TaxTMI 
TaxTMI 
TaxTMI 
2016 (1) TMI 1262
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....evertheless, a liberal approach has to be adopted by the appellate authorities, where delay has occurred for bona fide reasons on the part of the assessee or the Revenue in filing the appeals. In matters concerning the filing of appeals, in exercise of the statutory right, a refusal to condone the delay can result in a meritorious matter being thrown out at the threshold, which may lead to miscarriage of justice. The judiciary is respected not on account of its power to legalize in justice on technical grounds but because it is capable of removing injustice and is expected to do so. 2.3. The Hon'ble Apex Court in a celebrated decision in Collector, Land Acquisition vs Mst. Katiji & Ors. 167 ITR 471 opined that when technical consideration and substantial justice are pitted against each other, the courts are expected to further the cause of substantial justice. This is for the reason that an opposing party, in a dispute, cannot have a vested right in injustice being done because of a non- deliberate delay. Therefore, it follows that while considering matters relating to condonation of delay, judicious and liberal approach is to be adopted. If sufficient cause is found to exist, whi....
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....ion of interest income earned from fixed deposits u/s 80P(a)(i) and 80P(2)(d) of the Income Tax Act, 1961 (hereinafter the Act). The facts in brief, are that the assessee is registered as a Co-operative Society with the Registrar of Co-operative Societies under Maharashtra Cooperative Society Act 1960. The objects of the Society is to enable its members to obtain loans and to save their income in a safe and convenient way to lent money etc. as per the bye laws of the society. As per the copy of accounts, furnished before the Department, the society had paid up capital of Rs. 81.30 lakhs and various statutory reserves of Rs. 90.17 lakhs , deposits of about Rs. 591.72 lakhs from its members and other liabilities. On the asset side, the assessee had balances with various scheduled and Co-operative banks, investment in FDs maintained with Co-operative banks and loans/advances. The ld. Assessing Officer examined the claimed deduction u/s 80P(2)(a)(i) of the Act amounting to Rs. 10,15,347/-. It is noted that in para 4.9 of the assessment order, the ld. Assessing Officer has observed that the assessee is a co-operative society carrying on the business of co-operative bank, therefore, he a....
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....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 (ii) a cottage industry, 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 (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any o....
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.... with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22. Explanation.-For the purposes of this section, an "urban consumers' co-operative society" means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment. (3) In a case where the assessee is entitled also to the deduction under section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 80-I or section 80-IA or section 80J, the deduction under sub-section (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income, if any, as referred to in those clauses included in the gross total income as reduced by the deductions under section 80HH, section 80HHA, section 80HHB, section 80HHC, section 80HHD,section 80-I, section 80- IA, section 80J and section 80JJ. (4) The provisions of this section shall not apply in relation t....
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.... and from assessment year 1979-80) the Government or a local authority; or (iii) (for and from assessment year 1979-80) a 'Government company' or a corporation established by or under an Act, where such company or corporation is engaged in supplying- -milk, -(for and from assessment year 1984-85) oilseeds, fruits or vegetables to the public; (c) out of the profits and gains derived by a co-operative society from a business (other than an insurance business or any business of the nature specified at (a) (i) to (b) hereinbefore), to the extent of Rs. 15,000 of such profits for assessment years 1968-69 and 1969-70, and to the extent of Rs. 20,000 for and from assessment year 1970-71. The said extent of Rs. 20,000 has, for and from assessment year 1980-81, been raised to Rs. 40,00022 if the cooperative society is a "consumers' co-operative society". In case of other co-operative societies, the extent has been maintained at Rs. 20,000. 2.9. Section 80P(2)(a)(i) of the Act envisaged two category of business, namely (1) engaging in carrying on the business of banking and (2) engaging in the business of providing credit facilities to its members. The twin require....
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....the section would be to treat each as a separate and distinct head of exemption. Whenever a question arises as to whether any particular category of an income of a co-operative society is exempt from tax what has to be seen is whether the income fell within any of the several heads of exemption. If it fell within any one head of exemption, it would be free from tax notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption. The expression "marketing" is an expression of wide import. It involves exchange functions such as buying and selling, physical functions such as storage, transportation, processing and other commercial activities such as standardisation, financing, marketing intelligence, etc. Such activities can be carried on by an apex society rather than a primary society. So long as agricultural produce handled by the assessee belonged to its members it was entitled to exemption in respect of the profits derived from the marketing of the same. Whether the members came by the produce because of their own agricultural activities or whether they acquired it by purchasing it from cultiv....
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.... meaning of the expression "of" occurring in the relevant provision. The use of the expression in the context, setting of the different categories of societies in the legislation in comparison with other provisions thereof would indicate that the expression "of" acquires the meaning as "belonging to". Any expression in any enactment will like a chameleon acquire colour from the background in which it is situate. Trite, to say, that a word acquires meaning only with reference to text and context. In CIT (Addl.) v. Ryots Agricultural Produce Co-operative Marketing Society Ltd. [1978] 115 ITR 709 (Kar), wherein the scope of section 81(i)(c) as it stood then was considered in respect of income from marketing of agricultural produce of its members after processing it (sic). In CIT v. Karjan Co-operative Cotton Sale, Ginning and Pressing Society Ltd. [1981] 159 ITR 821 (Guj), again an identical question was considered. The Gujarat High Court explained the expression used in section 80P of the Income-tax Act. So long as the commodity brought to the assessee-society was agricultural produce and belonged to its members, it was agricultural produce of its members, be the member a co-op....
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....is entitled to exemption. Similarly in CIT v. Kerala State Co-operative Marketing Federation Ltd. [1992] 193 ITR 624 (Ker), this question was again considered and the view taken by the Gujarat High Court to which we have adverted in Karjan Co-operative Cotton Sale, Ginning and Pressing Society Ltd.'s case [1981] 129 ITR 821, was reiterated. In CIT v. Tamil Nadu Co-operative Marketing Federation Ltd. [1983] 144 ITR 74 (Mad), it was held that the expression "co-operative society" occurring in section 80P(1) covers any co-operative society whether it is a primary society or an apex society and hence reference to members in clause (iv) of section 80P(2) can be taken to refer to the members of a primary society or members of an apex society as the case may be. 2.15. Now, I shall analyze, what is Co-operative bank.? Ordinarily, banks do invest their money in Government securities. One of the purposes of such activity is to ensure availability of ready money meet various exigencies of the banking business. In case of co-operative banks, holding of Government securities would indeed appropriately connected with the banking business and thus their matter would be covered by the first part ....
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....51 ITR 194, 196 (SC)]. 2.17. In that view of the matter, interest on Government securities held as stock-in-trade is eligible for deduction under the provisions similar to section 80P(2)(a)(i). To such interest provisions similar to section 80P(2)(f) are not applicable [Addl. CIT. v. Rajasthan State Co-operative Bank Ltd., (1987) 163 ITR 213 (Raj); CIT v. Rajasthan State Co-operative Bank Ltd., (1985) 22 Taxman 69 (Raj)]. Following the Supreme Court decision [218 ITR 438 (SC)], the Rajasthan High Court has, in CIT v. Rajasthan State Co-operative Bank [(1997) 223 ITR 55, 66- 67 (Raj)], held that the Rajasthan decision [163 ITR 213 (Raj)] cannot be considered to be good law, on facts, in view of the above Supreme Court decision [218 ITR 438 (SC)] and the provisions of the Rajasthan Co-operative Societies Act, 1965 (13 of 1965), and the Rules made thereunder from which it is evident that interest earned on securities investments by the bank is not a banking business as the said investment is neither of circulating capital or stock-intrade of the co-operative bank as it has no absolute or unfettered right to withdraw the same whenever it likes. It can be withdrawn only in the proceedi....
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....gible for deduction under section 80P(2)(a)(i). Approving the view taken in [233 ITR 282 (SC)], the larger Bench of the Supreme Court in CIT v. Kamataka State Co-operative Apex Bank [(2001) 251 ITR 194, 196 (SC)] did not agree with the finding in that case [233 ITR 282 (SC)] that the Supreme Court decision [218 ITR 438 (SC)] was rendered on its own facts. 2.20. Where in the activity of advancing loans to the staff members, the interest paid on the money borrowed for this purpose would have to be set off against the interest charged from the staff members, the net result in this activity would be loss. Thus, in the absence of any income from this activity, no deduction under section 80P(2)(a)(i) could be claimed [CIT v. Haryana State Co-operative Land Development Bank Ltd., (2002) 254 ITR 107, 111 (Punj)] , CIT v. Bangalore City Co-operative Bank Ltd., SLP (Civil) Nos. 4334- 4335 of 1992: (1992) 195 ITR (St.) 2-3 (SC); CIT v. Kamataka State Co-operative Apex Bank, SLP (Civil) Nos. 13178-13180 of 2000 : (2001) 247 ITR (St.) 3 (SC). 2.21. Now, I shall analyze with respect to members of the society. -A member of the assessee-society, in section 80P, ordinarily, refers to a person who....
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.... ITR (St.) 44 (SC)]. Also see, Malwa Mills Karamchari Paraspar Sahakari Sanstha v. CIT, (1982) 134 ITR 505 (MP); Rodier Mill Employees' Co-operative Stores Ltd. v. CIT, (1982) 135 ITR 355 (Mad). Thus, where the assesseesociety was engaged in purchasing auto-rickshaws and selling them to its members under hire-purchase terms, it was held that the assessee could not be treated as providing credit facilities [CIT v. Madras Autorickshaw Drivers' Co-operative Society Ltd., (1983) 143 ITR 981 (Mad), special leave petition granted by the Supreme Court: (1991) 187 ITR (St.) 44 (SC), affirmed in Madras Auto Rickshaw Drivers' Co-operative Society v. CIT, (2001) 249 ITR 330, 331 (SC)]. So much so, selling goods on credit to the members does not amount to 'providing credit facilities' within the meaning of section 80P(2)(a)(i) [Kerala Cooperative Consumers' Federation Ltd. v. CIT, (1988) 170 ITR 455 (Ker), followed in CIT v. Kerala State Co-operative Marketing Federation Ltd., (1998) 234 ITR 301,302-03 (Ker)]. 2.22. The expression "providing credit facilities" in section 80P(2)(a)(i) would comprehend the business of lending money on interest. It would also comprehend t....
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....commission and brokerage by dealing in bills of exchange, Government subsidy, admission fee from members, incidental charges, etc., were held eligible for deduction benefit]. Also see, Bhopal Co- operative Central Bank Ltd. v. CIT, (1985) 156 ITR 655 (MP); Bhopal Cooperative Central Bank v. CIT, (1983) 169 ITR 573 (MP); CIT v. Bhopal Co-operative Central Bank Ltd., (1988) 172 ITR 423 (MP); Madhya Pradesh Rajya Sahakari Bank v. CIT, (1988) 174 ITR 150 (MP), special leave petition granted by the Supreme Court: (1992) 195 ITR (St.) 5-6 (SC); CIT v. Dhar Central Co-operative Bank Ltd., (1990) 183ITR 174 (MP). It is observed that in CIT v. Bhopal Co-operative Central Bank Ltd., (1987) 164 ITR 713 (MP) [interest from Government securities held as per statutory requirementsheld eligible for deduction. In the case of CIT v. Pondicherry Co-operative Housing Society Ltd., (1991) 188 ITR 671, 677 (Mad), special leave petition dismissed by the Supreme Court: (1994) 209 ITR (St.) 87 (SC) [interest received by the co-operative society, functioning as a co-operative housing society, on advances made by it to its members for constructing houses was held eligible for deduction under section 80P as....
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....siness income entitled to deduction under section 80P(2)(a)(i)]. Also see, CIT v. Madurai District Central Cooperative Bank Ltd., (2000) 164 CTR (Mad) 71, 72, 73-74. The Hon'ble Madras High Court in CIT v. Madurai District Co-operative Bank Ltd., (1999) 239 ITR 700, 703- 04 (Mad) [income from letting out the surplus meeting hall of the assessee, which was properly assessed as business income was held eligible for deduction. The Hon'ble High Court in CIT v. Anakapalli Cooperative Marketing Society Ltd., (2000) 245 ITR 616, 618,624 (AP) [amount of service charges collected by the assessee from its members did not qualify for exemption under section 80P(2)(a)(i) of the Act especially when the assessee acted only as an agent between its members and the bank granting the loans to the members without the involvement directly or indirectly in the matter of repayment of loan. 2.27. The Hon'ble Apex Court in the case of Gujarat State Co-operative Bank Ltd. v. CIT, (2001) 251 ITR 522, 524 (SC), reversing Gujarat State Co-operative Bank Ltd. v. CIT, (2001) 250 ITR 229 (Guj) and following CIT v. Karnataka State Co-operative Apex Bank, (2001) 251 ITR 194 (SC) on the first point [assessee was....
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.... therefore, was an investment in accordance with the mandatory provisions of section 44 of the Punjab Co-operative Societies Act, 1961, was eligible for deduction under section 80P(2)(a)(i) of the Act for the assessment year 1994-95. 2.30. The Hon'ble jurisdictional High Court in CIT v. Ahmednagar District Central Co-operative Bank Ltd. : Osmanabad District Central Co-operative Bank Ltd. : Latur District Central Co-operative Bank Ltd., (2003) 264 ITR 38, 40, 41-42 (Bom) [commission from MSEB and MPCS was held eligible for deduction under section 80P(2)(a)(i) as the same was attributable to business of banking; still, each activity/form of business enumerated in section 6(1) of the Banking Regulation Act, 1949; per se, the activities/forms of business enumerated in clauses (a) to (0) of that section 6(1) may not attract the reliefs under section 80P(2)(a)(i)] of the Act. In CIT v. Sri Ram Sahakari Bank Ltd., (2004) 266 ITR 632, 634 (Karn) [interest and dividend income of Rs. 2,50,664/- derived out of investment in National Savings Certificates, Indira Vikas Patras, Kisan Vikas Patras, shortterm deposits in banks and shares of Maharashtra State Financial Corporation of India, were h....
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.... the assessee was an apex housing co-operative society and its business was to provide credit facilities to its members, which were primary co-operative societies. The sum of Rs. 15,98,592 received by way of interest on bank deposit was ancillary and incidental to the business of providing credit facility to its members and, hence, deductible under section 80P(2)(a)(i) of the Act. 2.33. In CIT v. Haryana State Co-operative Apex Bank Ltd., (2010) 322 ITR 404 (Punj) [the assessee was entitled to deduction under section 80P(2)(a)(i) of the Act on the interest on refund of excess of income-tax. Once income-tax paid was derived from business income then interest income would partake of the character of the principal amount because the interest paid to the assessee is compensation on account of deprivation of the use of money. It is noted that in the case of CIT v. Punjab State Co-operative Bank Ltd., (2008) 304 ITR 113 (Punj), SLP dismissed: (2008) 306 ITR (St.) 3 (SC) [the assessee, a cooperative bank, engaged in the business of banking, claimed deduction under section 80P(2)(a)(i). The income earned from HDFC bonds was eligible for deduction under section 80P(2)(a)(i)] of the Act. T....
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.... Act. 2.36. In CIT v. Nawanshahar Central Co-operative Bank Ltd., (2007) 289 ITR 6 (SC), affirming CIT v. Nawanshahar Central Co-operative Bank Ltd., (2003) 263 ITR 320 (P & H). The SC decision [(2007) 289 ITR 6 (SC)] has been followed in CIT v. Punjab State Co-operative Bank Ltd., (2008) 300 ITR 24 (Punj); CIT v. Kangra Co-operative Bank Ltd., (2009) 309 ITR 106 (HP); CIT v. Nawanshahar Central Co-op. Bank Ltd., (2012) 349 ITR 689 (SC) [where a co-operative bank carrying on business of banking is statutorily required to place a part of its funds in approved securities, the income attributable thereto is deductible under section 80P(2)(a)(i) of the Act. In Punjab State Co-operative Milk Producers Federation Ltd. v. CIT, (2011) 336 ITR 501 (P & H) the credit facility extended by the assessee to its members was ancillary to its main object and it was not carrying on the business of banking or providing credit facilities to its members and, thus, held not entitled to the benefits of section 80P(2)(a)(i) of the Act. In CIT v. Andhra Pradesh State Co-operative Bank Ltd., (2011) 336 ITR 516 (AP) investment of funds by banks including the non-reserves is part of banking activities sinc....
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....iums or of a reversionary addition to the policies. There were no shares or shareholders in the ordinary sense of the term but each and every holder of a participating policy became ipso facto a member of the company and as such became entitled to a share in the assets and liable for a share in the losses. The company conducted a calculation of the probable death rate amongst the members and the probable expenses and liabilities; calls in the shape of premiums were made on the members accordingly. An account used to be taken annually and the greater part of the surplus of such premiums, over the expenditure referable to such policies, was returned to the members i.e. (holders of participating policies) and the balance was carried forward as a fund in hand to the credit of the general body of members. The question was whether the surplus returned to the members was liable to be assessed to income tax as profits or gains. The majority of the Law Lords answered the question in the negative. It may be noticed that in that case the members had associated themselves together for the purpose of insuring each other's life on the principle of mutual assurance, that is to say, they contr....
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....n substance, advances of capital for a common purpose, which are expected to be exhausted during the year for which they are paid. They are not income of the collective body of members any more than the calls paid by members of a company upon their shares are income of the company. If anything is left unexpended it is not income or profits, but savings, which the members may claim to have returned to them." (Emphasis added) 2.42. One of the first Indian cases that dealt with the principle was CIT v. Royal Western India Turf Club Ltd. AIR 1954 SC 85. It quoted with approval three conditions stipulated in The English & Scottish Joint Cooperative Wholesale Society Ltd. (supra), which were propounded after referring to various passages from the speeches of the different Law Lords in Styles (Surveyor of Taxes) case (supra). Lord Normand, who delivered the judgment of the Board summarized the grounds of the decision in Styles (Surveyor of Taxes) case (supra) as follows: "From these quotations it appears that the exemption was based on (1) the identity of the contributors to the fund and the recipients from the fund; (2) the treatment of the company, though incorporated, as a mere ent....
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....form to the persons to whom the goods were sold or the services rendered.... It has been held that a company conducting a members' (and not a proprietary) club, the members of the company and of the club being identical, was not carrying on a trade or business or undertaking of a similar character for purposes of the former corporation profits tax. A members' club is assessable, however, in respect of profits derived from affording its facilities to nonmembers. Thus, in Carlisle and Silloth Golf club v. Smith, [1913] 3 K.B. 75, where a members' golf club admitted non-members to play on payment of green fees it was held that it was carrying on a business which could be isolated and defined, and the profit of which was assessable to income tax. But there is no liability in respect of profits made from members who avail themselves of the facilities provided for members." (Emphasis supplied) 2.46. In short, there has to be a complete identity between the class of participators and class of contributors; the particular label or form by which the mutual association is known is of no consequence. Kanga & Palkhivala explain this concept in "The Law and Practice of Income....
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....common obligations to each other undertaken by the contributors for their mutual benefit. On the contrary, we have here an incorporated company authorised to carry on an ordinary business of a race course company and that of licensed victuallers and refreshment purveyors and in fact carrying on such a business. There is no dispute that the dealings of the company with non-members take place in the ordinary course of business carried on with a view to earning profits as in any other commercial concern." (Emphasis supplied) 2.50. The second feature demands that the actions of the participators and contributors must be in furtherance of the mandate of the association. In the case of a club , it would be necessary to show that steps are taken in furtherance of activities that benefit the club, and in turn its members. Therefore, in Chelmsford Club (supra), since the appellant provided recreational facilities exclusively to its members and their guests on "no-profit-no-loss" basis and surplus, if any, was used solely for maintenance and development of the club , the Court allowed the exception of mutuality. 2.51. The mandate of the club is a question of fact and can be determined fr....
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....here is no profit. If the people were to do the thing for themselves, there would be no profit, and the fact that they incorporate a legal entity to do it for them makes no difference, there is still no profit. This is not because the entity of the company is to be disregarded, it is because there is no profit, the money being simply collected from those people and handed back to them, not in the character of shareholders, but in the character of those who have paid it. That, as I understand it, is the effect of the decision in the New York case." (Emphasis supplied) 2.53. In CIT v. Kumbakonam Mutual Benefit Fund Ltd. AIR 1965 SC 96, the Hon'ble Apex Court differentiated the facts of the case before it from those of Styles (Surveyor of Taxes) case (supra) and denied the exemption of mutuality because of the taint of commerciality. It was observed thus: "It seems to us that it is difficult to hold that Style's case applies to the facts of the case. A shareholder in the assessee company is entitled to participate in the profits without contributing to the funds of the company by taking loans. He is entitled to receive his dividend as long as he holds a share. He has not to f....
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....y also make a profit by carrying its shareholders or a trading company may make a profit out of its trading with its members besides the profit it makes from the general public which deals with it but that profit belongs to the members as shareholders and does not come back to them as persons who had contributed them. Where a company collects money from its members and applies it for their benefit not as shareholders but as persons who put up the fund the company makes no profit. In such cases where there is identity in the character of those who contribute and of those who participate in the surplus, the fact of incorporation may be immaterial and the incorporated company may well be regarded as a mere instrument, a convenient agent for carrying out what the members might more laboriously do for themselves. But it cannot be said that incorporation which brings into being a legal entity separate from its constituent members is to be disregarded always and that the legal entity can never make a profit out of its own members..." 2.56. In the light of discussion made hereinabove along with the judicial pronouncements, I am of the view that for getting the deduction under the sect....