribunal is correct in law in holding that the income from locker rent is entitled to exemption under Section 80P of the Act is concerned, it is directly answered by the judgment of this court in the case of Bhopal Co-operative Central Bank v. CIT [1988] 169 ITR 573. The Division Bench of this court in this case has taken the view (headnote) :

    " However, the income derived from locker rent cannot be correlated to any of the activities which may fall within the definition of 'banking' and hence the same is not entitled to exemption under Section 80P(2)(a)(i) but will be governed by Section 80P(2)(c)."

    5. Therefore, this question is accordingly answered in the light of the aforesaid judgment of the Division Bench of this court.

    6. As regards the second question, whether the house rent is entitled to exemption under Section 80P of the Act, suffice it to say that under Section 80P of the Act, the amount of profits should be attributable to one of the activities enumerated in Section 80P(2)(a)(i) to (v) of the Act. We have examined these items. So far as the house rent is concerned, it does not fall in any of these clauses. Therefore, it cannot be said that the house rent is attributable to the banking activities and, therefore, exemption cannot be made available to the assessee. We, therefore, answer question No. 2 against the assessee and in favour of the Revenue.

    7. Question No. (iii) relates to income from miscellaneous receipts. It is not known as to what is the nature of the receipts. According to the description which has been made by the Tribunal in its order, the receipts are attributable to the banking business. These receipts which are attributable to the banking business of the assessee are therefore entitled to exemption. There are concurrent findings of all the three courts below that the income from these receipts is attributable to the banking activity of the assessee. There is no reason to take a different view than the one taken by the three courts below in the matter. This is also supported by a decision of the Division Bench of this court in the case of CIT v. Dhar Central Co-operative Bank [1984] 149 ITR 438 where, in a normal situation, this question was answered in favour of the assessee and it was observed as under (at page 440) ;

    "Judged by this test, income earned by the assessee from commission and brokerage by dealing in bills of exchange, subsidy from Government, admission fee from members, incidental charges and financial penalties, is all attributable to the business of banking or providing credit facilities to its members and, hence, deductible under Section 80P of the Act."

    8. Question No. (iii) is, therefore, answered against the Revenue and in favour of the assessee.

    9. Question No. (iv) relates to income from interest on securities earmarked to reserve fund and gratuity and whether such incomes are entitled to exemption under Section 80P of the Act. This question has been directly answered in the decision in the case of M.P. Co-operative Bank Ltd. v. Addl. CIT [19961 218 ITR 438 (SC), wherein their Lordships of the Supreme Court have interpreted Section 81 (now Section 80P) of the Act and held that such securities are not part of the business of banking and, therefore, the exemption cannot be given. Their Lordships of the Supreme Court observed thus (headnote) :

    " The object of Section 81 of the Income-tax Act, 1961, is to encourage the co-operative movement in the country by providing tax exemption to those co-operatives engaged in activities set out in Clauses (a) to (f) thereof. One such activity is the carrying on of the business of banking or providing credit facilities to its members by a co-operative society. The section therefore, provides that income-tax shall not be payable by a cooperative society in respect of the profits and gains of business carried on by it, if it arises from the business of banking or providing credit facilities for its members. However, if such a co-operative society also engages itself in activities other than the business of banking or providing credit facilities the profits derived from such business shall not be exempt from tax if it exceeds rupees fifteen thousand. It is, therefore, obvious that the entire income derived by a co-operative society from the business of banking or providing credit facilities to its members is exempt from income-tax, but if that society also engages itself in any other activity and earns profit therefrom, the income so derived becomes liable to assessment and payment of income-tax if it exceeds the ceiling amount. The normal banking activity is to receive deposits and utilise such deposits by advancing loans, etc., to borrowers. Since the rate at which interest is paid to depositors is lower than the rate charged from borrowers, the difference in the rates generated income for the banks. The banks may have to maintain certain reserves to meet emergencies, e.g., a spurt in withdrawals by depositors for diverse reasons. Investments which permit withdrawals at short notice would, therefore, be a part of the requirement of banking business and interest accruing on such investments would be outside the tax net."

    10. It is also observed (headnote) :

    " Hence, the interest on Government securities placed with the State Bank of India or the Reserve Bank of India, could not qualify for exemption under Section 81 (now Section 80P) of the Income-tax Act."

    11. Since this question has been directly answered by the Supreme Court that the interest on Government securities is not entitled to exemption, we answer question No. (iv) against the assessee and in favour of the Revenue. However, Shri Shriva'stava, learned counsel for the assessee, has submitted that the decision given in the case of Madhya Pradesh Cooperative Bank Ltd. v. Addl. CIT [1996] 218 ITR 438 has not taken into consideration the expression "activity through the banking business". Learned counsel invited our attention to the cases reported in Cit v. P.K Jhaveri [1990] 181 ITR 79 (SC) and Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 (SC) and submitted that some of the judgments are of constitutional Bench. True, the expression "attributable to the banking business" has not been directly discussed, but none the less their Lordships of the Supreme Court have discussed the scope of Section 80P and it is not for this court to say or comment about the aforesaid decision as that is the latest judgment in point of time. We are of the opinion that the judgments cited by Shri Shrivastava, learned counsel for the assessee, do not provide any assistance for answering this reference.

    12. In the result, we answer question No. (i) accordingly, as stated above ; question No. (ii) is answered against the assessee and in favour of the Revenue ; question No. (iii) is answered in favour of the assessee and against the Revenue ; and question No. (iv) is answered in favour of the Revenue and against the assessee. Reference is answered accordingly.

    Use AI to get other relevant cases.
    Try AI Pro free for 7 days Upgrade to AI Pro

    Comments

    Commissioner Of Income-Tax v. Jila Sahakari Kendriya Bank Maryadit
    (Aug 13, 1996)