C I T KOTA vs. M/S HITKARI VIDHYALAYA SAHAKAR

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ITA/280/2008HC RajasthanRJHC02032674200723 April 20183 pages
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What did the High Court hold?

The High Court addressed each issue based on its previous decisions and Supreme Court pronouncements. For the first issue, regarding the annulment of the assessment order, the Court held that the requirement of Section 80P(2)(a)(i) is met if the business was carried on from funds collected from members and given to members, thus covering the 'credit facility to the member' aspect. Citing the Supreme Court in Kerala State Co-operative Marketing Federation Ltd., the Court answered this issue in favour of the assessee and against the Department. For the second issue, concerning the deduction under Section 80P(2)(a)(i) and the society's object of spreading education versus providing credit, the Court noted that the Supreme Court's observations in Para 17 (of an unspecified judgment, but likely referring to a cited case) went against the assessee as the income was not from permissible parameters of a co-operative society and its members. Therefore, the exemption claimed under Section 80P(1)(a) was not applicable to this income, and the question was answered in favour of the Department and against the assessee. For the third issue, the Court stated it was covered by its earlier decision in D.B. Income Tax Appeal No. 139/2002, answering it in favour of the assessee and against the Department. The appeal was disposed of accordingly.

What were the facts?

The Commissioner of Income Tax, Kota (the petitioner/appellant/department) filed an appeal before the High Court of Judicature for Rajasthan, Jaipur Bench, challenging the order of the Income Tax Appellate Tribunal (ITAT). The ITAT had dismissed the department's appeal, thereby upholding the order of the CIT(A) which had annulled the assessment order. The assessee is M/s. Shri Hitkari Vidhyalaya Sahakari Shiksha Samiti Ltd. The assessment year(s) are not explicitly stated but the appeal pertains to a dispute concerning deductions under Section 80P. The core dispute revolves around whether the assessee society was eligible for deduction under Section 80P(2)(a)(i) and the interpretation of its objects and activities.

What were the issues?

The High Court framed three substantial questions of law for determination: 1. Whether the ITAT's order was perverse in confirming the annulment of the assessment order, especially when the assessee did not raise any jurisdictional issue before the Assessing Officer, turning on the facts and circumstances and the law. 2. Whether the Tribunal was justified in allowing deduction under Section 80P(2)(a)(i) by not appreciating that the assessee society's main object was to spread education and not to provide credit to its members, turning on the facts and circumstances and the law. 3. Whether the Tribunal's findings were perverse in not strictly interpreting the provisions of Section 80P(2)(a)(i) as provided in the Statute, turning on the facts and circumstances and the law. Contentions: Assessee (Respondent): Relied on the Supreme Court decision in Kerala State Co-operative Marketing Federation Ltd. vs. Commissioner of Income Tax (1998) 231 ITR 814 (SC) for the interpretation of Section 80P, emphasizing that each head of exemption is distinct and if income falls under any one head, it would be free from tax. Also relied on Commissioner of Income Tax vs. Iqbalpur Co-operative Cane Development Union Ltd. (2009) 315 ITR 441, stating that interest earned on deposits is part of profits and gains of business for a co-operative society engaged in credit facilities. Further relied on this Court's decision in D.B. Income Tax Appeal No. 139/2002 (Commissioner of Income Tax, Bikaner vs. M/s Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd.) decided on 1.9.2016 for the third issue. Revenue (Petitioner): Did not explicitly record arguments, but their appeal implies disagreement with the ITAT's findings on the above issues.

Which sections of the Income-tax Act were involved?

Section 80P

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 280/2008 The Commissioner Of Income Tax, Kota ----Petitioner Versus M/s. Shri Hitkari Vidhyalaya Sahakari Shiksha Samiti Ltd., Shiv Das Ghat Ki Gali, Rampura Bazar, Kota ----Respondent For Petitioner(s) : Ms. Patinitoo Jain with Ms. Shiva Goyal For Respondent(s) : HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS

Judgment 23/04/2018 By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department. This Court while admitting the appeal framed following substantial questions of law:- “i) Whether under the facts and circumstances of the case and in law the order of ITAT is perverse in confirming the order of CIT(A) in annulling the assessment order specifically when the assessee did not raise any issue of jurisdiction before the Assessing Officer? ii) Whether under the facts and circumstances of the case and in law the Tribunal was justified in allowing the deduction u/s 80P(2) (a)(i) by not appreciating that the main object of assessee society is to spread the education and not to provide credit to its members? iii) Whether the findings of the Tribunal are perverse in not interpreting the provisions of Section 80P(2) (a) (I) strictly as provided in the Statute?”

(2 of 3)

Now the controversy is covered by the decision of this Court in case of same assessee in DBITA No. 636/2008 and other connected matters decided on 21st September, 2016 wherein it has been observed as under:- “6. Counsel for the respondent Mr. Ranka has taken us through the definition of Section 80P and relied upon the decision of the Supreme Court in the case of Kerala State Co-operative Marketing Federation Ltd. Vs. Commissioner of Income Tax (1998) 231 ITR 814 (SC) and more particularly, the observations made by the Supreme Court in Page 819:- “(a) engaged in business of banking and providing credit facilities to its members; ... ... ... ... We may notice that the provision is introduced with a view to encouraging and promoting the growth of 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 society is exempt from tax what has to be seen is whether the income fell within any of the several heads of exemption. If it fell within any one head of exemption, it would be free from tax notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption.”

7.

Co-operative Cane Development Union Ltd., (2009) 315 ITR 441, wherein it has been held: “Since sums to be deducted under sub-section (1) of Section 80P of the Act to the extent of whole of the amount of profits and gains of business attributable to anyone or more of such activities as is applicable to the co-operative societies covered under clause (a) of sub- section (2) of Section 80P of the Income Tax Act, 1961, as such we do not find any error of law committed by the Income-tax Appellate Tribunal in allowing the appeals of the assessee (present respondent), which is a co- operative society engaged in the business of credit facility and also covered under sub-clause (iii) and sub- clause (iv) of clause (a) of sub-section (2). Whether such society earned its income in the form of interest on fixed deposit receipts or Kisan Vikas Patra makes no difference. In our opinion, such interest is also part of (3 of 3)

amount of profits and gains of business of activities of such society.”

8.

On third issue reliance was placed on decision of this Court in D.B. Income Tax Appeal No. 139/2002 (Commissioner of Income Tax, Bikaner Vs. M/s Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd.) decided on 1.9.2016. 9. We have gone through the order of the Assessing Officer, CIT and the Tribunal and heard the learned counsel for both sides.

10.

On the first issue, where the requirement of 80P(2) (a)(i) clearly establishes that the business which was carried on by the society was from the funds which were collected from the members and given to the members, therefore, the word used in sub-section (c), credit facility to the member will cover the issue and in view of the observations of the Supreme Court in the case of Kerala State Co-operative Marketing Federation Ltd. (supra) will govern the issue, therefore, issue No.1, we answer in favour of assessee and against the Department.

11.

On the issue No.2 regarding the income earned from the Bank and other co-operative societies, admittedly, the observations of Supreme Court in Para 17 (supra) will go against the assessee as it was not from the permissible parameters which are under the Co-operative society and not member of co-operative society.

12.

In that view of the matter, exemption which was claimed under Section 80P(1)(a) will cover the issue.

Hence question No.2 is answered in favour of Department and against the assessee. 13 The third issue is covered by the decision of this Court in D.B. Income Tax Appeal No. 139/2002, therefore, answered in favour of assessee, against the Department. The questions are answered accordingly and appeal stands disposed of. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J A.Sharma/45

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