Broader meaning of banking supports deduction for co-operative bank income from bill-collection agency services.

Commission or fees earned by a co-operative bank for collecting electricity bills on behalf of public sector undertakings were treated as attributable to the business of banking under section 80P(2)(a)(i) of the Income-tax Act. Banking was understood broadly and not limited to deposit-taking or lending, because the Banking Regulation Act, 1949 recognises agency functions such as collection of receipts on behalf of others. On that basis, the bank's bill-collection service was held to form part of its banking activity, and the deduction under section 80P(2)(a)(i) was allowable in favour of the assessee-bank.

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Issues: Whether commission/fees earned by a co-operative bank from public sector undertakings for collecting electricity bills from consumers was attributable to the business of banking so as to qualify for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The word "banking" in section 80P(2)(a)(i) is not confined to the narrow core of accepting deposits for lending or investment. The Banking Regulation Act, 1949 recognises that banking business extends to other forms of activity, including agency functions such as collecting receipts and discharges on behalf of Government, local authorities or other persons. The commission in question was earned from customers of the bank, namely public sector undertakings, for a facility rendered by the bank in collecting electricity dues on their behalf. The activity was treated as part of banking business and supported by the broader understanding of banking accepted in prior precedent.

Conclusion: The commission/fees were attributable to the business of banking and the deduction under section 80P(2)(a)(i) was allowable. The question was answered in favour of the assessee-bank.

Ratio Decidendi: For a co-operative bank, income earned from agency services rendered to its customers may fall within the business of banking for purposes of section 80P(2)(a)(i), where the activity is recognised as part of the broader banking functions contemplated by the Banking Regulation Act, 1949.

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