Co-op society loses tax exemption on autorickshaw sales to members under hire purchase agreements.

Commissioner Of Income-Tax, Tamil Nadu III Versus Madras Autorickshaw Drivers´ Co-operative Society Limited

Commissioner Of Income-Tax, Tamil Nadu III Versus Madras Autorickshaw Drivers´ Co-operative Society Limited - [1983] 143 ITR 981, 37 CTR 332 Issues Involved:
1. Whether the assessee is a co-operative society engaged in carrying on the business of providing credit facilities to its members within the meaning of s. 80P(2)(a)(i) of the I.T. Act, 1961.

Summary:

Issue 1: Principal Object and Business Character of the Society
- The court examined whether the assessee, a co-operative society, is engaged in providing credit facilities to its members u/s 80P(2)(a)(i) of the I.T. Act, 1961.
- The society's principal object, as stated in its bye-law, is "to promote the economic interests of the members of the society by purchasing autorickshaw vehicles and selling them on hire purchase terms to the members."
- The court noted that the society's business involves purchasing autorickshaws and re-selling them to its members on hire purchase terms, questioning if this can be considered as providing credit facilities.

Issue 2: Nature of Hire Purchase Transactions
- The court analyzed the nature of the hire purchase transactions, noting that the society retains ownership of the vehicles until the final instalment is paid, and the transactions involve elements of both sale and financing.
- The court distinguished between two types of hire purchase agreements: one where the financier purchases goods and resells them to the customer, and another where the customer purchases goods and the financier provides credit. The court found the society's transactions to belong to the former category, emphasizing the element of sale over financing.

Issue 3: Examination of Society's Business Nature
- The court emphasized that the eligibility for tax relief u/s 80P(2)(a)(i) should be determined by examining the society's business nature as defined in its bye-laws, rather than individual transactions.
- The court referred to the society's object clause, which focuses on purchasing and re-selling vehicles, not on providing credit facilities. The court also noted that the society's activities align with its objects, negating the idea of it being a credit society.

Issue 4: Statutory Context and Classification of Societies
- The court considered the statutory context, noting that co-operative societies are governed by specific statutes and classified into various types, including credit societies.
- The court found that the description "co-operative society engaged in providing credit facilities to its members" in s. 80P(2)(a)(i) aligns with the definition of a credit society in the Tamil Nadu Co-operative Societies Rules, 1963.

Issue 5: Tribunal's Reasoning and Conclusion
- The Tribunal had concluded that providing credit facilities could include selling goods on credit. However, the court disagreed, stating that the society's transactions predominantly involve sales, not the provision of credit facilities.
- The court answered the formulated question in the negative, ruling against the assessee, and decided not to make any order as to costs considering the nature of the society.

Conclusion:
- The court concluded that the income derived by the assessee co-operative society from selling autorickshaws to its members under hire purchase agreements is not exempt from tax u/s 80P(2)(a)(i) of the Income-tax Act, 1961, for the assessment years 1973-74 and 1974-75.