Income Tax v. Read As Under

HON’BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM R.C. No.42 OF 1997 ORDER:- (per Hon’ble Sri Justice Challa Kodanda Ram) At the instance of the Revenue, the Income Tax AppellateTribunal, Hyderabad Bench-‘B’ had referred the following two questionsof law: 1.“Whether, on the facts and in the circumstances of thecase and in law, the ITAT is correct in holding that theamount of Rs.73,949/- derived by the assessee towardsservice charges from its members qualify for deductionunder Section 80P(2)(a)(o) of the Income Tax Act,specifically when the assessee acted only as an agentbetween its members and Bank without involvingdirectly or indirectly in the matter of repayment ofloans?”case and in law, the ITAT is correct in holding that theamount of Rs.73,949/- derived by the assessee towardsservice charges from its members qualify for deductionunder Section 80P(2)(a)(o) of the Income Tax Act,specifically when the assessee acted only as an agentbetween its members and Bank without involvingdirectly or indirectly in the matter of repayment ofloans?” 2.“Whether on the facts and in the circumstances of thecase, the ITAT’s finding that certification of applicationsof its constituent members is in the nature of guaranteeor warranty is based on any material on record.”case, the ITAT’s finding that certification of applicationsof its constituent members is in the nature of guaranteeor warranty is based on any material on record.” 2) 2) The assessee is a Cooperative Marketing Societyregistered under the Cooperative Societies Act, mainly engaged inmarketing of agricultural produce of its members. In the course ofcarrying on its activities, as an additional service, the society assistedits members in obtaining loans from the banks and financial institutionsand in the process, it has earned service charges. The assesseeclaimed the said amount as special deduction under Section 80P of theIncome Tax Act (for short, “the Act”). The claim was allowed by theappellate authority which was also confirmed by the Income TaxAppellate Tribunal. 3) At the time of hearing, Sri Seshidhara Reddy, learnedcounsel appearing on behalf of Sri S.R. Ashok, learned senior counselwould place on record the judgment of this Court in Commissioner of Income Tax v. Anakapalli Co-operative Marketing Society Ltd.,[[1]]whereunder it was held that the service charges received by theassessee society does not qualify to be considered for deduction underSection 80P of the Act. Section 80P of the Act as amended by theIncome Tax (Second Amendment) Act, 1998 with effect from 01.04.1968 read as under: “80P. (1) Where, in the case of an assessee being a co‑operative society, the gross total income includes any incomereferred to in sub-section (2), there shall be deducted, inaccordance with and subject to the provisions of this section,the sums specified in sub-section (2), in computing the totalincome of the assessee. (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 (ii) A cottage industry, or (iii) The marketing of agricultural produce grown by itsmembers, or (iv) The purchase of agricultural implements, seeds,livestock or other articles intended for agriculture for thepurpose of supplying them to its members, or (v) The processing, without the aid of power, of theagricultural produce of its members, or (vi) The collective disposal of the labour of its members, or (vii) Fishing or allied activities, that is to say, the catching,curing, processing, preserving, storing or marketing of fish orthe purchase of materials and equipment in connectiontherewith for the purpose of supplying them to its members, thewhole of the amount of profits and gains of business attributableto any one or more of such activities:” (ii) A cottage industry, or (iii) The marketing of agricultural produce grown by itsmembers, or (iv) The purchase of agricultural implements, seeds,livestock or other articles intended for agriculture for thepurpose of supplying them to its members, or (v) The processing, without the aid of power, of theagricultural produce of its members, or (vi) The collective disposal of the labour of its members, or (vii) Fishing or allied activities, that is to say, the catching,curing, processing, preserving, storing or marketing of fish orthe purchase of materials and equipment in connectiontherewith for the purpose of supplying them to its members, thewhole of the amount of profits and gains of business attributableto any one or more of such activities:” Balance of Section is omitted intentionally as it is notnecessary. 4) The activity of servicing of members in obtaining of loansis strictly outside the scope of activities enumerated in Section 80P ofthe Act. In this context, the learned counsel also would refer to thejudgment of Madras High Court reported in Commissioner of Income Tax vs. Madras Autorickshaw Drivers’[[2]] and judgment of Rajasthan High Court reported in Commissioner of Income-tax v. Co-operative Supply and Commission Shop Ltd.,[[3]]whereunder, it has been heldthat the providing of credit facilities have to be interpreted tocomprehend only the business of lending services of credit facilities inconnection with the business of banking. The judgment of Madras HighCourt was approved by the Hon’ble Supreme Court in Madras AutoRickshaw Drivers’ Co-operative Society v. Commissioner of Income Tax[[4]].In that view of the matter respectfully agreeing withthe ratio laid down by the High Court in Commissioner of Income Tax,Visakhapatnam v. Anakapalle Co-operative Marketing Society Limited,[[5]]question No.1 is answered in favour of the Revenue andagainst the assessee. In the light of answering of the question No.1,the question No.2 need not be answered as the same did not arise inthe facts of this case. 5) Accordingly, the Referred Case is disposed of. No orderas to costs. Miscellaneous Petitions, if any, pending in this ReferredCase shall stand disposed of. ______________________ G. CHANDRAIAH,J ____________________________ CHALLA KODANDA RAM, J Date:05.11.2013. Gk. HON’BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM R.C. No.42 OF 1997 Date: .11.2013. Gk [1]Vol-245 (2000) ITR 616 (AP) [2]1983 143 ITR 981 Mad1983 143 ITR 981 Mad [3](1993)204 ITR 0713-(in the Rajasthan High Court)(1993)204 ITR 0713-(in the Rajasthan High Court) [4](2001) 249 ITR 0330- Supreme Court of India(2001) 249 ITR 0330- Supreme Court of India [5]245 ITR 616245 ITR 616