Section 80P exemption denied where service charges arose from dealings with non-members under cooperative law.

Section 80P(2)(a)(i) exemption was confined to societies providing credit facilities directly to their own members, and the term "members" had to be read in the context of the relevant State cooperative law. On that basis, the Federation's members were only the cane union cooperative societies, while individual cane growers were not its members. Income received as service charges from supplying pumping sets therefore did not qualify for exemption. A liberal construction and reliance on lifting the corporate veil were rejected as inapplicable, and the exemption claim failed.

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Issues: Whether the assessee was entitled to exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961, in respect of income received as service charges from the supply of pumping sets.

Analysis: The expression "members" in section 80P(2)(a)(i) was held to have to be understood in the context of the State co-operative law under which the society was registered. Under section 2(n) of the U.P. Cooperative Societies Act, 1965, the Federation's members were the cane union co-operative societies alone, and the individual cane growers were not its members. The provision was intended to extend the exemption only to societies directly providing credit facilities to their own members, and not to societies dealing with persons who were only members of another society that itself was a member of the assessee. The suggested liberal construction and the doctrine of lifting the corporate veil were held inapplicable.

Conclusion: The assessee was not entitled to exemption under section 80P(2)(a)(i); the claim failed.

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