Commissioner of Income Tax and Another vs Iqbalpur Co-operative Cane Development Union Ltd.

Prafulla C. Pant, J.—These two appeals are directed against the common judgment and order dated 9-2-2007, passed by the Income Tax Appellate Tribunal (hereinafter referred as "the ITAT"), Delhi Bench "SMC", Delhi, whereby Income Tax Appeal No. 3758 (Del) 2006 (assessment year 2003-04) and Income Tax Appeal No. 3759 (Del) 2006 (assessment year 2004-05), filed by the assessee (present respondent), are allowed.

Heard learned Counsel for the parties.

The question of law involved in these appeals is as under:

Whether the Income Tax Appellate Tribunal has erred in law in holding that the interest earned by the assessee-co-operative society (engaged in agricultural credit facility), from unutilized funds invested in the banks other than the co-operative bank, as fixed deposit receipts, and Kisan Vikas Patra with post offices, is liable to be deducted u/s 80P of the Income Tax Act, 1961 ?

Brief facts giving rise to these appeals are that the respondent-assessee is a co-operative society engaged in the business of credit facilities to its members who are cane growers (agriculturists) to ensure regular supply of cane from the members to sugar mills and to procure the payment from sugar mills for the agriculturists. The society is also engaged in providing loan to its members for purchase of agricultural implements, seeds, fertilizers, etc. As to the nature of the work and object of the co-operative society there is no dispute between the parties. The assessing officer (hereinafter referred as "the assessing officer") has disallowed the deduction u/s 80P of the Act to the respondent-assessee. Aggrieved by the said order of the assessing officer the assessee preferred first appeal before the Commissioner (Appeals) (hereinafter referred as "the Commissioner (Appeals)), who has upheld the order passed by the assessing officer on the ground that the deduction was admissible only in respect of F.D.R. if the money was invested with some other co-operative banks. The Commissioner (Appeals), while dismissing appeals, relied on the case of Commissioner of Income Tax, Tamil Nadu-III Vs. Madras Autorickshaw Drivers'' Co-operative Society Ltd., . Aggrieved by the orders of the Commissioner (Appeals), the respondent-assessee, Iqbalpur Co-operative Cane Development Union Ltd., filed Income Tax Appeal Nos. 3758 and 3759 (Del) 2006 (for the assessment years 2003-04 and 2004-05) before the Income Tax Appellate Tribunal, Delhi. The same are allowed by the said authority; vide the impugned order dated 9-2-2007. Hence, these appeals by the revenue.

Before further discussions we think it just and proper to mention the relevant provisions of law contained in Section 80P of the Income Tax Act, 1961:

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-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in Sub-section (2), in computing, the total income of the assessee:

(2) The sums referred to in sub section (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 ....

(iii) the marketing of agricultural produce grown by 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....

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-clause (vi), or Sub-clause (vii) ....

(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income ;...

From the provisions of law, quoted above, it is clear that the Legislature had intended to allow deductions on the whole of the amount of profits and gains of business attributable to any one or more of such activities, mentioned above, in respect of the co-operative society covered under Clause (a). In our opinion, Clause (d) is an independent clause of Clause (a). The co-operative society, which is not engaged in the work of the nature of encouraging the agricultural produce, can claim deduction on the interest or dividends only if the investments are made with any other co-operative society. Each category contained in Clauses (a), (b), (c) and (d) cover different kinds of co-operative societies, for example, co-operative society covered under Clause (b) are the primary societies engaged in supplying milk, oil seeds, fruits or vegetables to other co-operative societies or to the Government, or local authorities. Similarly, Clause (c) covers the co-operative societies, which are of the nature of consumers'' co-operative society. Clause (e) covers the co-operative societies engaged in letting out the godowns and warehouses, and Clause (f) covers the urban consumers'' societies. Since sums to be deducted under Sub-section (1) of Section 80P of the Act to the extent of whole of the amount of profits and gains of business attributable to anyone or more of such activities as is applicable to the co-operative societies covered under Clause (a) of Sub-section (2) of Section 80P of the Income Tax Act, 1961, as such we do not find any error of law committed by the Income Tax Appellate Tribunal in allowing the appeals of the assessee (present respondent), which is a co-operative society engaged in the business of credit facility and also covered under Sub-clause (iii) and Sub-clause (iv) of Clause (a) of Sub-section (2). Whether such society earned its income in the form of interest on fixed deposit receipts or Kisan Vikas Patra makes no difference. In our opinion, such interest is also part of amount of profits and gains of business of activities of such society.

On behalf of the appellants our attention is drawn to the case of Commissioner of Income Tax, Tamil Nadu-III Vs. Madras Autorickshaw Drivers'' Co-operative Society Ltd., , and it is argued that the Income Tax Appellate Tribunal has wrongly allowed the deductions to the present assessee. On going through the referred case law, we find that in the said case the assessee was a cooperative society engaged in the business of purchasing auto rickshaw vehicles and reselling them to the members on hire-purchase terms. Such activity is not covered under Clause (a) of Sub-section (2) of Section 80P of the Act. As such, the principle of law laid down in the said case is not applicable to the present case as the assessee in this case is co-operative cane development union engaged not only in credit facility but also in marketing of agricultural produce grown by its members and providing loans for purchase of agricultural implements, seeds for agriculture. For the same reason the another case law Commissioner of Income Tax, Chennai Vs. Modern Engineers Construction Cooperative Society Ltd., is of no help to the appellants, for in the said case also the society was Modern Engineering Construction Co-operative Society, which was not involved in the encouragement of any agricultural produce, as such not covered under Clause (a) of Sub-section (2) of Section 80P of the Act.

For the reasons as discussed above, the question of law stands answered in favour of the assessee.

Accordingly, both the appeals are liable to be dismissed. The same are dismissed.