D.b.income Tax Appeal v. M/S Sikar Sahakari Bhoomi Vikas Bank Lt

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR D.B.INCOME TAX APPEAL NO. 112 / 2016PRINCIPAL COMMISSIONER OF I T JAIPUR-3 ----Appellant Versus M/S SIKAR SAHAKARI BHOOMI VIKAS BANK LT ----Respondent Connected With D.B.INCOME TAX APPEAL No. 15 / 2016 C I T JAIPUR ----Appellant Versus M/S SIKAR SAHAKARI BHOOMI VIKAS BANK LT ----Respondent D.B.INCOME TAX APPEAL No. 80 / 2016 PRINCIPAL COMMISSIONER OF I T AJMER ----Appellant Versus M/S KEKRI SAHA BHUMI VIKAS BANK LTD ----Respondent D.B.INCOME TAX APPEAL No. 83 / 2016 C I T JAIPUR ----Appellant Versus M/S SIKAR SAHAKARI BHOOMI VIKAS BANK LT ----Respondent D.B.INCOME TAX APPEAL No. 119 / 2016 PRINCIPAL COMMISSIONER OF I T AJMER ----Appellant Versus M/S KEKRI SHAH BHOOMI VIKAS BANK LTD ----Respondent D.B.INCOME TAX APPEAL No. 129 / 2016 PRINCIPAL COMMISSIONER OF I T AJMER ----Appellant Versus M/S KEKRI SAHA BHUMI VIKAS BANK LTD ----Respondent D.B.INCOME TAX APPEAL No. 182 / 2016 PR COMMISSIONER OF I T JAIPUR-3 ----Appellant Versus SIKAR SAHAKARI BHOOMI VIKAS BANK LTD ----Respondent D.B.INCOME TAX APPEAL No. 185 / 2016 PR COMMISSIONER OF I T JAIPUR - 3 ----Appellant Versus SIKAR SAHAKARI BHOOMI VIKAS BANK LTD ----Respondent D.B.INCOME TAX APPEAL No. 188 / 2016 PRINCIPAL COMMISSIONER OF I T JAIPUR-3 ----Appellant Versus M/S SIKAR KENDRIYA SAHAKARI BANK LTD ----Respondent __________________________________________ For Appellants :Mr. Sameer Jain with Ms. Mahi Yadav & Mrs. Parinittoo Jain For Respondents : Mr. Mahendra Gargieya __________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE DINESH MEHTAJudgment Per Hon’ble K.S. Jhaveri, J. 20/12/2016 1.By way of these appeals, the appellant has challenged thejudgment and order passed by the Tribunal whereby theTribunal has granted benefit to the respondent-assessee. 2.The issue involved in this bunch of appeals is as towhether the assessee is entitled to avail direction under Section80P(2)(a)(i) of the Income Tax Act. The identical issue hasbeen decided by this Court in D.B. Income Tax AppealNo.139/2002 in Commissioner of Income Tax, Bikaner vs. M/sRajasthan Rajya Sahakari, decided on 01.09.2016, which readsas under:- 2.1The case of the department is that theassessee claimed benefit under Section 80P(2)(a)(iv) & 80P(2)(d)of the Income Tax Act, 1961which reads as under:- “80P(1) ... …. … (2) (a)... … … (iv) the purchase of agriculturalimplements, seeds, livestock or otherarticles intended for agricultural for the purpose of supplying them to its members,or” 3.It manifests from the material onrecord that the assessing officer whileconsidering the law prevailing at therelevant point of time for the assessmentyears in question has rejected the claim ofthe assessee in view of the judgment inAssam Co-operative Apex MarketingSociety Ltd. Vs. Additional CIT: (1993)113 CTR (SC) 58, which came to be furtherconfirmed by the CIT (Appeals) whiledismissing the appeal preferred by theassessee against the order of the AssessingOfficer. However, the tribunal has alsothoroughly examined the matter in detail inthe light of the decision of the SupremeCourt in Kerala State Co-operativeMarketing 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 State Co-operative Marketing Federation Ltd. &Others 231 ITR 814 (supra), wherein atPage No. 825 it was held as under:- “We hold that the society engaged inthe marketing of agricultural produce of itsmembers would mean not only suchsocieties which deal with the produceraised by the members who areindividuals or societies which membersthereof who may have purchased suchgoods from the agriculturists. Thus, weallow the civil appeal by setting aside the order made by the High Court andanswering the question referred to us inthe affirmative in favour of the assesseeand 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 theassessee has received interest from otherCo-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 withvarious Co-operative 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 Co-operativeSocieties 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.Sanjay Jhanwar, has drawn our attentionto the provisions contained in Section80P(2)(a)(iv) of the Income Tax Act, 1961which reads as under: “80P(1) ... …. … (2) (a)... … … (iv) the purchase of agriculturalimplements, seeds, livestock or otherarticles intended for agricultural for the purpose of supplying them to its members,or” 5.Counsel for the respondent in supportof submission has relied on the decision ofthe Supreme Court in case of UP Co-operative Cane Union Federation Ltd.Vs. Commissioner of Income Tax:(1997) 11 SCC 287 and more particularlyparagraph no 7, 8 and 9 which reads asunder:- “7. The relevant part of Section 80P(2)(a)(i) of theAct is reproduced as under: Section 80P Deduction in respect of income of co-operative societies: (2) The sums referred to in Sub-section (1) shallbe the following, namely: (a) in the case of a co-operative society engaged in (i) carrying on the business of banking orproviding credit facilities to its members, or...providing credit facilities to its members, or... purpose of supplying them to its members,or” 5.Counsel for the respondent in supportof submission has relied on the decision ofthe Supreme Court in case of UP Co-operative Cane Union Federation Ltd.Vs. Commissioner of Income Tax:(1997) 11 SCC 287 and more particularlyparagraph no 7, 8 and 9 which reads asunder:- “7. The relevant part of Section 80P(2)(a)(i) of theAct is reproduced as under: Section 80P Deduction in respect of income of co-operative societies: (2) The sums referred to in Sub-section (1) shallbe the following, namely: (a) in the case of a co-operative society engaged in (i) carrying on the business of banking orproviding credit facilities to its members, or...providing credit facilities to its members, or... 8. The expression "members" is not defined in theAct. Since a co-operative society has to beestablished under the provisions of the law madeby the State Legislature in that regard, theexpression "members" in Section 80P(2)(a)(i)must,therefore, be construed in the context of theprovisions of the law enacted by the StateLegislature under which the co-operative societyclaiming exemption, has been 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 ascontained in Section 2(n)of the Co-operativeSocieties Act. The said provision reads as under: Section 2(n). Member means a person who joinedin the application for registration of a society or aperson admitted to membership after suchregistration in accordance with the provisions of thisAct, the rules and the bye-laws for the time being inforce but a reference to "members" anywhere inthis Act in connection with the possession orexercise of any right or power or the existence ordischarge of any liability or duty shall not includereference to any class of members who by reasonof the provisions of this Act do not possess suchright or power or have no such liability or duty. 9.It is not disputed that as per the said provisionthe members of the Federation were the caneunion co-operative societies only. The individualcane growers who were members of the canegrowers unions were not the members of theFederation. In this context, it may be mentionedthat in Clause (b) of Sub-section (2) of Section80P, reference has been made to primary societyas well as federated co-operative (societies whichindicates that while enacting Section 80Pwasconscious of the 'distinction between the various types of co-operative societies that the functioningin the country, namely, the federated co-operativesocieties 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 amember of a co-operative society. The intentionwas to extend the exemption to co-operativesocieties directly extending credit facilities to itsmembers. There is nothing in the said provisions toshow that the intention was to grant exemption toco-operative societies which were extending creditfacilities to persons, though not the members ofthe said society, were members of another co-operative society which is a member of the co-operative society seeking exemption. The meaningof the expression "members" cannot, therefore, beextended to include the members of a primary co-operative society which is a member of thefederated co-operative society seeking exemption.The principle of lifting the corporate veil which wasinvoked by Shri Tripurari Rai in support of hissubmission cannot have any application in thecontext of the provisions contained in Section 80P(2)(a)(i)of the Act.” 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 benefit ofSec.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 not seemto have been drawn to the aforesaid decisionwhile deciding Assam Cooperative Society'scase. With respect, we, therefore, hold that the view taken therein requires reconsiderationas stated earlier by us. In the result, the orderof the Kerala High Court following the decisionof this Court in Assam Cooperative Societies isreversed. We hold that the society engaged inthe marketing of agricultural produce of itsmembers would mean not only such societieswhich deal with the produce raised by themembers who are individuals or societieswhich are members thereof who may havepurchased such goods from the agriculturists.Thus, we allow the civil appeal by setting asidethe order made by the High Court andanswering the question referred to us in theaffirmative in favour of the assessee andagainst t he revenue. There shall be no orderas to costs.” 8.In Commissioner of Income Taxvs. 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 apexCourt had delivered the judgment in the case ofKerala State Co-operative Marketing FederationLtd. (supra), the Parliament had amended theprovisions of Section 80P(2)(a)(iii) of the Act bysubstituting the words "the marketing ofagricultural produce grown by its members" bythe IT (Second Amendment) Act, 1998, w.e.f. 1stApril, 1968. The validity of the amendment hasbeen upheld by the apex Court in the caseofNational Agricultural Co-operative MarketingFederation of India Ltd. and Anr. v. Union ofIndia(2003) 181 CTR (SC) 1 : (2003) 260 ITR 548(SC). However, no such amendment has beenmade in Clause (iv) of Section 80P(2)(a) of theAct which reads as follows : (2) The sums referred to in Sub-section (1) shallbe the following, namely : (a) in the case of a co-operative society engagedin-- (i) to (iii) xxxxxxx (iv) the purchase of agricultural implements,seeds, livestock or other articles intended foragriculture for the purpose of supplying them toits members. Thus, the interpretation placed by the apex Court inthe case of Kerala State Cooperative MarketingFederation Ltd. (supra) would still be applicable forinterpreting the provision of Clause (iv). 7. Applying the principles laid down by the apexCourt to the facts of the present case, it is not indispute that the apex society supplied/soldgypsum, 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. 9.In Commissioner of Income Tax,Tamilnadu-I vs. Tamilnadu Co-operative Marketing Federation Ltd.(1999) 151 CTR 0232 in para no.5, ithas been held as under:- Thus, the interpretation placed by the apex Court inthe case of Kerala State Cooperative MarketingFederation Ltd. (supra) would still be applicable forinterpreting the provision of Clause (iv). 7. Applying the principles laid down by the apexCourt to the facts of the present case, it is not indispute that the apex society supplied/soldgypsum, 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. 9.In Commissioner of Income Tax,Tamilnadu-I vs. Tamilnadu Co-operative Marketing Federation Ltd.(1999) 151 CTR 0232 in para no.5, ithas been held as under:- “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 Taxvs. Haryana Cooperative Sugar MillsLtd: (1989) 180 ITR 631 (P & H) in parano.8 which 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.2 which reads asunder:- “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 partly non-taxable. Subsequently, the said return wasrevised and the assessee claimeddeduction from the gross amount ofincome, of the amount of income derivedfrom its members without deductingtherefrom proportionate administrative andmanagerial expenses. The assessee derivesits income mainly from supply of fertilizers 11.In Kota Cooperative Marketing SocietyLtd. vs. Commissioner of Income Tax: (1994)207 ITR 608 (Raj.) in para no.2 which reads asunder:- “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 partly non-taxable. Subsequently, the said return wasrevised and the assessee claimeddeduction from the gross amount ofincome, of the amount of income derivedfrom its members without deductingtherefrom proportionate administrative andmanagerial expenses. The assessee derivesits income mainly from supply of fertilizers to 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 assessee from 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 SanghLtd. Vs. Assistant Commissioner ofIncome Tax: (2016) 72 taxmann.com169 (Gujarat) in para no.8.1 & 8.2 whichreads as under:- “8.1 Similarly, in the case of DoabaCooperative Sugar Mills Ltd. (supra), thePunjab and Haryana High Court has held asunder: from 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 SanghLtd. Vs. Assistant Commissioner ofIncome Tax: (2016) 72 taxmann.com169 (Gujarat) in para no.8.1 & 8.2 whichreads 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 toJalandhar Central Cooperative Bank andhas also received interest from the saidcooperative bank, thereby showing thatthe assessee has on the aggregate paidinterest to the bank and, therefore, nodeduction under Sec.80P(2)(d) can beallowed. To appreciate this argument, wehave to look to the provisions of Section80P(2)(d) of the Act, For facility ofreference, it is reproduced 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 Revenue in the affirmative and in favour of theassessee.' in the affirmative and in favour of theassessee.' 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 notentitled to the deduction claimed u/s12(2). The High Court held that if anassessee had no option except to incur anexpenditure in order to make the earningof an income possible, then undoubtedlythe exercise of that option is compulsoryand any expenditure incurred by reasonof the exercise of that option would comewithin the ambit of section 12(2) of theIndian Income Tax Act but where theoption has no connection with thecarrying on of the business or the earningof the income and the option dependsupon personal considerations or uponmotives of the assessee, that expenditurecannot possibly come within the ambit ofSection 12(2). In the present case, theloan was taken for business purpose moreparticularly purchase of yarn and not forfixed deposits.” 13. We heard both the counsel. 13.1In view of the decision of SupremeCourt in Kerala State Co-operativeMarketing Federation Ltd. (supra), weare of the opinion that view taken by thetribunal is required to be upheld. 13.2Regarding 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 deduction underSection 80P(2)(a) (iv) of the Act of 1961. 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. 15.Taking into consideration the aboveobservations, these appeals being devoid 3.Taking into consideration the above observations, theseappeals being devoid of any merit and deserves to be dismissedand the same is dismissed. 4.Copy of this judgment be placed in each file. (DINESH MEHTA)J. (K.S. JHAVERI)J. Asheesh Kr. Yadav/37-39, 41-46