M/S.KERALA STATE CO-OPERATIVE AGRICULTURAL & RURAL DEVELOPMENT BANK LTD. vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1 (2)

The question arising from the order of the Tribunal is re-framed as follows: (i) Ought not the Tribunal have noticed the specific words employed in Section 80P(2)(a) of the Act and given a wider

Section 80P(1) & (2)(1)(i) reads as under: “80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub- section (2), in computing the total income of the assessee. (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.... The whole of the amount of profits and gains of business attributable to any one or more of such activities;” xxx xxx xxx

The learned Counsel appearing for the assessee would first rely on the decision of the Hon'ble Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. Commissioner of Income Tax [(1978) 113 ITR 84 (SC), wherein the Hon'ble Supreme Court had considered a similar deduction under Section 80E of the Act. There a deduction of 8% was allowed from the profits and gains attributable inter alia to the business of generation of electricity. The assessee was a Company involved in generation of electricity and income on which deduction claimed was of consideration received on sale of old machinery. The Hon'ble Supreme Court found that the words 'derived from' and 'attributable to' have different connotations; the latter having wider import. If the words used were 'derived from the business of production of electricity', then necessarily a sale of old machinery would not come within its ambit. However, when the profits and gains were attributable to the business of production of electricity, then necessarily an ancillary activity like the sale of old machinery would also come within its ambit.

We are not convinced that the said decision has any application herein, since the restriction or otherwise is not by reason of the term 'attributable to business' nor does such an interpretation of the term give the deduction a wider amplitude as is found by the Hon'ble Supreme Court; to the subject provision herein. In the present case, Section 80P grants deduction of whole of the amount of profits and gains of the business attributable to any one or more of such activities as given under sub- clause (i) to (vi) of Clause (a) of Section 80P of the Act. The restriction is in so far as the profits and gains being attributable to the specific activity delineated under sub-clause (a). The credit facilities provided has to be to its members for the interest income earned, to be granted a deduction under Section 80P of the Act. Otherwise there was no requirement to specify the specific business activities of the societies; the deduction being only to the income arising therefrom.

We also refer to the decision of the Hon'ble Supreme Court in Kerala State Co- operative Marketing Federation Ltd. v. Commissioner of Income Tax [(1998) 231 ITR 814 (SC)] and the following paragraphs: “The classes of societies covered by Section 80-P of the Act are as follows: (a) engaged in business of banking and providing credit facilities to its members; (b) cottage industry; (c) society engaged in marketing agricultural produce of its members; (d) engaged in produce of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members; (e) a society engaged in the processing without the aid of power of the agricultural produce of its members; or (f) a primary society engaged in supplying milk raised by its members to a federal milk cooperative society. We may notice that the provision is introduced with a view to encouraging and promoting growth of cooperative 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 cooperative society is exempt from tax what has to be seen is whether 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. The expression “marketing” is an expression of wide import. It involves exchange functions such as buying and selling, physical functions such as storage, transportation, processing and other commercial activities such as standardisation, financing, marketing intelligence etc. Such activities can be carried on by an apex society rather than a primary society.” (underlining by us for emphasis)

Hence what has to be specifically looked at is whether the activity from which the income earned fell within any of the clauses under sub- section (1). The interest income herein was received from credit facilities extended to the employee and the employee of a member, for personal purposes. This would not fall within sub-clause (i) of Clause (a) of Section 80P of the Act.

A further contention was raised on the basis of the decision of the Allahabad High court in Commissioner of Income Tax v. Gulshan Mercantile Urban Co-operative Bank Ltd. [(2013) 29 taxmann.com 8 (All.)]. Therein the interest derived was from the Fixed Deposits maintained out of surplus funds. The decision cannot have application in the present case especially by reason of the dictum in Kerala State Co-operative Marketing Federation Ltd. We hence answer the question of law in favour of the Revenue and against the assessee and we dismiss the appeal, upholding the order of the Tribunal. There is no order as to costs. K. VINOD CHANDRAN JUDGE ASHOK MENON JUDGE sp/19/12/18