AHMEDNAGAR CENTRAL CO-OPERATIVE CONSUMERS WHOLESALE and RETAIL STORES LTD. vs COMMISSIONER OF Income Tax.

DR. B. P. SARAF, J. :

By this reference under S. 256(1) of the IT Act, 1961, made at the instance of the assessee, the Tribunal has referred the following question of law to this Court for opinion :

"Whether the applicant co-operative society is entitled to exemption from Income Tax under the principle of mutuality ?"

This reference pertains to the asst. yr. 1980-81. The assessee is a co-operative society registered under the Maharashtra Co-operative Societies Act and carries on trading activities with its members as well as non-members. In its assessment for the asst. yr. 1980-81, the assessee claimed exemption in respect of the profits arising out of the trading activities carried on by it on the principle of mutuality. The ITO allowed the exemption. However, the CIT revised the order of the ITO in exercise of powers of suo motu revision under S. 263 of the IT Act, 1961 ("the Act"), as he was of the opinion that the society did not satisfy the principle of mutuality. The assessee appealed to the Tribunal against the above order of the CIT. The Tribunal dismissed the appeal of the assessee and confirmed the order of the CIT. Hence, this reference at the instance of the assessee.

Learned counsel for the parties are agreed that the controversy in this case now stands concluded by the decision of this Court in COMMISSIONER OF Income Tax Vs. NAGPUR ZILLA KRISHI AUDYOGIK SAHAKARI SANGH LTD., and following the same in the instant case, the assessee will be entitled to exemption under S. 80P of the Act in respect of profits attributable to dealings with its members and in that view of the matter, it should be held that the assessee is entitled to exemption in respect of profits attributable to the dealings of the assessed-society with its members under S. 80P of the Act.

We have carefully considered the above submission of counsel for the assessee which is supported also by counsel for the Revenue. From the above submission of counsel for the assessee, it is clear that the only relief the assessee claims is exemption under S. 80P of the Act on the basis of the decision of this Court referred to above in respect of profits arising from trading activities with its members and does not want to pursue its claim on the ground of mutuality. To decide this claim of the assessee for exemption under S. 80P of the Act, we have perused S. 80P of the Act and also the decision of this Court in CIT vs. Nagpur Zilla Krishi Audyogik Sahakari Sangh Ltd. (supra). Sec. 80P, at the material time, so far as relevant, read as follows :

"80P. Deduction in respect of income of co-operative societies - (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-s. (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-s. (2), in computing the total income of the assessee.

(2) The sums referred to in sub-s. (1) shall be the following, namely :

(a) in the case of a co-operative society engaged in -

(i) carrying on the business of banking or providing credit facilities to its members, or

(ii) a cottage industry, or

(iii) the marketing of the agricultural produce of its members, or

(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or

(v) the processing, without the aid of power, of the agricultural 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 or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members,

the whole of the amount of profits and gains of business attributable to any one or more of such activities :

Provided that in the case of a co-operative society falling under sub-cl. (vi) or sub-cl. (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely :-

(1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities;

(2) the co-operative credit societies which provide financial assistance to the society;

(3) the State Government;

(b) in the case of co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to -

(i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits or vegetables, as the case may be; or

(ii) the Government or a local authority; or

(iii) a Government company as defined in S. 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public),

the whole of the amount of profits and gains of such business;

(c) in the case of a co-operative society engaged in activities other than those specified in cl. (a) or cl. (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed, -

(i) where such co-operative society is a consumers co-operative society, forty thousand rupees; and

(ii) in any other case, twenty thousand rupees.

Explanation - In this clause, consumers co-operative society means a society for the benefit of the consumers; ..."

From a plain reading of the above section, it is clear that exemption is granted to co-operative societies under the IT Act, in respect of income specified therein subject to the conditions and to the extent set out in the said section.

In the instant case, the assessee is a co-operative society. It claims that it cannot be denied exemption under S. 80P of the Act in respect of sales of commodities made by it to its members on the ground that it is also engaged in selling those commodities to non-members. Reliance is placed in support of this contention on the decision of this Court in CIT vs. Nagpur Zilla Krishi Audyogik Sahakari Sangh Ltd. (supra). We have carefully perused the above decision of this Court. In that case, this Court, on perusal of S. 80P of the Act, has held :

"All sales of specified commodities to members irrespective of their proportion and quantum - would belong to the exempted category and all such sales to non-members irrespective of their proportion and quantum -would belong to the non-exempted category".

It was observed by this court in the above case that the original intention of the society at the time of purchase of the items was not the deciding factor. It was held that the correct approach would be to grant exemption to the whole amount of profits and gains attributable only to actual sales of specified commodities to members, irrespective of the original intention at the time of purchase. It is clear from the above decision that a co-operative society is entitled to exemption in respect of its income from activities falling under S. 80P of the Act with its members to the extent indicated in the said section.

In the instant case, it is not clear from the statement of the case or from the order of the authorities below including the Tribunal as to what were the trading activities undertaken by the assessee. We, however, find from the order of the Tribunal that the assessee was given relief by the authorities below under S. 80P(2)(c) of the Act. If that is so, the assessee would not be entitled to any more relief on the basis of the decision of this Court referred to above. However, counsel for the assessee contended before us that as material facts are not before us, this matter should be remitted to the Tribunal to give relief to the assessee under S. 80P of the Act in respect of profits derived by it from trading activities with its members. In view of the peculiar facts and circumstances of this case, we are of the opinion that ends of justice will be met if the matter is remitted to the Tribunal to examine the claim of the assessee for deduction under S. 80P of the Act in the light of the decision of this Court in CIT vs. Nagpur Zilla Krishi Audyogik Sahakari Sangh Ltd. (supra) and if the assessee is entitled to any relief over and above what has been granted to it, to allow the same. We order accordingly. In the facts and circumstances of this case, we make no order as to costs.