Judgment:
This is a bunch of three appeals, filed by the same assessee, namely M/s Rawatsar, K.V. Sahakan Samiti Ltd. against the common order of the learned Commissioner (Appeals) for three assessment years 1998-99, 1999-2000 and 1996-97 dated 22-9-2003. Therefore, for the sake of convenience and brevity, these are being decided by a common order.
Briefly stated, the facts of the case are that the assessee is a co-operative society duly registered with the Registrar of Co-operative Societies, Rajasthan, Jaipur, with Registration No. 1333 K dated 19-12-1967. In the computation of total income filed along with the return of income, the assessee- society has shown its gross total income at Rs. 11,19,762.44 in assessment year 1999-2000, and after claiming rebate under section 80P of the Act, the total income has been shown as "Rs. Nil". In the computation of income, the assessee had also claimed deduction for income earned from dealing in controlled commodities. According to the assessing officer, such incomes as are earned by dealing in controlled commodities is not allowable under section 80P. The assessee had also claimed interest income as exempt under section 80P(2)(d) of the Act.
In all these three appeals, the legality of action taken under section 147/148 of the Act has been challenged; the addition made on account of sale of controlled commodities supplied to the members, and the interest income received, are the main grounds.
Before moving further, we may mention that in the assessment years 1994-95 and 1997-98, the assessing officer while framing the assessment order under section 143(3), under identical facts and circumstances, had accepted & similar incomes of the assessee as exempt from tax under section 80P(2) of the Act. On the basis of an audit objection in the years under consideration, the already accepted return of income under section 143(1)(a) of the Act, were reopened after the expiry of the period to issue notice under section 143(2) of the Act.
Having stated the above relevant facts, in short, we revert back to common ground No. (1) of the appeals, which relates to additions on account of profits earned from controlled commodities. The assessee has shown income from the sale of controlled commodities in all these years. The assessing officer is of the opinion that the transactions involving purchase and sale of levy wheat/levy sugar, consumer cloth, consumer items; and sale through "Bhramansheel Units' are not exempt.
According to the assessing officer, the above activities are not covered under the provisions of section 80P(2) of the Act, and therefore, the income earned therefrom is also not exemptible.
We have heard both the sides and perused the relevant material on record.
The societies, like the assessee are exempt for tax under section 8OP(2)(a) with regard to incomes earned from the activities narrated thereunder. For ready reference, we prefer to extract section 80P(2)(a) as under : (i) carrying on the business of banking or providing credit facilities to its members, or (iii) the marketing of the agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, live-stock or other articles intended for agricultural 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 (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 one or more of such activities.
From the above, it is clear that the marketing of agricultural produce grown by its members is exempt from tax. Likewise, the purchase of agricultural implements, seeds, livestock, etc. intended for agricultural purpose of supplying them to its members, are exempt from tax under section 80P(2)(a)(iii) and (iv) of the Act.
The impugned activities of the assessee are that it supplied controlled commodities under the compulsion, as per the direction of the State Government, which is also a member of this society, along with the farmers and businessmen, falling under its jurisdiction. The State Government collects levied sugar, wheat and other consumable items from the respective procedures with an intention to send the same to under-privileged populace, at subsidized rates. These items are given to the society by the State Government, which is one of its members.
The prices of these levy items are fixed by the State Government. The sales are completely and in all respects controlled by the State Government. In clause (iii), the marketing of agricultural produce grown by its members is the subject-matter. Actually, these items are not grown by the State Government, but by the farmers, who are also its members.
The macroscopical perusal of the whole section reveals that there is no clause in the section 80P(2) under which activities like purchase and sale of levy wheat/levy sugar, consumer cloth, consumer items and sale through "Bhramansheel Units" are covered. The microscopical perusal of the whole facts in relation to the above law, would reveal that the agricultural produce like, wheat, sugar, etc. are grown by the agriculturists, who are the members of the assessee- society (all agriculturists under its jurisdiction).Kerala State Cooperative Marketing Federation Ltd. & Ors. v. CIT (1998) 147 CTR (SC) 29, in which it has been held as under : "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 cultivators was of no consequence for the purpose of determining whether the assessee was entitled to the exemption. The only condition required for qualifying the assessee's income for exemption was that the assessee's business must be that of marketing, the marketing must be of agricultural produce and that agricultural produce must have belonged to the members of the assessee- society before they came up for marketing by it, whether on its own account or on account of the members themselves. Thus, there is no scope to limit the exemption." In view of the above, the above activity of the assessee squarely falls under clause (iii) of section 80P(2)(a). The agriculturists are the members and their products are taken by the Government and the same is marketed by the assessee. Therefore, in view of the Hon'ble Supreme Court's decision (supra) the entire income derived from sale of controlled items of its members is fully exempt and the additions made by the assessing officer on this account deserves to be deleted. The State Government is a member of the society and the Government's products, levy wheat, levy sugar, etc. were sold as per the direction of the Government wherein no profit motive is involved, besides the society is marketing products of its member-society and farmer members.
It is also engaged in providing to its members the basic requirements like Khad, pesticides, seeds and day-to-day consumable items necessary for the survival of farmer members, which is a necessary requirement for growing agricultural produce. The assessee- society is managing the transactions of its members for its members only. The provisions of section 80P were introduced in the Act with a view to encouraging and promoting growth of co-operative sector in the economic life of the country and in pursuance of the declared policy of the Government. The main object of a provision should not be lost sight of by intermingling the words used alone.
Now coming to the interest income received by the assessee, which is taken as 'income from other sources' by the assessing officer. The assessing officer reduced the interest income from the business income while computing the income from controlled commodities.
We have heard both the sides and, perused the relevant material on record.
The interest has been earned from its members, on advances given to the members against security of goods. The interest from PNB is received on FDRs purchased out of the sale proceeds of the goods of its members and not claimed by them and remained as deposits with the assessee and against which the assessee has received credit limits. Again the interest paid is against the credit facility availed by the assessee for the purchase of goods for and on behalf of its members.
After considering the facts in totality,in view of the decision relied by the learned authorised representative, including those given below, we are of the considered opinion that all the above interest receipts are related to the assessee's business and thus cannot be treated as income from other sources. The decisions relied areCIT v. Paramount Premiers (P) Ltd. In the above cases, it has been held that interest income earned from investing surplus funds is an income incidental to the conduct of main business and hence is the business income.
Ground No. 2, in all these appeals relates to addition made on account of interest income.
The assessee has shown net income of Rs. 2,06,263 in assessment year 1996-97, Rs. 40,822 in assessment year 1988-89 and Rs. 5,91,636 in assessment year 1992-2000. The assessing officer held this interest income as not eligible for exemption under section 80P. While holding so, the assessing officer gave the reasons that the assessee could not establish that the FDRs were made for better cash management. He, further held that the interest has been earned from the deposits with private business firms on which TDS was deducted and the circumstances under which the deposits were placed with the private parties and commercial banks, were not explained and as such the same were not eligible for exemption under section 80P.We have heard the rival submissions and perused the evidence available on record.
It has been submitted by the learned authorised representative that the assessee has not placed any amount with outside parties and not all with any private parties. According to the learned authorised representative, the allegation of the assessing officer are absolutely incorrect, baseless and not in accordance with facts. He further submitted that the assessee acts as 'adhat' and earns commission by facilitating the sale of produce on behalf of its members, and the interest earned are of the following types : (1) Interest from members, on amount paid for security of goods, for procuring the goods from the members.
(2) Interest from bank on FDRs placed out of sale proceeds received on behalf of the members, and not claimed by the members and (1) bank on credit facilities availed by the assessee-society against FDRs: placed with the bank, The net result in the interest account is a receipt of the assessee. In this background it has been submitted by the learned authorised representative after relying on various decisions, that the above income is exempt under section 80P.The learned Departmental Representative has placed reliance on the orders of authorities below.
The interest from its members, amounts paid for security of goods, for procuring the goods from the members, finally reduces the cost of purchase of the society. This is directly related to the earning of the 'commission' income, which is exempt under section 80P. Similarly, the interest received on late payments by the members forms part of the sale price, and therefore, directly attributable to the earning of exempt commission income.
Interest from bank on FDRs, placed (purchased) from out of the proceeds received on behalf of the members and not claimed by them, is an income earned by channelising the funds of the members in a manner which results in availing credit limits for the society, which further helps in smooth running of the society and in turn, helps the society to achieve its main objective of aiding its members. This income is, therefore, also directly related to the main objective of the assessee-society. Section 80P(2) exempts the whole amount of profits and gains of the business attributable to any one or more of its activities. The section is wider in scope as compared to other sections in row. The word "attributable to" used in this section gives it a wider scope as against the word "derived from" used in section 80HHC and 80-I.We can draw support from the decision of the Hon'ble High Court given in the case of Cambay Electric Supply Industrial Company Ltd. v. CIT (1978) 113 ITR 84 (SC), in which the connotations of the phrase "attributable to" has been given thus : "The legislature has deliberately used the expression 'attributable to' having a wider import than the expression 'derived from', thereby intending to cover receipts from sources other than the actual conduct of business of specified industry. Thus the interest earned from FDRs placed with the bank is an income attributable to the main object of providing credit facility to its members, as the FDRs are placed out of the-surplus with the appellant, which is placed as such for proper cash management." We also draw support from the decision of the Tribunal, Ahmedabad (SB), who after following the above decision, while dealing with interest received on Government securities bought from the money lying idle with the society has held as an income attributable to the main activity of the society. In the case of Surat Co-operative Bank Ltd. v. Income Tax Officer (2003) 85 ITD 1 (Ahd)(SB), the Bench has also relied on the decision of the Hon'ble Madras High Court in the case of CIT v. Madurai District Central Co-operative Bank Ltd. (1984) 148 ITR 196 (Mad), wherein it was held that the maintenance of liquid assets in the form of securities is a must for carrying on the banking activity of the assessee and, therefore the income from such securities should be taken to be income from banking business. The similar view was taken by the Hon'ble Allahabad High Court in the case of CIT v. Krishak Sahkari Ganna Samiti Ltd. (2003) 28 STC 94 (All) (copy enclosed).
The decision of the Hon'ble jurisdictional High Court in the case of CIT v. Co-operative Supply & Commission Shop Ltd. (1996) 220 ITR 532 (Raj), is distinguishable on facts. In that case the interest was charged on the debit balance remained outstanding on the credit sales to the members (case falls under section 8OP(2)(a)(i)). The Hon'ble High Court held that the interest received by the society was not interest from banking activities and thus, not exempt under section 80P(2)(a)(i). Whereas in the given case, the money is advanced against the security of goods, which is one of the primary objects of the society, and the entire interest received is attributable to the main activity of marketing the goods of its members. This case has no applicability in the matter of the assessee, as the case of the assessee is not whether the interest earned is a part of banking activity. Therefore, the entire net interest earned by the assessee is an income arising from and attributable to the main activity of the facilitating and marketing the goods of its members and hence such income is exempt under section 80P(2)(a)(i), This issue is allowed in all the years.
The last ground is the legal ground taken as additional ground which challenges the validity of the issue of notice under section 148, after the assessment made under section 143(1)(a) had attained finality. The assessing officer has recorded the following reasons while issuing notice under section 148.
"The assessee is a co-operative society and has shown its income as nil after claim of deduction under section 80P(2). The assessee is also dealing in trading of controlled commodities viz., sugar, cloth, consumables on which deduction under section 80P is not allowable.
Hence, I have reason to believe that income more than Rs. 50,000 has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961, " We have heard the rival submissions and perused the evidence available on record.
The learned counsel, has submitted before us that the assessee had shown GP on the sale of controlled commodities, which were supplied by the State Government who is member of the assessee- society. The assessing officer allowed this claim of the assessee in all these years under section 143(l)(a) and did not consider the same as not disallowable within the period of 12 months. According to the learned authorised representative, the assessing officer changed his opinion in the month of June, 2001. According to the learned authorised representative, no action can be taken under section 148 merely because of change of opinion. He has placed reliance of the decision of this Bench and others.
The learned Departmental Representative, has relied on the orders of the lower authorities and has stated that the action of the assessing officer is correct as per the law.
It is undeniable fact of the case that the assessing officer had initially accepted such a claim while computing income under section 143(1)(a). It is also undisputed that in assessment years 1994-95 and 1997-98, while framing assessment order under section 143(3), under identical facts and the circumstances, had accepted the similar incomes of the assessee-society as exempt from tax under section 80P(2) of the Act. It is also a fact that the notice under section 148 was issued after the expiry of period to issue notice under section 143(2) of the Act. In these circumstances, on the decision of the Jodhpur Bench in the case of Biggawas Maheshwari Sewa Samiti (2005) 96 TTJ (Jd) 385, the plea of the assessee seems to be quite justified. Support can also be drawn from the decision of Garden Silk Mills (P) Ltd. v. CIT (1999) 151 CTR (Guj) 533 and Jindal Photo Films Ltd. v. Dy. CIT (1998) 234 ITR 170 (Del).
In the light of the above discussion, we quash the notices issued under section 148 of the Act, in all these years.
The last ground relates to charging of interest under section 234B. The charging of interest under above section is mandatory and consequential. Therefore, a consequential relief is allowed to the assessee.