Co-operative tax exemption under section 80P fails where printing income is non-qualifying and credit support is not to own members.

Income from a printing press was treated as outside the scope of section 80P(2)(a)(i) because it was not attributable to banking or credit facilities for members. Service charges for arranging pumping sets were treated as capable of amounting to a credit facility where the society undertook payment responsibility, but the exemption still failed because the benefit was not extended to the assessee-society's own members. The analysis turns on the requirement that credit facilities under section 80P(2)(a)(i) must be provided to members of the assessee-society itself, and members of a member-society do not automatically qualify.

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Issues: (i) Whether income from the printing press was exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961. (ii) Whether income from service charges for arranging supply of pumping sets was exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Issue (i): Whether income from the printing press was exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The provision grants deduction only to income attributable to the specified co-operative activities, including carrying on the business of banking or providing credit facilities to members. The court followed its earlier view that printing press income did not fall within the ambit of this exemption, because it was not income from the specified activity of banking or providing credit facilities.

Conclusion: The income from the printing press was not exempt and the finding was against the assessee.

Issue (ii): Whether income from service charges for arranging supply of pumping sets was exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The expression providing credit facilities was held to include not only lending money but also guaranteeing payments as part of a credit arrangement. On the facts, the assessee had undertaken responsibility for payment and had thereby provided credit facilities. However, the exemption under the provision also required that the credit facilities be provided to its members. Under section 2(n) and section 17 of the U.P. Co-operative Societies Act, 1965, members of a member-society did not automatically become members of the parent society. The cane-growers were members of a member-society and not of the assessee-society itself.

Conclusion: The income from service charges was not exempt because the credit facility was not provided to the assessee's own members, and the finding was against the assessee.

Final Conclusion: The exemption claim under section 80P(2)(a)(i) failed for both income streams, and the reference was answered in favour of the revenue.

Ratio Decidendi: For exemption under section 80P(2)(a)(i), the activity must amount to providing credit facilities to the assessee-society's own members; guarantees facilitating purchase finance may constitute credit facilities, but members of a member-society do not ipso facto become members of the parent society.

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