@JUDGMENTTAG-ORDER
1. These three appeals, arise in identical circumstances, and involved, common question of law, though arise from different orders of the ITAT. The appeal Nos. 56/07 and 105/06, arise out of the common judgment of the Tribunal, dated 25-1-2006, for the assessment years 1998-99 and 2000-01. whereas appeal No. 31 /2007, arise out of the judgment of the Tribunal, dated 9-6-2006 relating to the assessment year 2003-04. 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 appeals 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 u/s 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, u/s 80P(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 matters were then, carried to the Tribunal, by both the sides, in respect of the orders passed, regarding respective years, and in all the cases, the learned Tribunal has held, that such amount is exempted from tax, u/s 80P(2)(a)(i).
3. The learned Tribunal has held that the interest, earned on the loan, given to staff members, whether it be against PF deposit, or for housing building, is exempted u/s 80P(2)(a)(i). It was noticed that, that Bench had also taken a similar view, in the case of the assessee, in other years, therefore, the claim of the assessee was accepted. Likewise, in the judgment of the Tribunal dated 9-6-2006, this judgment of the Tribunal dated 25-1-2006 (which is under challenge), in Appeal Nos. 56/07 and 105/06 has been followed.
4. Arguing the appeal, it is contended by the learned Counsel for the revenue, that u/s 80P(2)(a)(i), only such amount of profit and gains of business, as are attributable to the carrying on business of banking, or providing credit facilities to its members, by the assessee, is exempt, while income by way of interest received by the assessee, on loan given to its employees, against PF, or for house building loan, does not fall within the said definition, and is therefore, not exempt.
5. On the other hand, learned Counsel for the assessee submitted, that the assessee is a bank, and giving loan is essential banking activity of the assessee. Simply because the persons to whom, loan has been given, happen to be the employees, does not militate against the exemption, available u/s 80P(2)(a)(i). It is contended, that the expression "business of banking" is required to be given a wider meaning, by adopting a liberal approach, and is not required to be construed very strictly. It is submitted, that as a matter of fact, all income derived by the assessee being Co-operative Society, is exempted u/s 80P(2)(a)(i). Learned Counsel relied upon a judgment of Allahabad High Court in
6. We have heard learned Counsel for the parties and have considered submissions. Before proceeding further, we may gainfully quote Section 80P(2)(a)(i), which reads as under:
80P. Deduction in respect of income of co-operative societies.-(1) Where, in the case of an assessee being a co-operative 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 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 profits and gains of business attributable to any one or more of such activities:
Provided that in the case of a co-operative society falling under Sub-clause (vi), or Sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:
(1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities;
(2) the co-operative credit societies which provide financial assistance to the society;
(3) the State Government;
(b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits, or vegetables, raised or grown by its members to-
(i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or
(ii) the Government or a local authority; or
(iii) a Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act, (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public),
the whole of the amount of profits and gains of such business;
(c) in the case of a co-operative society engaged in activities other then those specified in Clause (a) or Clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,-
(i) where such co-operative society is a consumer''s co-operative society, one hundred thousand rupees; and
(ii) in any other case, fifty thousand rupees.
7. For the present purpose, we may read the provisions in an abbreviated manner as under:
Where in case of the assessee, being a Co-operative Society, being engaged in carrying on the business of Banking, or providing credit facilities to its members, whole of the amount of the profit and gains of the business, attributable to any one or more of such activity, shall be deducted, in computing the total income of the assessee.
8. Then, admittedly the income in question is not claimed to be attributable, to the profits and gains of business, arising out of providing credit facilities to its members; therefore, the precise question required to be considered is as 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 Section 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 Section 6, enumerates the forms of business, for which banking companies may engage. For the present purpose, relevant clause would be, Clause (a) and Clause (b) 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 transferable or negotiable or not; the granting and issuing of letters of credit, traveller''s cheques and circular notes; the buying, selling and dealing in bullion and 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, and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities;
(j) establishing and supporting or aiding in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit 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 or for any exhibition or for any public, general or useful object;
11. At the outset, we may observe, that if we were to find that the income of interest, in question, can be said to be the amount of profits and gains of business, attributable to the carrying on business of banking by the assessee, obviously, it would be exempt u/s 80P(2)(a)(i), and not otherwise.
12. From the reading of the provisions of Clause (b) of Section 5, it is clear, that the banking means, the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable in the manner, provided therein. Thus, the essential element is of receiving the money for the purpose of lending or investment, of deposit from the public, as distinguished from a limited group of persons, whether it be the members, or the shareholders, or otherwise. In this background, the provisions of Clause (a) of Section 6, are also required to be read, and if so read, in the background, the provisions of Clause (a) of Section 6, are also required to be read, and if so read, the background of Section 5(b), it is obvious, that all the activities enumerated in Clause (a) of Section 6, have to be undertaken, with the public at large, and not confined to the members or shareholders, or otherwise, limited category of the persons. Section 6 also catalogue 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 Section 6(7).
13. With this background, we may refer to some of the cases, cited on the side of the assessee, or coming to our notice. At this place, we may observe that we are mindful of the fact, that advancing loans is inherently one of the banking activity, and interest earned thereon, would inherently be profit and gains of business, attributable to carrying on the business of the banking. But then, the precise distinction, which is writ large for the present purpose, and which is required to be appreciated, and considered, is, as to whether the activity of the assessee, in advancing loan, against PF deposits/house building, was an activity undertaken by the assessee, as a bank, or it was an act of an employer, qua the employee, and employer, simply incidentally, happened to be a Bank.
14. Learned Counsel for the assessee, made available for our perusal, an office order of the assessee dated 27-5-1999, to the effect, that the Board of Directors, in the meeting dated 6-1-1999, adopted a resolution No. 6 to implement, House Building Advance Loans'' Scheme, applicable to the ''Central Co-operative Bank employees'' and enclosing copy of that scheme, it was directed, that the facilities of that scheme be made available to the employee of the assessee Bank, as well, with immediate effect. Copy of scheme has also been made available, and a look at that shows, that the object of this scheme is to provide cash credit limit, to the officers, and employees of the bank, in accordance with requirements, for consumable goods, essential functions, food-grains, celebrating festivals, and stipulating limit, up to which, loan can be sanctioned, to the extent, dependent on pay and admissible DA, to the employee concerned, likewise another scheme has also been made available, which provides for loan for house building, specifically made applicable, to the permanent employee of the Bank only. Again providing limits to extent of which, the loan can be given, to be dependent on the extent of salary and pension receivable by the employee, or the sum of Rs. 2 lakhs, whichever is less. It was submitted by the learned Counsel for the assessee, that this scheme has been approved by the Registrar, Co-operative Societies, and thus, the assessee bank has been authorized to advance such loans.
15. After going through the scheme and resolution, in our view, to say the least, this advancing of loan, cannot be said 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 Section 6(/) 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 co-operative 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 the advances are to the employees only. In one of the orders, learned Commissioner, has catalogue the object of the society being, to carry on banking activities, and providing credit facilities to its members. At this place, we may also observe, that at our directions, learned Counsel for the assessee made available, for our perusal, bye-laws of the bank, which catalogue objects of the bank, and these objects are only to provide credit facilities, to its members, and to raise deposits from the members and in the event of consent being received from NABARD/Reserve Bank of India, from non-members. In other words, this is none of the objects of the Bank, to give loans or to provide credit facilities, to its employees, who are not its members.
18. In that view of the matter also, it cannot be said, that even if the matter-was to be considered, on the parameters of the objects of society as such, either activity in advancing loan, being loan against PF deposits, or house building loan, was the activity of the assessee-society, as such, de hors it being an employer.
19. Now we may consider the judgment cited by the learned Counsel for the assessee, being in Gorakhpur Kshetriya Gramin Bank''s case (supra), in that case also, the Co-operative society was engaged in the business of banking, i.e., carrying on its banking business, and providing credit facilities to its members. The receipts therein shown by the Bank, included the amount, being pay recovered from the employees, recovering training cost, security for future. These receipts were held by the Assessing Officer to be not arising from bank business, and as such, be not exempt. The Commissioner deleted the additions, and the Tribunal upheld the order of the Assessing Officer, It was on these facts that the Andhra Pradesh High Court held, that the business of banking cannot be carried without the aid of the employees and, therefore, whatever bank has received either towards the excess provision of pay recovered from the resigning staff, or training cost, or recovery and forfeiture of the security of the employees, is attributable to the activity of carrying on business of banking. Therefore, it was found, that entire income in respect of the aforesaid activity does form part of, and is attributable to carrying on business, of banking, and is thus, exempt. It was also noticed, that it is not the case of revenue that apart 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
21. In our view, this judgment does not help the case of the assessee. So far as the judgment in Grain Merchants Co-operative Bank Ltd.''s case (supra) is concerned, income considered therein is covered by different clauses of Section 80P, and therefore, that is of no relevance. While in Ahmednagar District Central Co-operative Bank Ltd.''s case (supra) there was no doubt, that the amounts came to the assessee in its functioning, as a bank only, and not in its functioning in any other capacity. Thus, nothing turns in favour of the assessee, on the basis of this judgment either.
22. Then, the learned Counsel for the assessee has invited our attention to a judgment of the Tribunal, being that of a Jaipur Bench, in the case of Rajasthan Rajya Sahakari Bhoomi Vikas Bank v. Dy. CIT 29 World Tax 286, of course in this judgment, it has been held, that advancement being essential part of the activity of banking business, the interest earned by the assessee on advance, to staff can be said to be attributable to the business of banking, and as such, income was eligible for deduction, u/s 80P(2)(a)(i). But then, this judgment simply proceeds on the basis of earlier judgment of the Tribunal dated 30-7-2001. However, in view of the fact that considering in the matter, to adjudicate upon the correctness, even the subsequent judgment of the Tribunal taking the same view, we are not bound by this judgment of the Tribunal.
23. Then, we may refer to the judgment of Andhra Pradesh High Court, in
24. Then, we may also refer to judgment of Hon''ble Supreme Court in
25. 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.
26. 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 question has been received from the employees who are not its members.
27. We may at this place also refer one of the judgment of the Tribunal as well of Jaipur Bench being dated 30-6-1986, reported in Rajasthan Rajya Sahakari Bhoomi Vikas Bank Ltd. v. ITO [1986] 19 ITD 674, wherein para 10, it has been held by the Tribunal, in respect of interest on advances to its staff, and sale of old newspapers, that it would be difficult to treat them at par with the monies that are lent to the customers. The assessee, having been formed with a view to enlarge co-operative movement, and that too as a bank, the staff, could not be said to be members as such, and, therefore, interest on loan given to staff, cannot be said to be relatable to banking business.
28. The net result of the aforesaid discussion is that substantial question involved is required to be, and is, answered against the assessee, and in favour of the revenue, and it is held, that the amount of interest earned by the assessee on various loans extended to its employees, on PF and house building loan, is not eligible to be exempted u/s 80P(2)(a)(z).
29. Consequently, the appeals are allowed and the impugned orders of the Tribunal are set aside, and orders passed by the assessing authorities are restored.
