TaxTMI 
TaxTMI 
TaxTMI 
2006 (1) TMI 192
X X X X Extracts X X X X
X X X X Extracts X X X X
....e pay orders etc. The income received from the above services were in the form of Commission on OBC, Commission on CDD, Commission on Pay Orders, Commission on Demand Drafts, Commission on Daily Deposits and Miscellaneous income from non-members. The Assessing Officer, therefore, asked the appellant to show cause as to why income received from non-members for the services rendered by the appellant should not be taxed. The assessee contended that the income was received from non-members during the course of carrying on of normal banking activity as per provisions of sections 5 and 6 of the Banking Regulation Act, 1949 and, therefore, the appellant was entitled to exemption of the above income as per provisions of section 80P(2)(a)(i) of the Act. The Assessing Officer, however, held that such income received from non-members is not exempt under section 80P(2)(a)(i) of the Act. Reliance was placed on the following decisions: (1) CIT v. U.P. Co-operative Cane Union Federation Ltd [1980] 122 ITR 913 (All.) (2) CIT v. U.P. Co-operative Cane Union Federation [1996] 217 ITR 231 (All.) (3) U.P. Co-operative Cane Union Federation Ltd v. CIT [1999] 237 ITR 574 (SC). 4. The Assessing Offi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; year --------------------------------------------------------------- 1. Commission on 6,589 0 62.00 100.00 6,589 OBC 2. Commission on 1,09,356 0 321.00 100.00 1,09,356 CDD 3. Commission on 31,367 - 2,442.00 100.00 31,367 Pay Orders 4. Commission on 11,899 - 1,748.00 100.00 11,899 Demand Drafts 5. Commission on 15,984 776 576.00 42.60 6,809 Daily Deposits 6. Misc. Income 1,78,289 14,639 12,66....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o are available on record. However, the basic issue that we have to decide is as to whether the conjunction 'or' between the two expressions i.e., "carrying on the business of banking" and "providing credit facilities to its members" is to be read as 'and'. That is to say, as to whether banking business has to be carried on by the appellant only with its members so that profits and gains from such activity can be claimed as exempt under section 80P(2)(a)(i) of the Act. The Apex Court in the case of Mehsana District Central Co-operative Bank Ltd. v. ITO [2001] 251 ITR 522 held that income earned from utilization of reserve funds for statutory reserves under section 67(2) of the Gujarat Co-operative Societies Act, 1961 was eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. From this it can be inferred that to be eligible for exemption under section 80P(2)(a)(i), a co-operative bank need not deal only with its members. Also if we peruse section 80P, it becomes apparent that exemption under the section has not been granted on the principle of mutuality alone. As such, separate exemption provision is not required for receipts that satisfy the principle of mut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....non-members. The interpretation canvassed by the Revenue that the latter phrase has a restrictive effect on the former expression "business of banking" ignores the word "or" which occurs between the two phrases. There is no warrant for reading the word "or" as "and". Once the Legislature has used the term "or" the logical consequence that flows from the contextual setting is that it provides for an alternative, a different distinct activity. In the case of Kerala State Co-operative Marketing Federation Ltd. v. CIT [1998] 231 ITR 814 the Apex Court was called upon to resolve a controversy in the context of section 80P(2)(a)(iii) of the Act but after reproducing the entire section at page 819 it was observed as under: 'We may notice that the provision is introduced with a view to encouraging and promoting the growth of the co-operative sector in the economic life of the country and in pursuance of the declared policy of the Government, the correct way of reading the different heads of exemption enumerated in the section would be to treat each as a separate and distinct head of exemption. Whenever a question arises as to whether any particular category of an income of a co-operative....