Cooperative society wins tax exemption for Lift Irrigation Scheme income

The Court held in favor of the cooperative society, ruling that the income derived from the Lift Irrigation Scheme was exempt from income tax under section 80P(2)(a)(iv) of the Income-tax Act, 1961. The Court determined that the water charges paid by the society constituted the purchase price of water for agricultural use, making the income eligible for exemption. The Revenue's appeal was dismissed, and the society was not ordered to pay costs.

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Issues:
Interpretation of section 80P(2)(a)(iv) of the Income-tax Act, 1961 regarding exemption for income derived from the Lift Irrigation Scheme.

Analysis:
The case involved a co-operative society engaged in sugar manufacturing and lift irrigation schemes, providing water to its members for agricultural purposes. The society claimed exemption under section 80P(2)(a)(iv) of the Income-tax Act, 1961 for the income earned from the Lift Irrigation Scheme. The dispute arose when the Income-tax Officer rejected the claim, arguing that the payment of water tax did not constitute a purchase price of water. However, the Commissioner of Income-tax (Appeals) allowed the appeal, stating that the income derived from supplying water through the scheme was exempt. The Revenue appealed to the Income-tax Appellate Tribunal, which upheld the Commissioner's decision, considering the water charges as the purchase price of water and thus covered under section 80P(2)(a)(iv) of the Act.

The key contention was whether water qualifies as an article intended for agriculture and if the society had purchased it for supplying to its members. The co-operative society had obtained permission from the Government to lift water from rivers under specific conditions, including payment of water charges. The society then supplied this water to its members for cultivation without them having to pay the Government directly. The Tribunal concluded that the water charges paid represented the purchase price of water for agricultural use, making the income derived from the scheme eligible for exemption under section 80P(2)(a)(iv) of the Act.

Upon careful consideration of the arrangement between the society and the Government for lifting water for agricultural purposes, the Court determined that the water charges indeed constituted the purchase price of water. Consequently, the society was entitled to the exemption under section 80P(2)(a)(iv) of the Act. The Court ruled in favor of the assessee and against the Revenue, affirming that the income from the Lift Irrigation Scheme was exempt from income tax. The reference was disposed of with no order as to costs.

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