COMMISSIONER OF INCOME TAX BIK vs. RAJ RAJYA SAHAKARI KRY-VIK SAN

By way of these appeals, the department has assailed the judgment & order of the Income Tax Appellate Tribunal whereby tribunal has allowed the appeal of the assessee-

1 The case of the department is that the assessee claimed benefit under Section 80P(2)(a)(iv) & 80P(2)(d)of the Income Tax Act, 1961 which reads as under:- “80P(1) ... …. … (2) (a)... … … (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agricultural for the purpose of supplying them to its members, or”

It manifests from the material on record that the assessing officer while considering the law prevailing at the relevant point of time for the assessment years in question has rejected the claim of the assessee in view of the judgment in Assam Co-operative Apex Marketing Society Ltd. Vs. Additional CIT: (1993) 113 CTR (SC) 58, which came to be further confirmed by the CIT (Appeals) while dismissing the appeal preferred by the assessee against the order of the Assessing Officer. However, the tribunal has also thoroughly examined the matter in detail in the light of the decision of the Supreme Court in Kerala State Co-operative Marketing Federation Ltd. & Ors. ETC. vs. Commissioner of Income Tax: (1998) 147 CTR 0029. The Supreme Court in the judgment aforesaid in Paragraphs 5 & 7 has observed as under:- “5. We have carefully considered the rival submissions of the parties perused the material placed on record and also the judgements relied upon by them. We find that the AO and the CTT(A) have rejected the claim of the assessee of allowing deduction u/s 80P(2)(iv) in view of the decision of Hon'ble Supreme Court in the case of 3 Assam Co-operative Apex Marketing Federation Ltd. 201 ITR 338 (supra). We also find that this judgement has been impliedly overruled by the Apex Court in the case of Kerala State Co- operative Marketing Federation Ltd. & Others 231 ITR 814 (supra), wherein at Page No. 825 it was held as under:- “We hold that the society engaged in the marketing of agricultural produce of its members would mean not only such societies which deal with the produce raised by the members who are individuals or societies which members thereof who may have purchased such goods from the agriculturists. Thus, we allow the civil appeal by setting aside the order made by the High Court and answering the question referred to us in the affirmative in favour of the assessee and against the Revenue”.

The Id. A.R. Submits that the assessee has received interest from other Co-operative Societies/Banks and after deduction the interest paid to State Government on loan, the net amount of interest amounting to Rs. 58,84,711.46 was shown as interest income and claimed as deduction u/s 80P(2)(d). This deduction was disallowed by the AO on the ground that the4 interest income has not been earned out of any investment but the same is a result of running current account with various Co- operative Banks, which cannot be held to be the investment. The CTT(A) has also confirmed the disallowance. He further submits that the interest income has been earned from short-term deposits with Co-operative Banks and Co- operative Societies and is fully exempted u/s 80P(2)(d). The CTT(A), in the subsequent assessment year, i.e., assessment year 1993-94, has allowed the same. The reliance was also placed upon the judgement of Hon'ble Punjab & Haryana High Court in the case of CTT vs. Haryana State Co-operative Housing Society (1998) 234 ITR 714.”

Counsel for the Department, Mr. Sanjay Jhanwar, has drawn our attention to the provisions contained in Section 80P(2)(a)(iv) of the Income Tax Act, 1961 which reads as under:- “80P(1) ... …. … (2) (a)... … … (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agricultural for the purpose of supplying them to its members, or”

Counsel for the respondent in support of submission has relied on the decision of the Supreme Court in case of UP Co-operative Cane Union Federation Ltd. Vs. Commissioner of Income Tax: (1997) 11 SCC 287 and more particularly paragraph no 7, 8 and 9 which reads as under:- “7. The relevant part of Section 80P(2)(a)(i) of the Act is reproduced as under: Section 80P Deduction in respect of income of co-operative societies: (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...

The expression "members" is not defined in the Act. Since a co-operative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression "members" in Section 80P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the co-operative society claiming exemption, has been formed. It is, therefore, necessary to construe the 5 expression "members" in Section 80P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Co-operative Societies Act. The said provision reads as under: Section 2(n). Member means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to "members" anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty.

It is not disputed that as per the said provision the members of the Federation were the cane union co- operative societies only. The individual cane growers who were members of the cane growers unions were not the members of the Federation. In this context, it may be mentioned that in Clause (b) of Sub-section (2) of Section 80P, reference has been made to primary society as well as federated co-operative (societies which indicates that while enacting Section 80P was conscious of the 'distinction between the various types of co-operative societies that the functioning in the country, namely, the federated co- operative societies and primary societies. In Section 80P(2) (a)(i), when Parliament has used the expression "members", it has used it in the normal sense of a member of a co-operative society. The intention was to extend the exemption to co-operative societies directly extending credit facilities to its members. There is nothing in the said provisions to show that the intention was to grant exemption to co-operative societies which were extending credit facilities to persons, though not the members of the said society, were members of another co-operative society which is a member of the co-operative society seeking exemption. The meaning of the expression "members" cannot, therefore, be extended to include the members of a primary co-operative society which is a member of the federated co-operative society seeking exemption. The principle of lifting the corporate veil which was invoked by Shri Tripurari Rai in support of his submission cannot have any application in the context of the provisions contained in Section 80P(2)(a)(i) of the Act.”

The learned counsel further contended that the present substantial questions of law framed by this Court in examining the claim of the assessee are squarely covered by 6 the judgments of the Supreme Court (supra) and in the light thereof the assessee is not entitled for the benefit under Section 80P(2)(a)(iv), since the Parliament in its wi om was conscious of the distinction between various types of cooperative societies and there appears no intention to grant exemption as being claimed by the assessee and therefore this Court cannot go beyond that & there are also some stipulations in granting benefit of Sec.80P(2)(d) to the assessee and therefore, the view taken by the Assessing Officer and the CIT (Appeals) requires confirmation & tribunal decision may be reversed.

Per contra, counsel for the respondent has relied upon the decision of the Supreme Court in Kerala State Cooperative Marketing Federation Ltd. And Ors. (supra) & more particularly para no.14 which reads as under:- “14. The attention of this Court does not seem to have been drawn to the aforesaid decision while deciding Assam Cooperative Society's case. With respect, we, therefore, hold that the view taken therein requires reconsideration as stated earlier by us. In the result, the order of the Kerala High Court following the decision of this Court in Assam Cooperative Societies is reversed. We hold that the society engaged in the marketing of agricultural produce of its members would mean not only such societies which deal with the produce raised by the members who are individuals or societies which are members thereof who may have purchased such goods from the agriculturists. Thus, we allow the civil appeal by setting aside the order made by the High Court and answering the question referred to us in the affirmative in favour of the assessee and against t he revenue. There shall be no order as to costs.”

In Commissioner of Income Tax vs. U.P. Co- operative Federation Ltd.: (2006) 203 CTR (ALL) 186 in para no. 6 & 7, it has been held thus:

It may be mentioned here that after the apex Court had delivered the judgment in the case of Kerala State Co-operative Marketing Federation Ltd. (supra), the Parliament had amended the provisions of Section 80P(2)(a)(iii) of the Act by substituting the words "the marketing of agricultural produce grown by its members" by the IT (Second Amendment) Act, 1998, w.e.f. 1st April, 1968. The validity of the amendment has been upheld by the apex Court in the case ofNational

Applying the principles laid down by the apex Court to the facts of the present case, it is not in dispute that the apex society supplied/sold gypsum, seeds and fertilizers to its members. These goods were intended for agricultural purposes and, therefore, benefit of Section 80P(2)(a)(iv) of the Act was available.

In Commissioner of Income Tax, Tamilnadu-I vs. Tamilnadu Co-operative Marketing Federation Ltd. (1999) 151 CTR 0232 in para no.5, it has been held as under:- “5. The other sub-sections not being material for the discussion, they are not referred to. As already

Cooperative Sugar Mills Ltd: (1989) 180 ITR 631 (P & H) in para no.8 which reads as under:- “8. For the reasons recorded above, we answer both the questions in favour of the assessee, in the affirmative and hold that the Tribunal was right in coming to the conclusion that short-term call deposits were investments within the meaning of Sec. 80P(2)(d) of the Act and qualified for deduction under that provisions for both the years in question. The parties are left to bear their own costs.”

In Kota Cooperative Marketing Society Ltd. vs. Commissioner of Income Tax: (1994) 207 ITR 608 (Raj.) in para no.2 which reads as under:- “2. The brief facts of the case are that the assessee has filed the return initially in which the deduction under s. 80P of the IT Act, 1961, was claimed on proportionate basis as the assessee was having income which was partly taxable and partly non- (1977) 107 ITR 447 (Guj) : TC26R.864, it was held that the income of the co-operative society from nontaxable activity has to be computed by setting off against the gross profit proportionate amount of expenditure. The claim of the assessee for allowing the entire expenditure on account of managerial and administrative expenses was not accepted. On the basis of the said decision of the Gujarat High Court, the proportionate expenses from the gross income of Rs.4,60,385 were reduced to the extent of Rs. 3,10,253 and exemption was allowed for Rs. 1,50,132 only. In computing the expenses of Rs. 3,10,253 the total income shown on the credit side of the profit and loss account was taken into consideration and the total expenses on the debit side of the profit and loss account were taken into consideration and the proportionate expenses come to 67 per cent. Applying this 67 per cent to the figure of Rs. 4,60,385, the figure of Rs. 3,10,253 was arrived at which was considered as expenses not liable to deduction under s. 80P(2) of the IT Act. It was not disputed that the income from the trucks and tractors was not exempt and other activity which was the main source of income, i.e., supply of fertilizers and agricultural implements to its members and marketing of agricultural produce was exempted. The staff which was employed by the assessee was looking after both the businesses, namely, the business of supply of fertilizers, agricultural implements, etc., to its members and carrying on the activity of running of the rice mill and deriving income from trucks and tractors. The income which was derived by the assessee from the rice mill or from operating the tractors and trucks was wholly divisible and was neither connected nor having any proximate relationship with the other non-taxable activity of the assessee. The criteria which has to be adopted for the purpose of determining the liability and deducting the expenses is as to whether the business is a single and indivisible one or separate businesses are being carried on by the assessee.”

In Surat Vankar Sahakari Sangh Ltd. Vs.

The contention of Mr. Gupta, learned counsel appearing for the Revenue, is that the Tribunal was wrong in allowing deduction under Sec. 80P(2)(d) of the Act because it is not established that the assessee had derived the interest by investing all the amount of surplus funds. It is further contended by Mr. Gupta that the assessee has paid interest to Jalandhar Central Cooperative Bank and has also received interest from the said cooperative bank, thereby showing that the assessee has on the aggregate paid interest to the bank and, therefore, no deduction under Sec.80P(2)(d) can be allowed. To appreciate this argument, we have to look to the provisions of Section 80P(2)(d) of the Act, For facility of reference, it is reproduced as under: “80P.(2)(d) in respect of any income by way of interest or dividends derived by the cooperative society from its investment with any other cooperative society, the whole of such income.”

So far as the principle of interpretation applicable to a taxing statute is concerned, we can do no better than to quote the by-now classic words of Rowlatt J., in Cape Brandy Syndicate v. IRC (1921) 1 KB 64, 71: “...In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used,”

The principle laid down by Rowlatt J., has also In respect of interest of Rs.4,00,919/- on account of interest received from Nawanshaln Central Cooperative Bank without adjusting the interest paid to the bank. Therefore, the reference is answered against the Revenue in the affirmative and in favour of the assessee.'

2 Moreover, the Bombay High Court in the case of Bai Bhuriben Lallubhai (supra) has held that the purpose for which the assessee borrowed money had no connection whether direct or indirect with the income which she earned from the fixed deposit and that she was not entitled to the deduction claimed u/s 12(2). The High Court held that if an assessee had no option except to incur an expenditure in order to make the earning of an income possible, then undoubtedly the exercise of that option is compulsory and any expenditure incurred by reason of the exercise of that option would come within the ambit of section 12(2) of the Indian Income Tax Act but where the option has no connection with the carrying on of the business or the earning of the income and the option depends upon personal considerations or upon motives of the assessee, that expenditure cannot possibly come within the ambit of Section 12(2). In the present case, the loan was taken for 12 business purpose more particularly purchase of yarn and not for fixed deposits.”

We heard both the counsel.

1 In view of the decision of Supreme Court in Kerala State Co-operative Marketing Federation Ltd. (supra), we are of the opinion that view taken by the tribunal is required to be upheld.

2 Regarding issue no.2, in view of the decision of the Gujarat High Court and more particularly para no. 8.1 & 8.2, we are of the opinion that the assessee is to be given the benefit of net income.

The view taken by the tribunal is required to be accepted, and therefore, both the issues are answered in favour of the assessee and against the Department. (Ajay Rastogi), J. (K.S. Jhaveri), J. Brijesh