594. Whether natonalised banks would be regarded as banking companies for the purposes of deduction of interest on deposits with them under clause (vi) of sub-section (1)
Circular No. 64 was issued by the Central Board of Direct Taxes on 25 August 1971. Its subject is 594. Whether natonalised banks would be regarded as banking companies for the purposes of deduction of interest on deposits with them under clause (vi) of sub-section (1).
Holds that interest on deposits with nationalised banks qualifies for the deduction under section 80L(1)(vi). That clause covers interest on deposits with a banking company to which the Banking Regulation Act, 1949 applies, including any bank or banking institution referred to in section 51 of that Act, and with co-operative societies carrying on banking. Company in the Income-tax Act takes in an Indian company, and section 11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 makes every corresponding new bank, that is a nationalised bank, an Indian company for income-tax purposes; carrying on banking business, such a bank is therefore a banking company. Independently, section 20 of the same Act made section 51 of the Banking Regulation Act specifically applicable to the nationalised banks, and section 80L(1)(vi) expressly brings in banks referred to in that section. Interest on deposits with nationalised banks therefore falls within the categories exempt up to Rs. 3,000 a year.
A question was raised whether the nationalised banks counted as banking companies for the purposes of section 80L(1)(vi).
594. Whether natonalised banks would be regarded as banking companies for the purposes of deduction of interest on deposits with them under clause (vi) of sub-section (1)
1. A question has been raised as to whether the nationalised banks would be regarded as banking companies under the provisions of section 80L(1)(vi). The relevant provision reads as follows :
"(vi) interest on deposits with a banking company to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in section 51 of that Act) or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank)."
2. Under the definition clause in the Income-tax Act, the term "company" includes an "Indian company". Under section 11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, every "corresponding new bank", i.e., the nationalised bank, is regarded as an Indian company for the purposes of the Income-tax Act. Since nationalised banks carry on banking business, it follows that they are "banking companies" for purposes of the Income-tax Act. Further, section 80L(1)(vi), reproduced in the preceding paragraph, specifically provides that interest on deposits with any bank or banking institution referred to in section 51 of the Banking Regulation Act, 1949, will qualify for inclusion in the categories of income which are exempt up to Rs. 3,000. Under an amendment made through section 20 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, section 51 of the Banking Regulation Act, 1949 has been made specifically applicable to the nationalised banks. In view of the above, the interest on deposits made with the nationalised banks will qualify for inclusion in the categories of income exempt from tax up to Rs. 3,000 in a year.
Circular : No. 64 [F. No. 167/51/71-IT(A-I)], dated 25-8-1971.
In an old assessment where a section 80L claim on nationalised bank interest was refused.
Source: the Income Tax Department’s own published text — its page for this instrument.