Commissioner Of Income Tax, Jaipur Ii, Jaipur v. Rajasthan Rajya Sahakari Kray Vikraya Sangh Ltd., Bhawani Singhroad, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B.INCOME TAX APPEAL No. 59 / 2006 Commissioner of Income Tax, Jaipur II, Jaipur. ----Appellant Versus Rajasthan Rajya Sahakari Kray Vikraya Sangh Ltd., Bhawani SinghRoad, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. K.D. Mathur on behalf of Mr. R.B. Mathur.For Respondent(s) : Mr. Sanjay Jhanwar. _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VINIT KUMAR MATHUR Per Hon’ble Jhaveri J. 24/01/2017 Judgment 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal preferred by the department and confirmedthe order of the CIT(A). 2.This Court while admitting the appeal on 17.02.2006 has framed the following substantial question of law: “Whether, in the facts and circumstances ofthe case and in law the ITAT was justified inholding that the assessee is entitled for thededuction under Section 80(P)(2)(a)(iv) ofthe Act?” 3.Counsel for the respondent has contended that the issue issquarely covered by the decision of this Court in case ofCommissioner of Income Tax, Bikaner vs. M/s. RajasthanRajya Sahakari Kray Vikray Sangh Ltd.,decided on01.09.2016 along with other connected cases. 4.This Court in aforesaid case has observed as under: “1. All these appeals since involve identicalsubstantial questions of law, thereforeheard together & are being decided by thiscommon judgment. 2. By way of these appeals, thedepartment has assailed the judgment &order of the Income Tax Appellate Tribunalwhereby tribunal has allowed the appeal ofthe assessee-company-Federal Societywhich is registered under the CooperativeSocieties Act,1912. 2.1 The case of the department is that theassessee claimed benefit under Section80P(2)(a)(iv) & 80P(2)(d)of the IncomeTax Act, 1961 which reads as under:-“80P(1) ... …. … (2) (a)... … … (iv) the purchase of agriculturalimplements, seeds, livestock or otherarticles intended for agricultural for thepurpose of supplying them to its members,or” 3. It manifests from the material on recordthat the assessing officer while consideringthe law prevailing at the relevant point oftime for the assessment years in questionhas rejected the claim of the assessee inview 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 theCIT (Appeals) while dismissing the appealpreferred by the assessee against theorder of the Assessing Officer. However, thetribunal has also thoroughly examined thematter 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 Courtin the judgment aforesaid in Paragraphs 5& 7 has observed as under:- “5. We have carefully considered the rivalsubmissions of the parties perused thematerial placed on record and also thejudgements relied upon by them. We findthat the AO and the CTT(A) have rejectedthe claim of the assessee of allowingdeduction u/s 80P(2)(iv) in view of thedecision of Hon'ble Supreme Court in thecase of Assam Co-operative ApexMarketing Federation Ltd. 201 ITR 338(supra). We also find that this judgementhas been impliedly overruled by the ApexCourt in the case of Kerala StateCooperative Marketing Federation Ltd. &Others 231 ITR 814 (supra), wherein atPage No. 825 it was held as under:- “5. We have carefully considered the rivalsubmissions of the parties perused thematerial placed on record and also thejudgements relied upon by them. We findthat the AO and the CTT(A) have rejectedthe claim of the assessee of allowingdeduction u/s 80P(2)(iv) in view of thedecision of Hon'ble Supreme Court in thecase of Assam Co-operative ApexMarketing Federation Ltd. 201 ITR 338(supra). We also find that this judgementhas been impliedly overruled by the ApexCourt in the case of Kerala StateCooperative Marketing Federation Ltd. &Others 231 ITR 814 (supra), wherein atPage No. 825 it was held as under:- “We hold that the society engaged in themarketing of agricultural produce of itsmembers would mean not only suchsocieties which deal with the produceraised by the members who are individualsor societies which members thereof whomay have purchased such goods from theagriculturists. Thus, we allow the civilappeal by setting aside the order made bythe High Court and answering the questionreferred to us in the affirmative in favourof the assessee and against the Revenue”. Respectfullyfollowingtheabovejudgement, we direct the AO to considerthe claim of the assessee as per provisionsof Section 80P(2)(a) (iv) and allow thededuction acording to law. 7. The Id. A.R. Submits that the assesseehas received interest from other Co-operative Societies/Banks and afterdeduction the interest paid to StateGovernment on loan, the net amount ofinterest amounting to Rs. 58,84,711.46was shown as interest income and claimedas deduction u/s 80P(2)(d). This deductionwas disallowed by the AO on the groundthat the4 interest income has not beenearned out of any investment but the sameis a result of running current account with various Cooperative Banks, which cannotbe held to be the investment. The CTT(A)has also confirmed the disallowance. Hefurther submits that the interest incomehas been earned from short-term depositswith Co-operative Banks and CooperativeSocieties and is fully exempted u/s 80P(2)(d). The CTT(A), in the subsequentassessment year, i.e., assessment year1993-94, has allowed the same. Thereliance was also placed upon thejudgement of Hon'ble Punjab & HaryanaHigh Court in the case of CTT vs. HaryanaState Co-operative Housing Society (1998)234 ITR 714.” 4. Counsel for the Department, Mr. SanjayJhanwar, has drawn our attention to theprovisions contained in Section 80P(2)(a)(iv) of the Income Tax Act, 1961 whichreads as under:- “80P(1) ... …. … (2) (a)... … … (iv) the purchase of agriculturalimplements, seeds, livestock or otherarticles intended for agricultural for thepurpose of supplying them to its members,or” 5. Counsel for the respondent in support ofsubmission has relied on the decision ofthe Supreme Court in case of UP Co-operative Cane Union Federation Ltd. Vs.Commissioner of Income Tax: (1997) 11SCC 287 and more particularly paragraphno 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 incomeof 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 societyengaged in (i) carrying on the business of banking orproviding credit facilities to its members,or... 8. The expression "members" is notdefined in the Act. Since a co-operativesociety has to be established under theprovisions of the law made by the State “7. The relevant part of Section 80P(2)(a)(i) of the Act is reproduced as under: section 80P Deduction in respect of incomeof 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 societyengaged in (i) carrying on the business of banking orproviding credit facilities to its members,or... 8. The expression "members" is notdefined in the Act. Since a co-operativesociety has to be established under theprovisions 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 ofthe provisions of the law enacted by theState Legislature under which the co-operative society claiming exemption, hasbeen formed. It is, therefore, necessary toconstrue the expression "members" inSection 80P(2)(a)(i) of the Act in the lightof the definition of that expression ascontained in Section 2(n) of the Co-operative Societies Act. The said provisionreads as under: Section 2(n). Member means a person whojoined in the application for registration ofa society or a person admitted tomembership after such registration inaccordance with the provisions of this Act,the rules and the bye-laws for the timebeing in force but a reference to"members" anywhere in this Act inconnection with the possession or exerciseof any right or power or the existence ordischarge of any liability or duty shall notinclude reference to any class of memberswho by reason of the provisions of this Actdo not possess such right or power or haveno such liability or duty. 9. It is not disputed that as per the saidprovision the members of the Federationwere the cane union cooperative societiesonly. The individual cane growers who weremembers of the cane growers unions werenot the members of the Federation. In thiscontext, it may be mentioned that inClause (b) of Sub-section (2) of Section80P, reference has been made to primarysociety as well as federated co-operative(societies which indicates that whileenacting Section 80P was conscious of the'distinction between the various types ofco-operative societies that the functioningin the country, namely, the federatedcooperative societies and primary societies.In Section 80P(2) (a)(i), when Parliamenthas used the expression "members", it hasused it in the normal sense of a member ofa co-operative society. The intention was toextend the exemption to co-operativesocieties directly extending credit facilitiesto its members. There is nothing in the said provisions to show that the intentionwas to grant exemption to co-operativesocieties which were extending creditfacilities to persons, though not themembers of the said society, weremembers of another co-operative societywhich is a member of the co-operativesociety seeking exemption. The meaning ofthe expression "members" cannot,therefore, be extended to include themembers of a primary co-operative societywhich is a member of the federated co-operative society seeking exemption. Theprinciple of lifting the corporate veil whichwas invoked by Shri Tripurari Rai in supportof his submission cannot have anyapplication in the context of the provisionscontained in Section 80P(2)(a)(i) of theAct.” said provisions to show that the intentionwas to grant exemption to co-operativesocieties which were extending creditfacilities to persons, though not themembers of the said society, weremembers of another co-operative societywhich is a member of the co-operativesociety seeking exemption. The meaning ofthe expression "members" cannot,therefore, be extended to include themembers of a primary co-operative societywhich is a member of the federated co-operative society seeking exemption. Theprinciple of lifting the corporate veil whichwas invoked by Shri Tripurari Rai in supportof his submission cannot have anyapplication in the context of the provisionscontained in Section 80P(2)(a)(i) of theAct.” 6. The learned counsel further contendedthat the present substantial questions oflaw framed by this Court in examining theclaim of the assessee are squarely coveredby the judgments of the Supreme Court(supra) and in the light thereof theassessee is not entitled for the benefitunder Section 80P(2)(a)(iv), since theParliament in its wisdom was conscious ofthe distinction between various types ofcooperative societies and there appears nointention to grant exemption as beingclaimed by the assessee and therefore thisCourt cannot go beyond that & there arealso some stipulations in granting benefitof Sec.80P(2)(d) to the assessee andtherefore, the view taken by the AssessingOfficer and the CIT (Appeals) requiresconfirmation & tribunal decision may bereversed. 7. Per contra, counsel for the respondenthas relied upon the decision of theSupreme Court in Kerala State CooperativeMarketing Federation Ltd. And Ors. (supra)& more particularly para no.14 which readsas under:- “14. The attention of this Court does notseem to have been drawn to the aforesaiddecision while deciding Assam CooperativeSociety's case. With respect, we, therefore,hold that the view taken therein requiresreconsideration as stated earlier by us. In the result, the order of the Kerala HighCourt following the decision of this Court inAssam Cooperative Societies is reversed.We hold that the society engaged in themarketing of agricultural produce of itsmembers would mean not only suchsocieties which deal with the produceraised by the members who are individualsor societies which are members thereofwho may have purchased such goods fromthe agriculturists. Thus, we allow the civilappeal by setting aside the order made bythe High Court and answering the questionreferred to us in the affirmative in favourof the assessee and against t he revenue.There shall be no order as to costs.” 8. In Commissioner of Income Tax vs. U.P.Cooperative Federation Ltd.: (2006) 203CTR (ALL) 186 in para no. 6 & 7, it hasbeen held thus: 6. It may be mentioned here that after theapex Court had delivered the judgment inthe case of Kerala State Co-operativeMarketing Federation Ltd. (supra), theParliament had amended the provisions ofSection 80P(2)(a)(iii) of the Act bysubstituting the words "the marketing ofagricultural produce grown by itsmembers" by the IT (Second Amendment)Act, 1998, w.e.f. 1st April, 1968. Thevalidity of the amendment has been upheldby the apex Court in the case ofNationalAgriculturalCo-operativeMarketingFederation of India Ltd. and Anr. v. Unionof India(2003) 181 CTR (SC) 1 : (2003)260 ITR 548 (SC). However, no suchamendment has been made in Clause (iv)of Section 80P(2)(a) of the Act which readsas follows : (2) The sums referred to in Sub-section (1)shall be the following, namely : (a) in the case of a co-operative societyengaged in-- (i) to (iii) xxxxxxx (iv) the purchase of agriculturalimplements, seeds, livestock or otherarticles intended for agriculture for thepurpose of supplying them to its members. Thus, the interpretation placed by the apexCourt in the case of Kerala State (2) The sums referred to in Sub-section (1)shall be the following, namely : (a) in the case of a co-operative societyengaged in-- (i) to (iii) xxxxxxx (iv) the purchase of agriculturalimplements, seeds, livestock or otherarticles intended for agriculture for thepurpose of supplying them to its members. Thus, the interpretation placed by the apexCourt in the case of Kerala State Cooperative Marketing Federation Ltd.(supra) would still be applicable forinterpreting the provision of Clause (iv). 7. Applying the principles laid down by theapex Court to the facts of the present case,it is not in dispute that the apex societysupplied/sold gypsum, seeds and fertilizersto its members. These goods wereintended for agricultural purposes and,therefore, benefit of Section 80P(2)(a)(iv)of the Act was available. 9. In Commissioner of Income Tax,Tamilnadu-I vs. Tamilnadu Co-operativeMarketing Federation Ltd. (1999) 151 CTR0232 in para no.5, it has been held asunder:- “5. The other sub-sections not beingmaterial for the discussion, they are notreferred to. As already stated, the marginalheading of S. 80P is “Deduction in respectof Income of Cooperative Societies.” 10. In Commissioner of Income Tax vs.Haryana Cooperative Sugar Mills Ltd:(1989) 180 ITR 631 (P & H) in para no.8which reads as under:- “8. For the reasons recorded above, weanswer both the questions in favour of theassessee, in the affirmative and hold thatthe Tribunal was right in coming to theconclusion that short-term call depositswere investments within the meaning ofSec. 80P(2)(d) of the Act and qualified fordeduction under that provisions for boththe years in question. The parties are leftto bear their own costs.” 11. In Kota Cooperative Marketing SocietyLtd. vs. Commissioner of Income Tax:(1994) 207 ITR 608 (Raj.) in para no.2which reads as under:- “2. The brief facts of the case are that theassessee has filed the return initially inwhich the deduction under s. 80P of the ITAct, 1961, was claimed on proportionatebasis as the assessee was having incomewhich was partly taxable and partlynontaxable. Subsequently, the said returnwas revised and the assessee claimeddeduction from the gross amount ofincome, of the amount of income derivedfrom its members without deducting 11. In Kota Cooperative Marketing SocietyLtd. vs. Commissioner of Income Tax:(1994) 207 ITR 608 (Raj.) in para no.2which reads as under:- “2. The brief facts of the case are that theassessee has filed the return initially inwhich the deduction under s. 80P of the ITAct, 1961, was claimed on proportionatebasis as the assessee was having incomewhich was partly taxable and partlynontaxable. Subsequently, the said returnwas revised and the assessee claimeddeduction from the gross amount ofincome, of the amount of income derivedfrom its members without deducting therefrom proportionate administrative andmanagerial expenses. The assessee derivesits income mainly from supply of fertilizersto its members, marketing of agriculturalproduce, agricultural implements, etc. Theassessee is also running a rice mill. In theyear in question, the gross profit fromsupply of fertilizers to its members was inthe figure of Rs. 4,60,385. This income wasclaimed as exempt before the ITO, but theITO found that the business of rice mill,trucks and tractors, etc., is separate anddivisible businesses and, therefore, relyingupon the decision of the Gujarat High Courtin the case of CIT vs. Sabarkantha ZillaKharid Vechan Sangh Ltd. (1977) 107 ITR447 (Guj) : TC26R.864, it was held thatthe income of the co-operative societyfrom nontaxable activity has to becomputed by setting off against the grossprofitproportionateamountofexpenditure. The claim of the assessee forallowing the entire expenditure on accountof managerial and administrative expenseswas not accepted. On the basis of the saiddecision of the Gujarat High Court, theproportionate expenses from the grossincome of Rs.4,60,385 were reduced to theextent of Rs. 3,10,253 and exemption wasallowed for Rs. 1,50,132 only. Incomputing the expenses of Rs. 3,10,253the total income shown on the credit sideof the profit and loss account was takeninto consideration and the total expenseson the debit side of the profit and lossaccount were taken into consideration andthe proportionate expenses come to 67 percent. Applying this 67 per cent to thefigure of Rs. 4,60,385, the figure of Rs.3,10,253 was arrived at which wasconsidered as expenses not liable todeduction under s. 80P(2) of the IT Act. Itwas not disputed that the income from thetrucks and tractors was not exempt andother activity which was the main source ofincome, i.e., supply of fertilizers andagricultural implements to its membersand marketing of agricultural produce wasexempted. The staff which was employedby the assessee was looking after both thebusinesses, namely, the business of supplyof fertilizers, agricultural implements, etc., to its members and carrying on the activityof running of the rice mill and derivingincome from trucks and tractors. Theincome which was derived by the assesseefrom the rice mill or from operating thetractors and trucks was wholly divisible andwas neither connected nor having anyproximate relationship with the other non-taxable activity of the assessee. Thecriteria which has to be adopted for thepurpose of determining the liability anddeducting the expenses is as to whetherthe business is a single and indivisible oneor separate businesses are being carried onby the assessee.” 12. In Surat Vankar Sahakari Sangh Ltd.Vs. Assistant Commissioner of Income Tax:(2016) 72 taxmann.com 169 (Gujarat) inpara no.8.1 & 8.2 which reads as under:- “8.1 Similarly, in the case of DoabaCooperative Sugar Mills Ltd. (supra), thePunjab and Haryana High Court has held asunder: 12. In Surat Vankar Sahakari Sangh Ltd.Vs. Assistant Commissioner of Income Tax:(2016) 72 taxmann.com 169 (Gujarat) inpara no.8.1 & 8.2 which reads as under:- “8.1 Similarly, in the case of DoabaCooperative Sugar Mills Ltd. (supra), thePunjab and Haryana High Court has held asunder: '5. The contention of Mr. Gupta, learnedcounsel appearing for the Revenue, is thatthe Tribunal was wrong in allowingdeduction under Sec. 80P(2)(d) of the Actbecause it is not established that theassessee had derived the interest byinvesting all the amount of surplus funds.It is further contended by Mr. Gupta thatthe assessee has paid interest to JalandharCentral Cooperative Bank and has alsoreceived interest from the said cooperativebank, thereby showing that the assesseehas on the aggregate paid interest to thebank and, therefore, no deduction underSec.80P(2)(d) can be allowed. Toappreciate this argument, we have to lookto the provisions of Section 80P(2)(d) ofthe Act, For facility of reference, it isreproduced as under: “80P.(2)(d) in respect of any income byway of interest or dividends derived by thecooperative society from its investmentwith any other cooperative society, thewhole of such income.” 6. So far as the principle of interpretationapplicable 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 merelyat what is clearly said. There is no room forany intendment. There is no equity about atax. There is no presumption as to a tax.Nothing is to be read in, nothing is to beimplied. One can only look fairly at thelanguage used,” 7. The principle laid down by Rowlatt J.,has also been time and again approvedand applied by the Supreme Court indifferent cases including the one, HansrajGordhandas vs. H.H. Dave, AssistantCollector of Central Excise and Customs,AIR 1970 SC 755, 759. 8. Sec.80P(2)(d) of the Act allows wholededuction of an income by way of interestor dividends derived by the cooperativesociety from its investment with any othercooperative society. This provisions doesnot make any distinction in regard tosource of the investment because thisSection envisages deduction in respect ofany income derived by the cooperativesociety from any investment with acooperative society. It is immaterialwhether any interest paid to thecooperative society exceeds the interestreceived from the bank on investments.The Revenue is not required to look to thenature of the investment whether it wasfrom its surplus funds or otherwise. TheAct does not speak of any adjustment assought to be made out by learned counselfor the Revenue. The provision does notindicate any such adjustment in regard tointerest derived from the cooperativesociety from its investment in any othercooperative society. Therefore, we do notagree with the argument advanced by thelearned counsel for the Revenue. In ouropinion, the learned Tribunal was right inallowing deduction under Sec.80P(2)(d) ofthe Income Tax Act, 1961. In respect ofinterest of Rs.4,00,919/- on account ofinterest received from Nawanshaln CentralCooperative Bank without adjusting theinterest paid to the bank. Therefore, thereference is answered against the Revenuein the affirmative and in favour of the assessee.' assessee.' 8.2 Moreover, the Bombay High Court inthe case of Bai Bhuriben Lallubhai (supra)has held that the purpose for which theassessee borrowed money had noconnection whether direct or indirect withthe income which she earned from thefixed deposit and that she was not entitledto the deduction claimed u/s 12(2). TheHigh Court held that if an assessee had nooption except to incur an expenditure inorder to make the earning of an incomepossible, then undoubtedly the exercise ofthat option is compulsory and anyexpenditure incurred by reason of theexercise of that option would come withinthe ambit of section 12(2) of the IndianIncome Tax Act but where the option hasno connection with the carrying on of thebusiness or the earning of the income andthe option depends upon personalconsiderations or upon motives of theassessee, that expenditure cannot possiblycome within the ambit of Section 12(2). Inthe present case, the loan was taken forbusiness purpose more particularlypurchase of yarn and not for fixeddeposits.” 13. We heard both the counsel. 13.1 In view of the decision of SupremeCourt in Kerala State Co-operativeMarketing Federation Ltd. (supra), we areof the opinion that view taken by thetribunal is required to be upheld. 13.2 Regarding issue no.2, in view of thedecision of the Gujarat High Court andmore particularly para no. 8.1 & 8.2, weare of the opinion that the assessee is tobe given the benefit of net income. 14. The view taken by the tribunal isrequired to be accepted, and therefore,both the issues are answered in favour ofthe assessee and against the Department.” 5.In that view of the matter, the issue is answered in favour of the assessee and against the department. 6.The appeal stands dismissed. (VINIT KUMAR MATHUR)J. (K.S. JHAVERI)J. Asheesh Kr. Yadav/70