Ita v. Ita

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY, THE 18TH DAY OF DECEMBER 2018 / 27TH AGRAHAYANA, 1940 ITA. No.117 of 2012 AGAINST THE ORDER IN ITA NO.51/2009 OF THE INCOME TAX APPELLATETRIBUNAL, COCHIN BENCH DATED 09-05-2012 APPELLANT/RESPONDENT: M/S.KERALA STATE CO-OPERATIVE AGRICULTURAL & RURAL DEVELOPMENT BANK LTD.TRIVANDRUM. BY ADV. SRI.JOSE JACOB RESPONDENT/APPELLANT: THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(2), TRIVANDRUM-695 001. BY ADVS.SRI.JOSE JOSEPH, SC FOR INCOME TAXSRI.P.K.R.MENON, SR.COUNSEL, GOI THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 18.12.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA. No.117 of 2012 JUDGMENT K. Vinod Chandran, J. The appellant/assessee is a Co-operative Society claiming deduction under Section 80P ofthe Income Tax Act, 1961 [for brevity, the Act].The specific income, which is claimed underSection 80P of the Act, is the interest derivedfrom a credit facility extended to one of itsemployees and the employee of one of itsmembers. Both the credit facilities are forpersonal purposes, admittedly. 2. The question arising from the order ofthe Tribunal is re-framed as follows: (i) Ought not the Tribunal havenoticed the specific words employed inSection 80P(2)(a) of the Act and given awideramplitudetothewords“attributable to the business” and heldthe interest earned by the assessee tobe out of credit facilities extendedfrom the surplus funds of the business of the assessee ? 3. Section 80P(1) & (2)(1)(i) reads as under: “80P. (1) Where, in the case of anassessee being a co-operative society,the gross total income includes anyincome referred to in sub-section (2),there shall be deducted, in accordancewith and subject to the provisions ofthis 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 the following,namely:- (a) in the case of a co-operativesociety engaged in- (i) carrying on the business of banking or providing credit facilitiesto its members.... The whole of the amount of profits andgains of business attributable to anyone or more of such activities;” xxx xxx xxx 4. The learned Counsel appearing for the assessee would first rely on the decision of the Hon'ble Supreme Court inCambay ElectricSupply Industrial Co. Ltd. v. Commissioner ofIncome Tax [(1978) 113 ITR 84 (SC), whereinthe Hon'ble Supreme Court had considered asimilar deduction under Section 80E of the Act.There a deduction of 8% was allowed from theprofits and gains attributable inter alia to thebusiness of generation of electricity. Theassessee was a Company involved in generation ofelectricity and income on which deductionclaimed was of consideration received on sale ofold machinery. The Hon'ble Supreme Court foundthat the words 'derived from' and 'attributableto' have different connotations; the latterhaving wider import. If the words used were'derived from the business of production ofelectricity', then necessarily a sale of oldmachinery would not come within its ambit.However, when the profits and gains wereattributable to the business of production of electricity, then necessarily an ancillaryactivity like the sale of old machinery wouldalso come within its ambit. electricity, then necessarily an ancillaryactivity like the sale of old machinery wouldalso come within its ambit. 5. We are not convinced that the saiddecision has any application herein, since therestriction or otherwise is not by reason of theterm 'attributable to business' nor does such aninterpretation of the term give the deduction awider amplitude as is found by the Hon'bleSupreme Court; to the subject provision herein.In the present case, Section 80P grantsdeduction of whole of the amount of profits andgains of the business attributable to any one ormore of such activities as given under sub-clause (i) to (vi) of Clause (a) of Section 80Pof the Act. The restriction is in so far as theprofits and gains being attributable to thespecific activity delineated under sub-clause(a). The credit facilities provided has to be toits members for the interest income earned, tobe granted a deduction under Section 80P of the Act. Otherwise there was no requirement to specify the specific business activities of thesocieties; the deduction being only to theincome arising therefrom. 6. We also refer to the decision of the-Hon'ble Supreme Court in Kerala State Cooperative Marketing Federation Ltd. v. Commissioner of Income Tax [(1998) 231 ITR814 (SC)]and the following paragraphs: “The classes of societies covered bySection 80-P of the Act are as follows: (a) engaged in business of banking andproviding credit facilities to itsmembers; (b) cottage industry; (c) society engaged in marketingagricultural produce of its members; (d) engaged in produce of agriculturalimplements, seeds, livestock or otherarticles intended for agriculture for thepurpose of supplying them to its members;(e) a society engaged in the processingwithout the aid of power of theagricultural produce of its members; or (f) a primary society engaged in supplyingmilk raised by its members to a federalmilk cooperative society. We may notice that the provision isintroduced with a view to encouraging andpromoting growth of cooperative sector inthe economic life of the country and inpursuance of the declared policy of theGovernment. The correct way of reading thedifferent heads of exemption enumerated inthe section would be to treat each as aseparate and distinct head of exemption.Whenever a question arises as to whetherany particular category of an income of acooperative society is exempt from taxwhat has to be seen is whether income fellwithin any of the several heads ofexemption. If it fell within any one headof exemption, it would be free from taxnotwithstanding that the conditions ofanother head of exemption are notsatisfied and such income is not free fromtax under that head of exemption. The expression “marketing” is anexpression of wide import. It involvesexchange functions such as buying and selling, physical functions such asstorage, transportation, processing and other commercial activities such as standardisation, financing, marketingintelligence etc. Such activities can becarried on by an apex society rather thana primary society.” (underlining by us for emphasis) 7. Hence what has to be specifically lookedat is whether the activity from which the incomeearned fell within any of the clauses under sub-section (1). The interest income herein wasreceived from credit facilities extended to the employee and the employee of a member, forpersonal purposes. This would not fall withinsub-clause (i) of Clause (a) of Section 80P ofthe Act. 8. A further contention was raised on thebasis of the decision of the Allahabad Highcourt inCommissioner of Income Tax v.-Gulshan Mercantile Urban Cooperative BankLtd. [(2013) 29 taxmann.com 8 (All.)]. Therein standardisation, financing, marketingintelligence etc. Such activities can becarried on by an apex society rather thana primary society.” (underlining by us for emphasis) 7. Hence what has to be specifically lookedat is whether the activity from which the incomeearned fell within any of the clauses under sub-section (1). The interest income herein wasreceived from credit facilities extended to the employee and the employee of a member, forpersonal purposes. This would not fall withinsub-clause (i) of Clause (a) of Section 80P ofthe Act. 8. A further contention was raised on thebasis of the decision of the Allahabad Highcourt inCommissioner of Income Tax v.-Gulshan Mercantile Urban Cooperative BankLtd. [(2013) 29 taxmann.com 8 (All.)]. Therein the interest derived was from the Fixed Depositsmaintained out of surplus funds. The decisioncannot have application in the present caseespecially by reason of the dictum in Kerala-State Cooperative Marketing Federation Ltd. We hence answer the question of law infavour of the Revenue and against the assesseeand we dismiss the appeal, upholding the orderof the Tribunal. There is no order as to costs. Sd/- K. VINOD CHANDRAN JUDGE Sd/- sp/19/12/18 ASHOK MENON JUDGE ITA. No.117 of 2012 PETITIONER'S EXHIBITS: APPENDIX ANNEXURE A TRUE COPY OF THE ORDER OF ASSESSMENT FOR THE YEAR 2004-05 ISSUED TO THE APPELLANT. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX FOR THE YEAR 2004-05 ISSUED TO THE APPELLANT. ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH DATED 09.05.2012. RESPONDENT'S EXHIBITS:- NIL //TRUE COPY// P.A. TO JUDGE