The Pr. Commissioner Of Income Tax, Ajmer v. M/S Kekri Sahakari Bhumi Vikas Bank Ltd., Post Kekri, Ajmer

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 174 / 2017 The Pr. Commissioner of Income Tax, Ajmer. ----Appellant Versus M/s Kekri Sahakari Bhumi Vikas Bank Ltd., Post Kekri, Ajmer. ----Respondent _____________________________________________________ For Appellant(s) : Ms. Parinitoo JainFor Respondent(s) : _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 08/08/2017 1.By way of this appeal, the appellant has assailed thejudgment and order of the Tribunal whereby the Tribunal hasallowed the appeal of the assessee and dismissed the appeal of the department. 2.Counsel for the appellant has framed the following questions of law:- “i) Whether the Tribunal was legally justified incancelling the penalty levied u/s 271(1)(c)without deciding the appeal on meritsspecifically when the assessee was anot eligiblefor deduction u/s 80P(2)(a)(i)? ii) Whether in the facts and circumstances ofthe case and in law the Tribunal was justified indismissing the appeal of the revenue andcancelling the penalty levied u/s 271(1)(c),without going into merits of the case, that theassessee has deliberately claimed deduction u/s 80P(2)(a)(i) when the assessee was noteligible for deduction, which amounted tofurnishing of inaccurate particulars of incomeand thereby concealment of income?” 3.However, the issue is now squarely covered by the decisionof this Court in the case of assessee itself in Tax Appeal No.80/2016 and Tax Appeal No. 81/2016 decided on 20[th] December,2016. 4.The issue of quantum has also been decided in favour of the assessee holding as under:- 2.If the issue involved in the present groupof cases is as to whether penalty under section271 (1)(c) of the Act is sustainable in the factsof the present case.of cases is as to whether penalty under section271 (1)(c) of the Act is sustainable in the factsof the present case. 3.That it is pertinent to note that on themerit of the issue namely as to whether theassessee is entitled to claim deduction underSection 80P of the Income Tax Act, this Courthas held in favour of the assessee in D.B.Income Tax Appeal No.139/2002 inCommissioner of Income Tax, Bikaner vs. M/sRajasthan Rajya Sahakari, decided on01.09.2016, which reads as 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,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 recordthat the assessing officer while consideringthe law prevailing at the relevant point oftime for the assessment years in question hasrejected the claim of the assessee in view ofthe judgment in Assam Co-operative ApexMarketing Society Ltd. Vs. AdditionalCIT: (1993) 113 CTR (SC) 58, which came to be further confirmed by the CIT (Appeals)while dismissing 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 Supreme Courtin Kerala State Co-operative MarketingFederation Ltd. & Ors. ETC. vs.Commissioner of Income Tax: (1998) 147CTR 0029. The Supreme Court in thejudgment aforesaid in Paragraphs 5 & 7 hasobserved as under:- be further confirmed by the CIT (Appeals)while dismissing 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 Supreme Courtin Kerala State Co-operative MarketingFederation Ltd. & Ors. ETC. vs.Commissioner of Income Tax: (1998) 147CTR 0029. The Supreme Court in thejudgment aforesaid in Paragraphs 5 & 7 hasobserved 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 find thatthe AO and the CTT(A) have rejected theclaim of the assessee of allowing deductionu/s 80P(2)(iv) in view of the decision ofHon'ble Supreme Court in the case of AssamCo-operative Apex Marketing Federation Ltd.201 ITR 338 (supra). We also find that thisjudgement has been impliedly overruled bythe Apex Court in the case of Kerala State Co-operative Marketing Federation Ltd. & Others231 ITR 814 (supra), wherein at Page No.825 it was held as under:- “We hold that the society engaged in themarketing of agricultural produce of itsmembers would mean not only such societieswhich deal with the produce raised by themembers who are individuals or societieswhich members thereof who may havepurchasedsuchgoodsfromtheagriculturists. Thus, we allow the civil appealby setting aside the order made by the HighCourt and answering the question referred tous in the affirmative in favour of theassessee and against the Revenue”. Respectfully following the above judgement,we direct the AO to consider the claim of theassessee as per provisions of Section 80P(2)(a)(iv) and allow the deduction acording tolaw. 7.The Id. A.R. Submits that the assesseehas received interest from other Co-operativeSocieties/Banks and after deduction theinterest paid to State Government on loan,the net amount of interest amounting to Rs. 58,84,711.46 was shown as interest incomeand claimed as deduction u/s 80P(2)(d). Thisdeduction was disallowed by the AO on theground that the4 interest income has notbeen earned out of any investment but thesame is a result of running current accountwith various Co-operative Banks, whichcannot be held to be the investment. TheCTT(A) has also confirmed the disallowance.He further 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 subsequent assessmentyear, i.e., assessment year 1993-94, hasallowed 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. SanjayJhanwar, has drawn our attention to theprovisions contained in Section 80P(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 themto its members, or” 5.Counsel for the respondent in support ofsubmission has relied on the decision of theSupreme Court in case of UP Co-operativeCane Union Federation Ltd. Vs.Commissioner of Income Tax: (1997) 11SCC 287 and more particularly paragraph no7, 8 and 9 which reads as under:- “7. The relevant part of Section 80P(2)(a)(i) of the Actis reproduced as under: Section 80P Deduction in respect of income of co-operative societies: (2) The sums referred to in Sub-section (1) shall bethe following, namely: (a) in the case of a co-operative society engaged in (i) carrying on the business of banking or providingcredit facilities to its members, or... 8. The expression "members" is not defined in the Act.Since a co-operative society has to be establishedSince a co-operative society has to be established “7. The relevant part of Section 80P(2)(a)(i) of the Actis reproduced as under: Section 80P Deduction in respect of income of co-operative societies: (2) The sums referred to in Sub-section (1) shall bethe following, namely: (a) in the case of a co-operative society engaged in (i) carrying on the business of banking or providingcredit facilities to its members, or... 8. The expression "members" is not defined in the Act.Since a co-operative society has to be establishedSince a co-operative society has to be established under the provisions of the law made by the StateLegislature in that regard, the expression "members"in Section 80P(2)(a)(i)must, therefore, be construed inthe context of the provisions of the law enacted by theState Legislature under which the co-operative societyclaiming exemption, has been formed. It is, therefore,necessary to construe the expression "members" inSection 80P(2)(a)(i)of the Act in the light of the definitionof that expression as contained in Section 2(n)of the Co-operative Societies Act. The said provision reads asunder: Section 2(n). Member means a person who joined inthe application for registration of a society or a personadmitted to membership after such registration inaccordance with the provisions of this Act, the rulesand the bye-laws for the time being in force but areference to "members" anywhere in this Act inconnection with the possession or exercise of any rightor power or the existence or discharge of any liabilityor duty shall not include reference to any class ofmembers who by reason of the provisions of this Actdo not possess such right or power or have no suchliability or duty. 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 growerswho were members of the cane growers unions werenot the members of the Federation. In this context, itmay be mentioned that in Clause (b) of Sub-section(2) of Section 80P, reference has been made toprimary society as well as federated co-operative(societies which indicates that while enacting Section80Pwas conscious of the 'distinction between thevarious types of co-operative societies that thefunctioning in the country, namely, the federated co-operative societies and primary societies. In Section80P(2)(a)(i), when Parliament has used theexpression "members", it has used it in the normalsense of a member of a co-operative society. Theintention was 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 to co-operative societies which were extending creditfacilities to persons, though not the members of thesaid society, were members of another co-operativesociety which is a member of the co-operative societyseeking exemption. The meaning of the expression"members" cannot, therefore, be extended to includethe members of a primary co-operative society whichis a member of the federated co-operative societyseeking exemption. The principle of lifting thecorporate veil which was invoked by Shri Tripurari Raiin support of his submission cannot have anyapplication in the context of the provisions containedin Section 80P(2)(a)(i)of the Act.” 6.The learned counsel further contendedthat the present substantial questions of lawframed by this Court in examining the claim ofthe assessee are squarely covered by the 6.The learned counsel further contendedthat the present substantial questions of lawframed by this Court in examining the claim ofthe assessee are squarely covered by the judgments of the Supreme Court (supra) andin the light thereof the assessee is not entitledfor the benefit under Section 80P(2)(a)(iv),since the Parliament in its wisdom wasconscious of the distinction between varioustypes of cooperative societies and thereappears no intention to grant exemption asbeing claimed by the assessee and thereforethis Court cannot go beyond that & there arealso some stipulations in granting benefit ofSec.80P(2)(d) to the assessee and therefore,the view taken by the Assessing Officer andthe CIT (Appeals) requires confirmation &tribunal decision may be reversed. 7.Per contra, counsel for the respondenthas relied upon the decision of the SupremeCourt in Kerala State Cooperative MarketingFederation Ltd. And Ors. (supra) & moreparticularly para no.14 which reads asunder:- “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 earlierby us. In the result, the order of the Kerala HighCourt following the decision of this Court inAssam Cooperative Societies is reversed. We holdthat the society engaged in the marketing ofagricultural produce of its members would meannot only such societies which deal with theproduce raised by the members who areindividuals or societies which are membersthereof who may have purchased such goodsfrom the agriculturists. Thus, we allow the civilappeal by setting aside the order made by theHigh Court and answering the question referredto us in the affirmative in favour of the assesseeand against t he revenue. There shall be no orderas to costs.” 8.In Commissioner of Income Tax vs.U.P. Co-operative Federation Ltd.: (2006)203 CTR (ALL) 186 in para no. 6 & 7, it hasbeen held thus: 6. It may be mentioned here that after the apexCourt had delivered the judgment in the case ofKerala State Co-operative Marketing Federation Ltd.(supra), the Parliament had amended the provisionsof Section 80P(2)(a)(iii) of the Act by substituting thewords "the marketing of agricultural produce grownby its members" by the IT (Second Amendment) Act,1998, w.e.f. 1st April, 1968. The validity of theamendment has been upheld by the apex Court inthe case ofNational Agricultural Co-operativeMarketing Federation of India Ltd. and Anr. v. Union of India(2003) 181 CTR (SC) 1 : (2003) 260 ITR 548(SC). However, no such amendment has been madein Clause (iv) of Section 80P(2)(a) of the Act whichreads as follows : (2) The sums referred to in Sub-section (1) shall bethe following, 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 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 apex Courtto the facts of the present case, it is not in disputethat the apex society supplied/sold gypsum, seedsand fertilizers to its members. These goods wereintended for 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-operativeMarketing Federation Ltd. (1999) 151CTR 0232 in para no.5, it has been held asunder:- “5. The other sub-sections not being materialfor the discussion, they are not referred to. Asalready stated, the marginal heading of S. 80Pis “Deduction in respect of Income ofCooperative Societies.” 7. Applying the principles laid down by the apex Courtto the facts of the present case, it is not in disputethat the apex society supplied/sold gypsum, seedsand fertilizers to its members. These goods wereintended for 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-operativeMarketing Federation Ltd. (1999) 151CTR 0232 in para no.5, it has been held asunder:- “5. The other sub-sections not being materialfor the discussion, they are not referred to. Asalready stated, the marginal heading of S. 80Pis “Deduction in respect of Income ofCooperative 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 that theTribunal was right in coming to the conclusionthat short-term call deposits wereinvestments within the meaning of Sec.80P(2)(d) of the Act and qualified fordeduction under that provisions for both theyears in question. The parties are left to beartheir own costs.” 11.In Kota Cooperative Marketing Society Ltd.vs. Commissioner of Income Tax: (1994) 207 ITR608 (Raj.) in para no.2 which reads as under:- “2. The brief facts of the case are that theassessee has filed the return initially in whichthe deduction under s. 80P of the IT Act,1961, was claimed on proportionate basis asthe assessee was having income which waspartly taxable and partly non-taxable.Subsequently, the said return was revised andthe assessee claimed deduction from thegross amount of income, of the amount ofincome derived from its members withoutdeductingtherefromproportionateadministrative and managerial expenses. Theassessee derives its income mainly fromsupply of fertilizers to its members, marketingofagriculturalproduce,agriculturalimplements, etc. The assessee is also runninga rice mill. In the year in question, the grossprofit from supply of fertilizers to its memberswas in the figure of Rs. 4,60,385. This incomewas claimed as exempt before the ITO, butthe ITO found that the business of rice mill,trucks and tractors, etc., is separate anddivisible businesses and, therefore, relyingupon the decision of the Gujarat High Court inthe case of CIT vs. Sabarkantha Zilla KharidVechan Sangh Ltd. (1977) 107 ITR 447(Guj) : TC26R.864, it was held that theincome of the co-operative society fromnontaxable activity has to be computed bysetting off against the gross profitproportionate amount of expenditure. Theclaim of the assessee for allowing the entireexpenditure on account of managerial andadministrative expenses was not accepted.On the basis of the said decision of theGujarat High Court, the proportionateexpenses from the gross income ofRs.4,60,385 were reduced to the extent ofRs. 3,10,253 and exemption was allowed forRs. 1,50,132 only. In computing the expensesof Rs. 3,10,253 the total income shown onthe credit side of the profit and loss accountwas taken into consideration and the totalexpenses on the debit side of the profit andloss account were taken into considerationand the proportionate expenses come to 67per cent. Applying this 67 per cent to thefigure of Rs. 4,60,385, the figure of Rs.3,10,253 was arrived at which was consideredas expenses not liable to deduction under s.80P(2) of the IT Act. It was not disputed thatthe income from the trucks and tractors wasnot exempt and other activity which was the main source of income, i.e., supply offertilizers and agricultural implements to itsmembers and marketing of agriculturalproduce was exempted. The staff which wasemployed by the assessee was looking afterboth the businesses, namely, the business ofsupply of fertilizers, agricultural implements,etc., to its members and carrying on theactivity of running of the rice mill and derivingincome from trucks and tractors. The incomewhich was derived by the assessee from therice mill or from operating the tractors andtrucks was wholly divisible and was neitherconnected nor having any proximaterelationship with the other non-taxableactivity of the assessee. The criteria whichhas to be adopted for the purpose ofdetermining the liability and deducting theexpenses is as to whether the business is asingle and indivisible one or separatebusinesses are being carried on by theassessee.” 12. In Surat Vankar Sahakari SanghLtd. Vs. Assistant Commissioner ofIncome Tax: (2016) 72 taxmann.com 169(Gujarat) in para no.8.1 & 8.2 which reads asunder:- “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 allowing deductionunder Sec. 80P(2)(d) of the Act because it isnot established that the assessee hadderived the interest by investing all theamount of surplus funds. It is furthercontended by Mr. Gupta that the assesseehas paid interest to Jalandhar CentralCooperative Bank and has also receivedinterest from the said cooperative bank,thereby showing that the assessee has onthe aggregate paid interest to the bank and,therefore, no deduction under Sec.80P(2)(d)can be allowed. To appreciate this argument,we have to look to the provisions of Section80P(2)(d) of the Act, For facility of reference,it is reproduced as under: “80P.(2)(d) in respect of any income by wayof interest or dividends derived by thecooperative society from its investment withany other cooperative society, the whole ofsuch 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-nowclassic words of Rowlatt J., in Cape BrandySyndicate v. IRC (1921) 1 KB 64, 71: “...In a taxing Act, one has to look merely atwhat is clearly said. There is no room for anyintendment. There is no equity about a tax.There is no presumption as to a tax. Nothingis to be read in, nothing is to be implied. Onecan only look fairly at the language used,” 7. The principle laid down by Rowlatt J., hasalso been time and again approved andapplied by the Supreme Court in differentcases including the one, Hansraj Gordhandasvs. H.H. Dave, Assistant Collector of CentralExcise and Customs, AIR 1970 SC 755, 759. 6. So far as the principle of interpretationapplicable to a taxing statute is concerned,we can do no better than to quote the by-nowclassic words of Rowlatt J., in Cape BrandySyndicate v. IRC (1921) 1 KB 64, 71: “...In a taxing Act, one has to look merely atwhat is clearly said. There is no room for anyintendment. There is no equity about a tax.There is no presumption as to a tax. Nothingis to be read in, nothing is to be implied. Onecan only look fairly at the language used,” 7. The principle laid down by Rowlatt J., hasalso been time and again approved andapplied by the Supreme Court in differentcases including the one, Hansraj Gordhandasvs. H.H. Dave, Assistant Collector of CentralExcise and Customs, AIR 1970 SC 755, 759. 8. Sec.80P(2)(d) of the Act allows wholededuction of an income by way of interest ordividends derived by the cooperative societyfrom its investment with any othercooperative society. This provisions does notmake any distinction in regard to source ofthe investment because this Sectionenvisages deduction in respect of any incomederived by the cooperative society from anyinvestment with a cooperative society. It isimmaterial whether any interest paid to thecooperative society exceeds the interestreceived from the bank on investments. TheRevenue is not required to look to the natureof the investment whether it was from itssurplus funds or otherwise. The Act does notspeak of any adjustment as sought to bemade out by learned counsel for the Revenue.The provision does not indicate any suchadjustment in regard to interest derived fromthe cooperative society from its investment inany other cooperative society. Therefore, wedo not agree with the argument advanced bythe learned counsel for the Revenue. In ouropinion, the learned Tribunal was right inallowing deduction under Sec.80P(2)(d) of theIncome Tax Act, 1961. In respect of interestof Rs.4,00,919/- on account of interestreceived from Nawanshaln CentralCooperative Bank without adjusting the interest paid to the bank. Therefore, thereference is answered against the Revenue inthe affirmative and in favour of the assessee.' 8.2 Moreover, the Bombay High Court in thecase of Bai Bhuriben Lallubhai (supra) hasheld that the purpose for which the assesseeborrowed money had no connection whetherdirect or indirect with the income which sheearned from the fixed deposit and that shewas not entitled to the deduction claimedu/s 12(2). The High Court held that if anassessee had no option except to incur anexpenditure in order to make the earning ofan income possible, then undoubtedly theexercise of that option is compulsory andany expenditure 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 has noconnection 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 particularly purchaseof yarn and not for fixed deposits.” 13. We heard both the counsel. 13.1In view of the decision of Supreme Courtin Kerala State Co-operative MarketingFederation Ltd. (supra), we are of theopinion that view taken by the tribunal isrequired to be upheld. 13.2Regarding issue no.2, in view of thedecision of the Gujarat High Court and moreparticularly para no. 8.1 & 8.2, we are of theopinion that the assessee is to be given thebenefit of net income. 14.The view taken by the tribunal isrequired to be accepted, and therefore, boththe issues are answered in favour of theassessee and against the Department. 15.Taking into consideration the aboveobservations, these appeals being devoid ofany merit and deserves to be dismissed andthe same is dismissed. 13. We heard both the counsel. 13.1In view of the decision of Supreme Courtin Kerala State Co-operative MarketingFederation Ltd. (supra), we are of theopinion that view taken by the tribunal isrequired to be upheld. 13.2Regarding issue no.2, in view of thedecision of the Gujarat High Court and moreparticularly para no. 8.1 & 8.2, we are of theopinion that the assessee is to be given thebenefit of net income. 14.The view taken by the tribunal isrequired to be accepted, and therefore, boththe issues are answered in favour of theassessee and against the Department. 15.Taking into consideration the aboveobservations, these appeals being devoid ofany merit and deserves to be dismissed andthe same is dismissed. 4.Since, the issue on merit has beendecided in favour of the assessee no penalty can be levied and as such the Tribunal hascommitted no error of law in setting aside thepenalty under Section 271 (1)(c) of theIncome Tax Act. 5.In that view of the matter, no substantial question of law arises. 6.Hence, the appeal stands dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. A.Sharma/37