THE COMMISSIONER OF INCOME TAX VISAKHA. V. THE ANAKAPALLE CO-OP.MARKETING SOCIETY

RC/42/1997

AI Insights

The case involves a Cooperative Marketing Society that earned service charges by assisting its members in obtaining loans from banks and financial institutions. The society claimed these charges as a special deduction under Section 80P of the Income Tax Act, which was initially allowed by the appellate authority and confirmed by the Income Tax Appellate Tribunal. However, the Revenue challenged this decision, leading to the referral of two questions of law to the High Court. The court, referencing several precedents, concluded that the society's activities related to loan facilitation do not fall within the scope of Section 80P, thus denying the deduction claim.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 734629 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 05-11-2013
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. Anakapalli Co-operative Marketing Society Ltd., Commissioner of Income Tax vs. Madras Autorickshaw Drivers', Commissioner of Income-tax v. Co-operative Supply and Commission Shop Ltd., Madras Auto Rickshaw Drivers' Co-operative Society v. Commissioner of Income Tax, Commissioner of Income Tax, Visakhapatnam v. Anakapalle Co-operative Marketing Society Limited
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Keywords: Cooperative Society; Deduction; Income Tax; Loan Facilitation; Service charges
• Section: 80P(2)(a)(o)

Judgement Text

"HON’BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM R.C. No.42 OF 1997 ORDER:- (per Hon’ble Sri Justice Challa Kodanda Ram) At the instance of the Revenue, the Income Tax Appellate Tribunal, Hyderabad Bench-‘B’ had referred the following two questions of law: 1. “Whether, on the facts and in the circumstances of the case and in law, the ITAT is correct in holding that the amount of Rs.73,949/- derived by the assessee towards service charges from its members qualify for deduction under Section 80P(2)(a)(o) of the Income Tax Act, specifically when the assessee acted only as an agent between its members and Bank without involving directly or indirectly in the matter of repayment of loans?” 2. “Whether on the facts and in the circumstances of the case, the ITAT’s finding that certification of applications of its constituent members is in the nature of guarantee or warranty is based on any material on record.” 2) The assessee is a Cooperative Marketing Society registered under the Cooperative Societies Act, mainly engaged in marketing of agricultural produce of its members. In the course of carrying on its activities, as an additional service, the society assisted its members in obtaining loans from the banks and financial institutions and in the process, it has earned service charges. The assessee claimed the said amount as special deduction under Section 80P of the Income Tax Act (for short, “the Act”). The claim was allowed by the appellate authority which was also confirmed by the Income Tax Appellate Tribunal. 3) At the time of hearing, Sri Seshidhara Reddy, learned counsel appearing on behalf of Sri S.R. Ashok, learned senior counsel would place on record the judgment of this Court in Commissioner of Income Tax v. Anakapalli Co-operative Marketing Society Ltd.,[1] whereunder it was held that the service charges received by the assessee society does not qualify to be considered for deduction under Section 80P of the Act. Section 80P of the Act as amended by the Income Tax (Second Amendment) Act, 1998 with effect from 01.04.1968 read as under: “80P. (1) Where, in the case of an assessee being a co‑ operative society, the gross total income 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 one or more of such activities:” Balance of Section is omitted intentionally as it is not necessary. 4) The activity of servicing of members in obtaining of loans is strictly outside the scope of activities enumerated in Section 80P of the Act. In this context, the learned counsel also would refer to the judgment of Madras High Court reported in Commissioner of Income Tax vs. Madras Autorickshaw Drivers’[2] and judgment of Rajasthan High Court reported in Commissioner of Income-tax v. Co-operative Supply and Commission Shop Ltd.,[3] whereunder, it has been held that the providing of credit facilities have to be interpreted to comprehend only the business of lending services of credit facilities in connection with the business of banking. The judgment of Madras High Court was approved by the Hon’ble Supreme Court in Madras Auto Rickshaw Drivers’ Co-operative Society v. Commissioner of Income Tax[4]. In that view of the matter respectfully agreeing with the ratio laid down by the High Court in Commissioner of Income Tax, Visakhapatnam v. Anakapalle Co-operative Marketing Society Limited,[5] question No.1 is answered in favour of the Revenue and against the assessee. In the light of answering of the question No.1, the question No.2 need not be answered as the same did not arise in the facts of this case. 5) Accordingly, the Referred Case is disposed of. No order as to costs. Miscellaneous Petitions, if any, pending in this Referred Case shall stand disposed of. ______________________ G. CHANDRAIAH,J ____________________________ CHALLA KODANDA RAM, J Date:05.11.2013. Gk. HON’BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM R.C. No.42 OF 1997 Date: .11.2013. Gk [1] Vol-245 (2000) ITR 616 (AP) [2] 1983 143 ITR 981 Mad [3] (1993)204 ITR 0713-(in the Rajasthan High Court) [4] (2001) 249 ITR 0330- Supreme Court of India [5] 245 ITR 616 "