Commissioner Of Income Tax, Bikaner v. M/S Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. (1) D.B. Income Tax Appeal No.139/2002 Commissioner of Income Tax, Bikaner Vs. M/s Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd. (2) D.B. Income Tax Appeal No.20/2004 Commissioner of Income Tax, Jaipur-II, JaipurVs. M/s Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd. (3) D.B. Income Tax Appeal No.24/2004 Commissioner of Income Tax, Jaipur-IIVs. M/s Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd. (4) D.B. Income Tax Appeal No.27/2004 Commissioner of Income Tax, Jaipur-IIVs. M/s Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd. DATE OF ORDER ::: 1.9.2016 HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE AJAY RASTOGI Mr. R.B. Mathur, for the appellants.Mr. Sanjay Jhanwar, for the respondent. ***** BY the Court:- (per Hon'ble Jhaveri, J.) 1.All these appeals since involve identical substantialquestions of law, therefore heard together & are beingdecided by this common judgment. 2.By way of these appeals, the department has assailedthe judgment & order of the Income Tax Appellate Tribunalwhereby tribunal has allowed the appeal of the assessee- company-Federal Society which is registered under theCooperative Societies Act,1912. 2.1The case of the department is that the assesseeclaimed benefit under Section 80P(2)(a)(iv) & 80P(2)(d)ofthe Income Tax Act, 1961 which reads as under:- “80P(1) ... …. … (2) (a)... … … (iv) the purchase of agricultural implements,seeds, livestock or other articles intended foragricultural for the purpose of supplying themto its members, or” 3.It manifests from the material on record that theassessing officer while considering the law prevailing at therelevant point of time for the assessment years in questionhas rejected the claim of the assessee in view of thejudgment in Assam Co-operative Apex MarketingSociety 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 assesseeagainst the order of the Assessing Officer. However, thetribunal has also thoroughly examined the matter in detail inthe light of the decision of the Supreme Court in KeralaState Co-operative Marketing Federation Ltd. & Ors.ETC. vs. Commissioner of Income Tax: (1998) 147 CTR0029. The Supreme Court in the judgment aforesaid inParagraphs 5 & 7 has observed as under:- “5. We have carefully considered the rivalsubmissions of the parties perused the materialplaced on record and also the judgements reliedupon by them. We find that the AO and theCTT(A) have rejected the claim of the assessee ofallowing deduction u/s 80P(2)(iv) in view of thedecision of Hon'ble Supreme Court in the case of Assam Co-operative Apex Marketing FederationLtd. 201 ITR 338 (supra). We also find that thisjudgement has been impliedly overruled by theApex Court in the case of Kerala State Co-operative Marketing Federation Ltd. & Others 231ITR 814 (supra), wherein at Page No. 825 it washeld as under:- “We hold that the society engaged in themarketing of agricultural produce of its memberswould mean not only such societies which dealwith the produce raised by the members who areindividuals or societies which members thereofwho may have purchased such goods from theagriculturists. Thus, we allow the civil appeal bysetting aside the order made by the High Courtand answering the question referred to us in theaffirmative in favour of the assessee and againstthe Revenue”. Respectfully following the above judgement, wedirect the AO to consider the claim of theassessee as per provisions of Section 80P(2)(a)(iv) and allow the deduction acording to law. “We hold that the society engaged in themarketing of agricultural produce of its memberswould mean not only such societies which dealwith the produce raised by the members who areindividuals or societies which members thereofwho may have purchased such goods from theagriculturists. Thus, we allow the civil appeal bysetting aside the order made by the High Courtand answering the question referred to us in theaffirmative in favour of the assessee and againstthe Revenue”. Respectfully following the above judgement, wedirect the AO to consider the claim of theassessee as per provisions of Section 80P(2)(a)(iv) and allow the deduction acording to law. 7.The Id. A.R. Submits that the assessee hasreceived interest from other Co-operativeSocieties/Banks and after deduction the interestpaid to State Government on loan, the netamount of interest amounting to Rs.58,84,711.46 was shown as interest income andclaimed as deduction u/s 80P(2)(d). Thisdeduction was disallowed by the AO on theground that the4 interest income has not beenearned out of any investment but the same is aresult of running current account with various Co-operative Banks, which cannot be held to be theinvestment. The CTT(A) has also confirmed thedisallowance. He further submits that the interestincome has been earned from short-termdeposits with Co-operative Banks and Co-operative Societies and is fully exempted u/s80P(2)(d). The CTT(A), in the subsequentassessment year, i.e., assessment year 1993-94,has allowed the same. The reliance was alsoplaced 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.” 4.Counsel for the Department, Mr. Sanjay Jhanwar, hasdrawn our attention to the provisions contained in Section80P(2)(a)(iv) of the Income Tax Act, 1961 which reads asunder:- “80P(1) ... …. … (2) (a)... … … (iv) the purchase of agricultural implements, seeds, livestock or other articles intended foragricultural for the purpose of supplying them toits members, or” 5.Counsel for the respondent in support of submissionhas 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 andmore particularly paragraph no 7, 8 and 9 which reads asunder:- “7. The relevant part of Section 80P(2)(a)(i) of the Act isreproduced as under: Section 80P Deduction in respect of income of co-operativesocieties: (2) The sums referred to in Sub-section (1) shall be thefollowing, namely: (a) in the case of a co-operative society engaged in (i) carrying on the business of banking or providing creditfacilities to its members, or... 8. The expression "members" is not defined in the Act.Since a co-operative society has to be established under theprovisions of the law made by the State Legislature in thatregard, the expression "members" in Section 80P(2)(a)(i)must, therefore, be construed in the context of theprovisions of the law enacted by the State Legislature underwhich the co-operative society claiming exemption, hasbeen formed. It is, therefore, necessary to construe the expression "members" in Section 80P(2)(a)(i)of the Act in thelight of the definition of that expression as contained inSection 2(n)of the Co-operative Societies Act. The saidprovision reads as under: Section 2(n). Member means a person who joined in theapplication for registration of a society or a person admittedto membership after such registration in accordance withthe provisions of this Act, the rules and the bye-laws for thetime being in force but a reference to "members" anywherein this Act in connection with the possession or exercise ofany right or power or the existence or discharge of anyliability or duty shall not include reference to any class ofmembers who by reason of the provisions of this Act do notpossess such right or power or have no such liability orduty. expression "members" in Section 80P(2)(a)(i)of the Act in thelight of the definition of that expression as contained inSection 2(n)of the Co-operative Societies Act. The saidprovision reads as under: Section 2(n). Member means a person who joined in theapplication for registration of a society or a person admittedto membership after such registration in accordance withthe provisions of this Act, the rules and the bye-laws for thetime being in force but a reference to "members" anywherein this Act in connection with the possession or exercise ofany right or power or the existence or discharge of anyliability or duty shall not include reference to any class ofmembers who by reason of the provisions of this Act do notpossess such right or power or have no such liability orduty. 9.It is not disputed that as per the said provision themembers of the Federation were the cane union co-operative societies only. The individual cane growers whowere members of the cane growers unions were not themembers of the Federation. In this context, it may bementioned that in Clause (b) of Sub-section (2) of Section80P, reference has been made to primary society as well asfederated co-operative (societies which indicates that whileenacting Section 80Pwas conscious of the 'distinctionbetween the various types of co-operative societies that thefunctioning 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 memberof a co-operative society. The intention was to extend theexemption to co-operative societies directly extending creditfacilities to its members. There is nothing in the saidprovisions to show that the intention was to grantexemption to co-operative societies which were extendingcredit facilities to persons, though not the members of thesaid society, were members of another co-operative societywhich is a member of the co-operative society seekingexemption. The meaning of the expression "members"cannot, therefore, be extended to include the members of aprimary co-operative society which is a member of thefederated co-operative society seeking exemption. Theprinciple of lifting the corporate veil which was invoked byShri Tripurari Rai in support of his submission cannot haveany application in the context of the provisions contained inSection 80P(2)(a)(i)of the Act.” 6.The learned counsel further contended that the presentsubstantial questions of law framed by this Court inexamining the claim of the assessee are squarely covered by the judgments of the Supreme Court (supra) and in the lightthereof the assessee is not entitled for the benefit underSection 80P(2)(a)(iv), since the Parliament in its wisdomwas conscious of the distinction between various types ofcooperative societies and there appears no intention togrant exemption as being claimed by the assessee andtherefore this Court cannot go beyond that & there are alsosome stipulations in granting benefit of Sec.80P(2)(d) to theassessee and therefore, the view taken by the AssessingOfficer and the CIT (Appeals) requires confirmation &tribunal decision may be reversed. 7.Per contra, counsel for the respondent has relied uponthe decision of the Supreme Court in Kerala StateCooperative Marketing Federation Ltd. And Ors. (supra) &more particularly para no.14 which reads as under:- 7.Per contra, counsel for the respondent has relied uponthe decision of the Supreme Court in Kerala StateCooperative Marketing Federation Ltd. And Ors. (supra) &more particularly para no.14 which reads as under:- “14. The attention of this Court does not seem tohave been drawn to the aforesaid decision whiledeciding Assam Cooperative Society's case. Withrespect, we, therefore, hold that the view takentherein requires reconsideration as stated earlier byus. In the result, the order of the Kerala High Courtfollowing the decision of this Court in AssamCooperative Societies is reversed. We hold that thesociety engaged in the marketing of agriculturalproduce of its members would mean not only suchsocieties which deal with the produce raised by themembers who are individuals or societies which aremembers thereof who may have purchased suchgoods from the agriculturists. Thus, we allow thecivil appeal by setting aside the order made by theHigh Court and answering the question referred tous in the affirmative in favour of the assessee andagainst t he revenue. There shall be no order as tocosts.” 8.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: 6. It may be mentioned here that after the apex Courthad delivered the judgment in the case of Kerala StateCo-operative Marketing Federation Ltd. (supra), theParliament had amended the provisions of Section80P(2)(a)(iii) of the Act by substituting the words "themarketing of agricultural produce grown by itsmembers" by the IT (Second Amendment) Act, 1998,w.e.f. 1st April, 1968. The validity of the amendmenthas been upheld by the apex Court in the caseofNationalAgriculturalCo-operativeMarketingFederation of India Ltd. and Anr. v. Union ofIndia(2003) 181 CTR (SC) 1 : (2003) 260 ITR 548(SC). However, no such amendment has been made inClause (iv) of Section 80P(2)(a) of the Act which readsas follows : (2) The sums referred to in Sub-section (1) shall be thefollowing, namely : (a) in the case of a co-operative society engaged in-- (i) to (iii) xxxxxxx (iv) the purchase of agricultural implements, seeds,livestock or other articles intended for agriculture forthe purpose of supplying them to its members. Thus, the interpretation placed by the apex Court in thecase of Kerala State Cooperative Marketing FederationLtd. (supra) would still be applicable for interpreting theprovision of Clause (iv). 7. Applying the principles laid down by the apex Courtto the facts of the present case, it is not in dispute thatthe apex society supplied/sold gypsum, seeds andfertilizers to its members. These goods were intendedfor agricultural purposes and, therefore, benefit ofSection 80P(2)(a)(iv)of the Act was available. 9.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 asunder:- “5. The other sub-sections not being material forthe discussion, they are not referred to. As already stated, the marginal heading of S. 80P is“Deduction in respect of Income of CooperativeSocieties.” 10.In Commissioner of Income Tax vs. HaryanaCooperative Sugar Mills Ltd: (1989) 180 ITR 631 (P & H) in para no.8 which reads as under:- “8. For the reasons recorded above, we answerboth the questions in favour of the assessee, in theaffirmative and hold that the Tribunal was right incoming to the conclusion that short-term calldeposits were investments within the meaning ofSec. 80P(2)(d) of the Act and qualified fordeduction under that provisions for both the yearsin question. The parties are left to bear their owncosts.” 11.In Kota Cooperative Marketing Society Ltd. vs.Commissioner of Income Tax: (1994) 207 ITR 608 (Raj.)in para no.2 which reads as under:- 10.In Commissioner of Income Tax vs. HaryanaCooperative Sugar Mills Ltd: (1989) 180 ITR 631 (P & H) in para no.8 which reads as under:- “8. For the reasons recorded above, we answerboth the questions in favour of the assessee, in theaffirmative and hold that the Tribunal was right incoming to the conclusion that short-term calldeposits were investments within the meaning ofSec. 80P(2)(d) of the Act and qualified fordeduction under that provisions for both the yearsin question. The parties are left to bear their owncosts.” 11.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 assesseehas filed the return initially in which the deductionunder s. 80P of the IT Act, 1961, was claimed onproportionate basis as the assessee was havingincome which was partly taxable and partly non-taxable. Subsequently, the said return was revisedand the assessee claimed deduction from the grossamount of income, of the amount of incomederived from its members without deductingtherefrom proportionate administrative andmanagerial expenses. The assessee derives itsincome mainly from supply of fertilizers to itsmembers, marketing of agricultural produce,agricultural implements, etc. The assessee is alsorunning a rice mill. In the year in question, thegross profit from supply of fertilizers to itsmembers was in the figure of Rs. 4,60,385. Thisincome was claimed as exempt before the ITO, butthe ITO found that the business of rice mill, trucksand tractors, etc., is separate and divisiblebusinesses and, therefore, relying upon the decision of the Gujarat High Court in the case ofCIT vs. Sabarkantha Zilla Kharid Vechan Sangh Ltd.(1977) 107 ITR 447 (Guj) : TC26R.864, it was heldthat the income of the co-operative society fromnontaxable activity has to be computed by settingoff against the gross profit proportionate amount ofexpenditure. The claim of the assessee for allowingthe entire expenditure on account of managerialand administrative expenses was not accepted. Onthe basis of the said decision of the Gujarat HighCourt, the proportionate expenses from the grossincome of Rs.4,60,385 were reduced to the extentof 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 sideof the profit and loss account was taken intoconsideration and the total expenses on the debitside of the profit and loss account were taken intoconsideration and the proportionate expenses cometo 67 per cent. Applying this 67 per cent to thefigure of Rs. 4,60,385, the figure of Rs. 3,10,253was arrived at which was considered as expensesnot liable to deduction under s. 80P(2) of the ITAct. It was not disputed that the income from thetrucks and tractors was not exempt and otheractivity which was the main source of income, i.e.,supply of fertilizers and agricultural implements toits members and marketing of agricultural producewas exempted. The staff which was employed bythe assessee was looking after both the businesses,namely, the business of supply of fertilizers,agricultural implements, etc., to its members andcarrying on the activity of running of the rice milland deriving income from trucks and tractors. Theincome which was derived by the assessee fromthe rice mill or from operating the tractors andtrucks was wholly divisible and was neitherconnected nor having any proximate relationshipwith the other non-taxable activity of the assessee.The criteria which has to be adopted for thepurpose of determining the liability and deductingthe expenses is as to whether the business is asingle and indivisible one or separate businessesare being carried on by the assessee.” Assistant Commissioner of Income Tax: (2016) 72taxmann.com 169 (Gujarat) in para no.8.1 & 8.2 whichreads as under:- Assistant Commissioner of Income Tax: (2016) 72taxmann.com 169 (Gujarat) in para no.8.1 & 8.2 whichreads as under:- “8.1 Similarly, in the case of Doaba CooperativeSugar Mills Ltd. (supra), the Punjab and HaryanaHigh Court has held as under: '5. The contention of Mr. Gupta, learned counselappearing for the Revenue, is that the Tribunal waswrong in allowing deduction under Sec. 80P(2)(d)of the Act because it is not established that theassessee had derived the interest by investing allthe amount of surplus funds. It is furthercontended by Mr. Gupta that the assessee has paidinterest to Jalandhar Central Cooperative Bankand has also received interest from the saidcooperative bank, thereby showing that theassessee has on the aggregate paid interest to thebank and, therefore, no deduction underSec.80P(2)(d) can be allowed. To appreciate thisargument, we have to look to the provisions ofSection 80P(2)(d) of the Act, For facility ofreference, it is reproduced as under: “80P.(2)(d) in respect of any income by way ofinterest or dividends derived by the cooperativesociety from its investment with any othercooperative society, the whole of such income.” 6. So far as the principle of interpretationapplicable to a taxing statute is concerned, we cando no better than to quote the by-now classicwords of Rowlatt J., in Cape Brandy Syndicate v.IRC (1921) 1 KB 64, 71: “...In a taxing Act, one has to look merely at whatis clearly said. There is no room for anyintendment. There is no equity about a tax. Thereis no presumption as to a tax. Nothing is to beread in, nothing is to be implied. One can only lookfairly at the language used,” 7. The principle laid down by Rowlatt J., has alsobeen time and again approved and applied by theSupreme Court in different cases including theone, Hansraj Gordhandas vs. H.H. Dave, AssistantCollector of Central Excise and Customs, AIR 1970SC 755, 759. 8. Sec.80P(2)(d) of the Act allows whole deductionof an income by way of interest or dividends derived by the cooperative society from itsinvestment with any other cooperative society.This provisions does not make any distinction inregard to source of the investment because thisSection envisages deduction in respect of anyincome derived by the cooperative society fromany investment with a cooperative society. It isimmaterial whether any interest paid to thecooperative society exceeds the interest receivedfrom the bank on investments. The Revenue is notrequired to look to the nature of the investmentwhether it was from its surplus funds or otherwise.The Act does not speak of any adjustment assought to be made out by learned counsel for theRevenue. The provision does not indicate any suchadjustment in regard to interest derived from thecooperative society from its investment in anyother cooperative society. Therefore, we do notagree with the argument advanced by the learnedcounsel for the Revenue. In our opinion, thelearned Tribunal was right in allowing deductionunder Sec.80P(2)(d) of the Income Tax Act, 1961.In respect of interest of Rs.4,00,919/- on accountof interest received from Nawanshaln CentralCooperative Bank without adjusting the interestpaid to the bank. Therefore, the reference isanswered against the Revenue in the affirmativeand in favour of the assessee.' 8.2 Moreover, the Bombay High Court in the caseof Bai Bhuriben Lallubhai (supra) has held that thepurpose for which the assessee borrowed moneyhad no connection whether direct or indirect withthe income which she earned from the fixeddeposit and that she was not entitled to thededuction claimed u/s 12(2). The High Court heldthat if an assessee had no option except to incuran expenditure in order to make the earning of anincome possible, then undoubtedly the exercise ofthat option is compulsory and any expenditureincurred by reason of the exercise of that optionwould come within the ambit of section 12(2) ofthe Indian Income Tax Act but where the optionhas no connection with the carrying on of thebusiness or the earning of the income and theoption depends upon personal considerations orupon motives of the assessee, that expenditurecannot possibly come within the ambit of Section12(2). In the present case, the loan was taken for business purpose more particularly purchase ofyarn and not for fixed deposits.” 13.We heard both the counsel. 13.1 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 isrequired to be upheld. 13.2 Regarding issue no.2, in view of the decision of theGujarat High Court and more particularly para no. 8.1 & 8.2,we are of the opinion that the assessee is to be given thebenefit of net income. 14.The view taken by the tribunal is required to beaccepted, and therefore, both the issues are answered infavour of the assessee and against the Department. (Ajay Rastogi), J. (K.S. Jhaveri), J. Brijesh