SHREE SAIDATTA CO OP CREDIT SOCIETY LTD, MUMBAI V. ITO 15(1)(3), MUMBAI

ITA 2379/MUM/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3553 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 27-04-2015
• Court: TRIBUNAL
• Department Lawyers: V S JADHAVDR
• Assessee Lawyers: RAVINDRA N NAIK
• Keywords: Business income; Opportunity of being heard; Question of law
• Section: 80HHC; 56

Judgement Text

, - , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI ,!' , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, ITA NO.2379/MUM/2015 ASSESSMENT YEAR: 2010-11 SHRI SAIDATTA COOP-. CREDIT SOCIETY LTD. 46/20, WORLI B.D.D. CHAWL, DR.G.M. BHONSALE MARG, WORLI, MUMBAI-400018 / VS. INCOME TAX OFFICER-15(1)(3) MUMBAI / ASSESSEE / REVENUE P.A. NO. AACAS0428D $%& / ASSESSEE BY SHRI RAVINDRA N. NAIK $%& / REVENUE BY SHRI V.S. JADHAV-DR / DATE OF HEARING 13/01/2016 & / DATE OF ORDER: 15/01/2016 &/ O R D E R THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED EX-PARTE ORDER DATED 27/08/2014 OF THE LD. FIRST APPELLATE AUTHORITY, MUMBAI. ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 2 2. DURING HEARING OF THIS APPEAL, THE LD. COUNSEL FOR THE ASSESSEE, SHRI RAVINDRA N. NAIK, INVITED MY ATT ENTION TO THE AFFIDAVIT FOR CONDONING THE DELAY OF 161 DAYS W HILE FILING THE APPEAL BEFORE THIS TRIBUNAL. THE LD. DR, SHRI V .S. JADHAV, CONTENDED THAT THE ASSESSEE WAS EXPECTED TO BE MORE VIGILANT IN FILING THE APPEAL BEFORE THIS TRIB UNAL. 2.1. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. NO DOUBT FILING O F AN APPEAL IS A RIGHT GRANTED UNDER THE STATUTE TO THE ASSESSEE AND IS NOT AN AUTOMATIC PRIVILEGE, THEREFORE, THE A SSESSEE IS EXPECTED TO BE VIGILANT IN ADHERING TO THE MANNER A ND MODE IN WHICH THE APPEALS ARE TO BE FILED IN TERMS OF TH E RELEVANT PROVISIONS OF THE ACT. NEVERTHELESS, A LIBERAL APPR OACH HAS TO BE ADOPTED BY THE APPELLATE AUTHORITIES, WHERE DELA Y HAS OCCURRED FOR BONA FIDE REASONS ON THE PART OF THE A SSESSEE OR THE REVENUE IN FILING THE APPEALS. IN MATTERS C ONCERNING THE FILING OF APPEALS, IN EXERCISE OF THE STATUTORY RIGHT, A REFUSAL TO CONDONE THE DELAY CAN RESULT IN A MERITO RIOUS MATTER BEING THROWN OUT AT THE THRESHOLD, WHICH MAY LEAD TO MISCARRIAGE OF JUSTICE. THE JUDICIARY IS RESPECT ED NOT ON ACCOUNT OF ITS POWER TO LEGALIZE IN JUSTICE ON TECH NICAL GROUNDS BUT BECAUSE IT IS CAPABLE OF REMOVING INJUS TICE AND IS EXPECTED TO DO SO. 2.3. THE HONBLE APEX COURT IN A CELEBRATED DECISI ON IN COLLECTOR, LAND ACQUISITION VS MST. KATIJI & ORS. 1 67 ITR ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 3 471 OPINED THAT WHEN TECHNICAL CONSIDERATION AND SUBSTANTIAL JUSTICE ARE PITTED AGAINST EACH OTHER, THE COURTS ARE EXPECTED TO FURTHER THE CAUSE OF SUBSTANTIAL JU STICE. 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 DELA Y, JUDICIOUS AND LIBERAL APPROACH IS TO BE ADOPTED. I F SUFFICIENT CAUSE IS FOUND TO EXIST, WHICH IS BONA-F IDE ONE, AND NOT DUE TO NEGLIGENCE OF THE ASSESSEE, THE DELA Y NEEDS TO CONDONED IN SUCH CASES. THE EXPRESSION SUFFICI ENT CAUSE IS ADEQUATELY ELASTIC TO ENABLE THE COURTS TO APPLY LAW IN A MEANINGFUL MANNER, WHICH SUB-SERVES THE EN D OF JUSTICE- THAT BEING THE LIFE PURPOSE OF THE EXISTEN CE OF THE INSTITUTION OF THE COURTS. WHEN SUBSTANTIAL JUSTIC E AND TECHNICAL CONSIDERATION ARE PITTED AGAINST EACH OTH ER, THE CAUSE OF SUBSTANTIAL JUSTICE DESERVES TO BE PREFERR ED. THE HONBLE APEX COURT IN VEDABHAI VS SANTARAM 253 ITR 798 OBSERVED THAT INORDINATE DELAY CALLS OF CAUTIOUS AP PROACH. THIS MEANS THAT THERE SHOULD BE NO MALAFIDE OR DILA TORY TACTICS. SUFFICIENT CAUSE SHOULD RECEIVE LIBERAL C ONSTRUCTION TO ADVANCE SUBSTANTIAL JUSTICE. THE HONBLE APEX C OURT IN 167 ITR 471 OBSERVED AS UNDER:- 3. THE LEGISLATURE HAS CONFERRED THE POWER TO COND ONE DELAY BY ENACTING SECTION 51 OF THE LIMITATION ACT OF 196 3 IN ORDER TO ENABLE THE COURTS TO DO SUBSTANTIAL JUSTICE TO P ARTIES BY ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 4 DISPOSING OF MATTERS ON DE MERITS. THE EXPRESSION SUFFICIENT CAUSE EMPLOYED BY THE LEGISLATURE IS ADEQUATELY EL ASTIC TO ENABLE THE COURTS TO APPLY THE LAW IN A MEANINGFUL MANNER WHICH SUB-SERVES THE ENDS OF JUSTICE THAT BEING THE LIFE- PURPOSE OF THE EXISTENCE OF THE INSTITUTION OF COUR TS. IT IS COMMON KNOWLEDGE THAT THIS COURT HAS BEEN MAKING A JUSTIFIABLY LIBERAL APPROACH IN MATTERS INSTITUTED IN THIS COURT. BUT THE MESSAGE DOES NOT APPEAR TO HAVE PERCOLATED DOWN TO ALL THE OTHERS COURTS IN THE HIERARCHY. 2.4. FURTHERMORE, THE HON'BLE SUPREME COURT IN THE CASE OF VEDABAI ALIA VAIJAYANATABAI BABURAO PATIL V S. SHANTARAM BABURAO PATIL 253 ITR 798 HELD THAT THE C OURT HAS TO EXERCISE THE DISCRETION ON THE FACTS OF EACH CASE KEEPING IN MIND THAT IN CONSTRUING THE EXPRESSION SUFFICIENT CAUSE, THE PRINCIPLE OF ADVANCING SUBS TANTIAL JUSTICE IS OF PRIME IMPORTANCE. THE COURT HELD THAT THE EXPRESSION SUFFICIENT CAUSE SHOULD RECEIVE LIBERA L CONSTRUCTION. HAVING MADE THE AFORESAID OBSERVATION, I MAY NOW CONSIDER THE PLEA OF THE ASSESSEE. THE CIRCUMS TANCES NARRATED BY THE ASSESSEE IN HIS AFFIDAVIT, I AM SAT ISFIED THAT THERE WERE BONA-FIDE REASON, WHICH CAUSED THE DELAY , THEREFORE, UNDER THE FACTS AND THE CIRCUMSTANCES AL ONG WITH THE JUDICIAL PRONOUNCEMENT DISCUSSED HEREINABOVE, T HE DELAY OF 161 DAYS IS CONDONED. ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 5 2.5. NOW, I SHALL DEAL WITH THE MERITS OF THE CASE FOR DENYING THE DEDUCTION OF INTEREST INCOME EARNED FRO M FIXED DEPOSITS U/S 80P(A)(I) AND 80P(2)(D) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). THE FACTS IN BRIEF, AR E THAT THE ASSESSEE IS REGISTERED AS A CO-OPERATIVE SOCIETY WI TH THE REGISTRAR OF CO-OPERATIVE SOCIETIES UNDER MAHARASHT RA CO- OPERATIVE SOCIETY ACT 1960. THE OBJECTS OF THE SOCI ETY IS TO ENABLE ITS MEMBERS TO OBTAIN LOANS AND TO SAVE THEI R INCOME IN A SAFE AND CONVENIENT WAY TO LENT MONEY E TC. AS PER THE BYE LAWS OF THE SOCIETY. AS PER THE COPY O F ACCOUNTS, FURNISHED BEFORE THE DEPARTMENT, THE SOCI ETY HAD PAID UP CAPITAL OF RS.81.30 LAKHS AND VARIOUS STATU TORY RESERVES OF RS.90.17 LAKHS , DEPOSITS OF ABOUT RS.5 91.72 LAKHS FROM ITS MEMBERS AND OTHER LIABILITIES. ON T HE ASSET SIDE, THE ASSESSEE HAD BALANCES WITH VARIOUS SCHEDU LED AND CO-OPERATIVE BANKS, INVESTMENT IN FDS MAINTAINED WI TH CO-OPERATIVE BANKS AND LOANS/ADVANCES. THE LD. ASS ESSING OFFICER EXAMINED THE CLAIMED DEDUCTION U/S 80P(2)(A )(I) OF THE ACT AMOUNTING TO RS.10,15,347/-. IT IS NOTED TH AT IN PARA 4.9 OF THE ASSESSMENT ORDER, THE LD. ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE IS A CO-OPERATIVE SO CIETY CARRYING ON THE BUSINESS OF CO-OPERATIVE BANK, THER EFORE, HE APPLIED SECTION 80P(4) OF THE ACT AND HELD THAT THE CLAIMED DEDUCTION U/S 80P(2)(A)(I) OF THE ACT IS NOT ADMISS IBLE, BY FURTHER HOLDING THAT THE ASSESSEE IS WORKING AS PRI MARY CO- OPERATIVE BANK. HE HAS PLACED RELIANCE UPON THE DEC ISION IN ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 6 THE CASES OF KEKRI SAHAKARI BHUMI VIKAS BANK LTD. V S ITO (54 SOT 64) (JP), KERALA STATE CO-OPERATIVE AGRICUL TURAL RURAL DEVELOPMENT BANK LTD. VS ACIT (2011) 139 TTJ (COCH) 585 AND SHRI LAXMINARAYAN SWAMI CO-OPERATIVE SOCIETY LTD. VS ITO (2010) 4 ITR (TRIB.) 27 (BANGL. ) AND CONCLUDED THAT THE ASSESSEE FULFILLED THE CONDITION S LAID DOWN U/S 56(C)(CCV) OF PART V OF THE BANKING REGULA TION ACT, 1949, THEREFORE, THE CLAIMED DEDUCTION IS NOT ALLOW ABLE. ON APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS), BROADLY THE STAND TAKEN IN THE ASSESSMEN T ORDER WAS AFFIRMED AGAINST WHICH THE ASSESSEE IS IN FURTH ER APPEAL BEFORE THIS TRIBUNAL. 2.6. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, BEFORE ADVERTING FURTHE R, I WOULD LIKE TO ANALYZE THE OBJECTS OF THE ASSESSEE S OCIETY, WHICH ARE BROADLY ENUMERATED HEREUNDER:- I) TO ENCOURAGE THE MEMBERS TO FOLLOW PRINCIPLES OF CO- OPERATION AND THRIFT. II) TO ACCEPT DEPOSITS FROM THE MEMBERS. III) TO OBTAIN LOANS OR-TO RAISE FUNDS AND TO CREAT E RESERVES. ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 7 IV) TO PROVIDE LOANS TO MEMBERS ON MORTGAGE OR ON P ERSONAL GUARANTEE. V) TO PURCHASE LAND, BUILDING OR PREMISES ON OWNERS HIP BASIS FOR THE USE OF THE SOCIETY WITH THE PRIOR PER MISSION OF THE REGISTRATION AUTHORITY . VI) TO MAKE PROPER ARRANGEMENTS FOR DISPOSAL OF ASS ETS WHICH ARE MORTGAGED AGAINST LOANS AND THEREBY MAKE ARRANGEMENTS FOR RECOVERY OF LOAN. VII) TO SANCTION LOANS FOR SMALL SCALE INDUSTRY, HO ME INDUSTRY AND SELF EMPLOYMENT. VIII) TO ADMINISTER, MAINTAIN AND MANAGE THE ASSETS OF THE SOCIETY. IX) TO ENCOURAGE AND FOLLOW UP ALL OTHER ACTIVITIES IN ORDER TO MEET / FULFILL THE OBJECTIVES SET BY THE SOCIETY . (WHICH ARE NOT COVERED IN THE ABOVE). 2.7. BEFORE ADVERTING FURTHER, I AM ALSO REPRODUCI NG HEREUNDER THE RELEVANT PROVISION OF SECTION 80P OF THE ACT. DEDUCTION IN RESPECT OF INCOME OF CO-OPERATIVE SOC IETIES. 80P. (1) WHERE, IN THE CASE OF AN ASSESSEE BEING A CO-O PERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB-SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORDANCE WITH AN D SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN S UB-SECTION (2), IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. (2) THE SUMS REFERRED TO IN SUB-SECTION (1) SHALL B E 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 I TS MEMBERS, OR ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 8 ( IV ) THE PURCHASE OF AGRICULTURAL IMPLEMENTS, SEEDS, LIVESTOCK OR OTHER ARTICLES INTENDED FOR AGRICULTURE FOR THE PURPOSE O F 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 MEM BERS, OR ( VII ) FISHING OR ALLIED ACTIVITIES, THAT IS TO SAY, THE CATCHING, CURING, PROCESSING, PRESERVING, STORING OR MARKETING OF FIS H 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 BUS INESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES : PROVIDED THAT IN THE CASE OF A CO-OPERATIVE SOCIETY FALLING UNDER SUB- CLAUSE ( VI ), OR SUB-CLAUSE ( VII ), THE RULES AND BYE-LAWS OF THE SOCIETY RESTRICT THE VOTING RIGHTS TO THE FOLLOWING CLASSES OF ITS MEMBERS, NAMELY: ( 1 ) THE INDIVIDUALS WHO CONTRIBUTE THEIR LABOUR OR, AS THE CASE MAY BE, CARRY ON THE FISHING OR ALLIED ACTIVITIES; ( 2 ) THE CO-OPERATIVE CREDIT SOCIETIES WHICH PROVIDE FINANCIAL ASSISTANCE TO THE SOCIETY; ( 3 ) THE STATE GOVERNMENT; ( B ) IN THE CASE OF A CO-OPERATIVE SOCIETY, BEING A P RIMARY SOCIETY ENGAGED IN SUPPLYING MILK, OILSEEDS, FRUITS OR VEGETABLES RAIS ED OR GROWN BY ITS MEMBERS TO ( I ) A FEDERAL CO-OPERATIVE SOCIETY, BEING A SOCIETY ENGAGED IN THE BUSINESS OF SUPPLYING MILK, OILSEEDS, FRUITS, OR VEGETABLES, AS THE CASE MAY BE; OR ( II ) THE GOVERNMENT OR A LOCAL AUTHORITY; OR ( III ) A GOVERNMENT COMPANY AS DEFINED IN SECTION 617 O F THE COMPANIES ACT, 1956 (1 OF 1956), OR A CORPORATION ESTABLISHED BY OR UNDER A CENTRAL, STATE OR PROVINCIAL ACT (BEING A COMPANY O R CORPORATION ENGAGED IN SUPPLYING MILK, OILSEEDS, FRUITS OR VEGE TABLES, AS THE CASE MAY BE, TO THE PUBLIC), THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF SUC H BUSINESS; ( C ) IN THE CASE OF A CO-OPERATIVE SOCIETY ENGAGED IN ACTIVITIES OTHER THAN THOSE SPECIFIED IN CLAUSE ( A ) OR CLAUSE ( B ) (EITHER INDEPENDENTLY OF, OR IN ADDITION TO, ALL OR ANY OF THE ACTIVITIES SO SPECIF IED), SO MUCH OF ITS PROFITS AND GAINS ATTRIBUTABLE TO SUCH ACTIVITIES A S DOES NOT EXCEED, ( I ) WHERE SUCH CO-OPERATIVE SOCIETY IS A CONSUMERS' CO-OPERATIVE SOCIETY, ONE HUNDRED THOUSAND RUPEES; AND ( II ) IN ANY OTHER CASE, FIFTY THOUSAND RUPEES. EXPLANATION. IN THIS CLAUSE, 'CONSUMERS' CO-OPERATIVE SOCIETY' MEANS A SOCIETY FOR THE BENEFIT OF THE CONSUMERS; ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 9 ( D ) IN RESPECT OF ANY INCOME BY WAY OF INTEREST OR DIVI DENDS DERIVED BY THE CO-OPERATIVE SOCIETY FROM ITS INVESTMENTS WITH ANY OTHER CO- OPERATIVE SOCIETY, THE WHOLE OF SUCH INCOME; ( E ) IN RESPECT OF ANY INCOME DERIVED BY THE CO-OPERA TIVE SOCIETY FROM THE LETTING OF GODOWNS OR WAREHOUSES FOR STORAGE, PROCE SSING OR FACILITATING THE MARKETING OF COMMODITIES, THE WHOLE OF SUCH INC OME; ( F ) IN THE CASE OF A CO-OPERATIVE SOCIETY, NOT BEING A HOUSING SOCIETY OR AN URBAN CONSUMERS' SOCIETY OR A SOCIETY CARRYING ON T RANSPORT BUSINESS OR A SOCIETY ENGAGED IN THE PERFORMANCE OF ANY MANUFAC TURING OPERATIONS 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 CHA RGEABLE UNDER SECTION 22. EXPLANATION. FOR THE PURPOSES OF THIS SECTION, AN 'URBAN CONSUM ERS' CO-OPERATIVE SOCIETY' MEANS A SOCIETY FOR THE BENEF IT OF THE CONSUMERS WITHIN THE LIMITS OF A MUNICIPAL CORPORATION, MUNIC IPALITY, MUNICIPAL COMMITTEE, NOTIFIED AREA COMMITTEE, TOWN AREA OR CA NTONMENT. (3) IN A CASE WHERE THE ASSESSEE IS ENTITLED ALSO T O THE DEDUCTION UNDER SECTION 80HH OR SECTION 80HHA OR SECTION 80HH B OR SECTION 80HHC OR SECTION 80HHD OR SECTION 80-I OR SECTION 8 0-IA OR SECTION 80J, THE DEDUCTION UNDER SUB-SECTION (1) OF THIS SE CTION, 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, SECTI ON 80HHB, SECTION 80HHC, SECTION 80HHD,SECTION 80-I, S ECTION 80- IA, SECTION 80J AND SECTION 80JJ. (4) THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT BANK. EXPLANATION. FOR THE PURPOSES OF THIS SUB-SECTION, ( A ) 'CO-OPERATIVE BANK' AND 'PRIMARY AGRICULTURAL CR EDIT SOCIETY' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANKING REGULATION ACT, 1949 (10 OF 1949); ( B ) 'PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEV ELOPMENT BANK' MEANS A SOCIETY HAVING ITS AREA OF OPERATION CONFINED TO A TALUK AND THE PRINCIPAL OBJECT OF WHICH IS TO PROVIDE FOR LONG-TE RM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES. 2.8. NOW, I SHALL ANALYZE THE SCOPE OF SECTION 80P WHICH ALLOWS A STRAIGHT DEDUCTION, IN COMPUTATION O F TOTAL ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 10 INCOME OF THE CO-OPERATIVE SOCIETY, TO THE EXTENT M ENTION, IN RESPECT OF THE FOLLOWING INCOME. A(I) THE WHOLE OF THE PROFITS AND GAINS FROM A BUSI NESS OF BANKING OR PROVIDING CREDIT FACILITIES TO THE MEMBE RS OF THE SOCIETY. (A)(II) THE WHOLE OF THE PROFITS AND GAINS FROM A C OTTAGE INDUSTRY; (A)(III) THE WHOLE OF THE PROFITS AND GAINS FROM MA RKETING OF AGRICULTURAL PRODUCE OF THE MEMBERS OF THE SOCIETY; (A)(IV) THE WHOLE OF THE PROFITS AND GAINS FROM ACT IVITIES CONSISTING OF PURCHASE OF AGRICULTURAL IMPLEMENTS, SEEDS, LIVE-STOCK OR OTHER ARTICLES INTENDED FOR AGRICULTU RE AND SUPPLY OF THESE TO THE MEMBERS OF THE SOCIETY; (A)(V) THE WHOLE OF THE PROFITS AND GAINS FROM PROC ESSING, WITHOUT THE AID OF POWER, OF THE AGRICULTURAL PRODU CE OF THE MEMBERS OF THE SOCIETY; (A)(VI) THE WHOLE OF THE PROFITS AND GAINS FROM THE ACTIVITY OF THE COLLECTIVE DISPOSAL OF THE LABOUR OF ITS MEMBER S SUBJECT TO CERTAIN CONDITIONS; (A)(VII) THE WHOLE OF THE PROFITS AND GAINS DERIVED FROM THE BUSINESS OF FISHING OR ALLIED ACTIVITIES, I.E., THE CATCHING, CURING, PROCESSING, PRESERVING, STORING OR MARKETIN G OF FISH OR THE PURCHASE OF MATERIALS AND EQUIPMENT IN CONNE CTION ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 11 THEREWITH FOR THE PURPOSE OF SUPPLYING THEM TO ITS MEMBERS SUBJECT TO CERTAIN CONDITIONS; (B) THE WHOLE OF THE PROFITS AND GAINS DERIVED BY A PRIMARY CO-OPERATIVE SOCIETY FROM SUPPLY OF -MILK -(FOR AND FROM ASSESSMENT YEAR 1984-85) OILSEEDS, F RUITS OR VEGETABLES RAISED OR GROWN BY ITS MEMBERS TO-- (I) A FEDERAL CO-OPERATIVE SOCIETY, WHERE SUCH SOCI ETY IS ENGAGED IN SUPPLYING- -MILK, -(FOR AND FROM ASSESSMENT YEAR 1984-85) OILSEEDS, F RUITS OR VEGETABLES; OR (II) (FOR AND FROM ASSESSMENT YEAR 1979-80) THE GOV ERNMENT OR A LOCAL AUTHORITY; OR (III) (FOR AND FROM ASSESSMENT YEAR 1979-80) A 'GOV ERNMENT COMPANY' OR A CORPORATION ESTABLISHED BY OR UNDER A N ACT, WHERE SUCH COMPANY OR CORPORATION IS ENGAGED IN SUPPLYING- -MILK, -(FOR AND FROM ASSESSMENT YEAR 1984-85) OILSEEDS, F RUITS OR VEGETABLES TO THE PUBLIC; ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 12 (C) OUT OF THE PROFITS AND GAINS DERIVED BY A CO-OP ERATIVE SOCIETY FROM A BUSINESS (OTHER THAN AN INSURANCE BU SINESS 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 EX TENT OF RS. 20,000 FOR AND FROM ASSESSMENT YEAR 1970-71. THE SAID EXTENT OF RS. 20,000 HAS, FOR AND FROM ASSESSM ENT YEAR 1980-81, BEEN RAISED TO RS. 40,00022 IF THE CO - OPERATIVE SOCIETY IS A 'CONSUMERS' CO-OPERATIVE SOC IETY'. IN CASE OF OTHER CO-OPERATIVE SOCIETIES, THE EXTENT HA S 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 FACIL ITIES TO ITS MEMBERS. THE TWIN REQUIREMENTS OF THE SECOND CATEGORY ARE (I) PROVIDING CREDIT FACILITY MUST BE ONE OF THE ACTIVI TIES OF THE ASSESSEE AND (II) THE INCOME ATTRIBUTABLE TO SUCH ANY ACTIVITY MUST B E TOWARDS PROFIT OR GAINS THEREFROM. THE INCOME EARNE D BY THE SOCIETY MUST HAVE A DIRECT OR PROXIMATE NEXU S OR CONNECTION WITH THE BUSINESS OF THE SOCIETY (CIT VS ANAKAPALLI CO-OPERATIVE MARKETING SOCIETY LTD. (200 ) 245 ITR 616, 619 (AP)]. SECTION 80P(2)(A) PROVIDES FOR ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 13 DEDUCTION IN RESPECT OF INCOME OF A COOPERATIVE SOC IETY ENGAGED IN BANKING BUSINESS. ONLY INCOME FROM BANKING BUSINESS IS QUALIFIED FOR DEDUCTION U/S 80P(2)(A)(I) (CIT VS NAINITAL DISTRICT COOPERATIVE BANK (2009) 318 ITR 62 (UTTRAKHAND) 2.10. SECTION 80P (2)(C) IS IN THE NATURE OF A RES IDUARY CLAUSE, SO FAR AS IT RELATES TO THE ACTIVITIES OF T HE COOPERATIVE SOCIETY. THE ACTIVITIES OF A COOPERATIVE SOCIETY NO T FALLING EITHER IN SECTION 80P(2)(A) OR 80P(2)(B) WILL BE CO VERED BY SECTION 80P(2)(C). SECTION 80P(2)(C) READ WITH SECT ION 80P (1) GRANTS DEDUCTION OF RS.20,000/- IN CALCULATION OF G ROSS TOTAL INCOME OF A COOPERATIVE SOCIETY. SECTION 80P( 2)(C) EXEMPTS INCOME OF A COOPERATIVE SOCIETY TO THE EXTE NT MENTIONED IN THAT SECTION IF THE PROFIT AND GAINS A RE ATTRIBUTABLE TO THE ACTIVITIES IN WHICH THE COOPERA TIVE SOCIETY IS ENGAGED (CCIT VS KISAN SAHKARI CHINI MIL LS LTD. (2005) 273 ITR 42(ALL.). 2.11. NOW, I WOULD LIKE TO ANALYZE CERTAIN CASE LA WS, WHICH ARE AVAILABLE IN FAVOUR AND AGAINST THE ASSES SEE, SO THAT A REASONABLE VIEW CAN BE TAKEN. 2.12. IT IS NOTED THAT THE HONBLE KARNATAKA HIGH COURT IN KARNATAKA STATE COOPERATIVE MARKETING FEDE RATION LTD. VS CIT (2001) 251 ITR 736, 740 (KARN.) HELD TH AT IF A COOPERATIVE SOCIETY CARRIES ON CERTAIN ACTIVITIES, THE INCOME FROM WHICH IS EXEMPTED AND ALSO CERTAIN ACTIVITIES INCOME ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 14 FROM WHICH IS NOT EXEMPTED, THE PROFIT AND GAINS ATTRIBUTABLE TO EXEMPTED ACTIVITIES SHALL ENJOY THE EXEMPTION AND THOSE ATTRIBUTABLE TO THE NON-EXEMPTE D ACTIVITIES, SHALL BE TAXED. 2.13. THE HONBLE APEX COURT IN KERALA STATE COOPERATIVE MARKETING FEDERATION LTD. VS CIT (1998) 231 ITR 814, 819 (SC) HELD THAT WE MAY NOTICE THAT THE PROVISION IS INTRODUCED WITH A VIEW TO ENCOURAGING AND PROMOTING THE GROWTH OF THE CO-OPERAT IVE SECTOR IN THE ECONOMIC LIFE OF THE COUNTRY AND IN PURSUANCE OF THE DECLARED POLICY OF THE GOVERNMENT, THE CORRECT WAY OF READING THE DIFFERE NT HEADS OF EXEMPTION ENUMERATED IN THE SECTION WOULD BE TO TREA T 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 WHE THER THE INCOME FELL WITHIN ANY OF THE SEVERAL HEADS OF EXEMPTION. IF IT FE LL WITHIN ANY ONE HEAD OF EXEMPTION, IT WOULD BE FREE FROM TAX NOTWITH STANDING THAT THE CONDITIONS OF ANOTHER HEAD OF EXEMPTION ARE NOT SATIS FIED AND SUCH INCOME IS NOT FREE FROM TAX UNDER THAT HEAD OF EXEM PTION. THE EXPRESSION MARKETING IS AN EXPRESSION OF WIDE IMP ORT. IT INVOLVES EXCHANGE FUNCTIONS SUCH AS BUYING AND SELLING, PHYSIC AL FUNCTIONS SUCH AS STORAGE, TRANSPORTATION, PROCESSING AND OTHER COMMER CIAL ACTIVITIES SUCH AS STANDARDISATION, FINANCING, MARKETING INTELLIGEN CE, ETC. SUCH ACTIVITIES CAN BE CARRIED ON BY AN APEX SOCIETY RATHER THAN A PR IMARY SOCIETY. SO LONG AS AGRICULTURAL PRODUCE HANDLED BY THE ASSESS EE BELONGED TO ITS MEMBERS IT WAS ENTITLED TO EXEMPTION IN RESPECT OF THE PROFITS DERIVED FROM THE MARKETING OF THE SAME. WHETHER THE MEMBERS CA ME 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 ENT ITLED TO THE EXEMPTION. THE ONLY CONDITION REQUIRED FOR QUALIFYIN G THE ASSESSEES INCOME FOR EXEMPTION WAS THAT THE ASSESSEES BUSINES S MUST BE THAT OF MARKETING, THE MARKETING MUST BE OF AGRICULTURAL PRO DUCE AND THAT AGRICULTURAL PRODUCE MUST HAVE BELONGED TO THE MEMBE RS OF THE ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 15 ASSESSEE-SOCIETY BEFORE THEY CAME UP FOR MARKETING B Y IT, WHETHER ON ITS OWN ACCOUNT OR ON ACCOUNT OF THE MEMBERS THEMSELVES . THUS, THERE IS NO SCOPE TO LIMIT THE EXEMPTION. THE CO-OPERATIVE SOCIET IES ARE ENGAGED IN MARKETING OF AN AGRICULTURAL PRODUCE BOTH OF ITS MEM BERS AS WELL AS OF NON-MEMBERS. IN THE LATTER CASE, THERE IS NO DIFFEREN CE BETWEEN A CO- OPERATIVE SOCIETY OR ANY OTHER BUSINESS ORGANISATION AND SO WILL NOT BE ENTITLED TO EXEMPTION. THE EXEMPTION IS INTENDED TO COVER ALL CASES WHERE A CO-OPERATIVE SOCIETY IS ENGAGED IN MARKETING AGRICULTURAL PRODUCE OF ITS MEMBERS. SECTION 80P DOES NOT IN EFF ECT LIMIT THE SCOPE OF THE EXEMPTION TO AGRICULTURAL PRODUCE RAISED BY MEMB ERS ALONE BUT INCLUDES AGRICULTURAL PRODUCE RAISED BY OTHERS BUT B ELONGING TO CO- OPERATIVE SOCIETIES. THE CONTRAST IN THE SAID PROVISI ON IS WITH REFERENCE TO THE MARKETING OF AGRICULTURAL PRODUCE OF THE MEMBERS OF THE SOCIETY OR THAT PURCHASED FROM NON-MEMBERS. A READING OF THE PROVISIONS OF SECTION 80P OF THE AC T WOULD INDICATE THE MANNER IN WHICH THE EXEMPTIONS UNDER THE SAID PROVISION S ARE SOUGHT TO BE EXTENDED. WHENEVER THE LEGISLATURE WANTED TO RESTR ICT THE EXEMPTION TO A PRIMARY CO-OPERATIVE SOCIETY IT WAS SO MADE CL EAR AS IS EVIDENT FROM CLAUSE (F) REFERRED TO ABOVE WITH REFERENCE TO A MIL K CO-OPERATIVE SOCIETY THAT A PRIMARY SOCIETY ENGAGED IN SUPPLYING MILK IS ENTITLED TO SUCH EXEMPTION WHILE DENYING THE SAME TO A FEDERAL MILK CO -OPERATIVE SOCIETY, BUT NO SUCH DISTINCTION IS MADE WITH REFERENCE TO A B ANKING BUSINESS WHICH PROVIDES TRADE FACILITIES TO ITS MEMBERS. IT IS CLEAR, THEREFORE, THAT THE LEGISLATURE DID NOT INTEND TO LIMIT THE SCOPE OF EXEMPTION ONLY TO THOSE WHICH ARE PRIMARY SOCIETIES. IF A SMALL AGRICULT URAL CO-OPERATIVE SOCIETY DOES NOT HAVE ANY MARKETING FACILITIES IT CA N CERTAINLY BECOME A MEMBER OF THE APEX SOCIETY WHICH MAY MARKET THE PRODUCE OF ITS MEMBERS. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX WE AGREE WITH THIS VIEW. THE ANALYSIS MADE BY THE DELHI HIGH COURT IS WITH REFERENCE TO THE LEXICOGRAPHICAL MEANING OF THE E XPRESSION OF OCCURRING IN THE RELEVANT PROVISION. THE USE OF THE EX PRESSION IN THE CONTEXT, SETTING OF THE DIFFERENT CATEGORIES OF SOCI ETIES IN THE LEGISLATION IN COMPARISON WITH OTHER PROVISIONS THEREOF WOULD INDI CATE THAT THE EXPRESSION OF ACQUIRES THE MEANING AS BELONGING T O. ANY EXPRESSION IN ANY ENACTMENT WILL LIKE A CHAMELEON ACQUIRE COLOU R FROM THE BACKGROUND IN WHICH IT IS SITUATE. TRITE, TO SAY, THAT A WORD ACQUIRES MEANING ONLY WITH REFERENCE TO TEXT AND CONTEXT. ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 16 IN CIT (ADDL.) V. RYOTS AGRICULTURAL PRODUCE CO-OPE RATIVE MARKETING SOCIETY LTD. [1978] 115 ITR 709 (KAR), WHEREIN THE SC OPE OF SECTION 81(I)(C) AS IT STOOD THEN WAS CONSIDERED IN RESPECT OF INCOME FROM MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS AF TER PROCESSING IT (SIC). IN CIT V. KARJAN CO-OPERATIVE COTTON SALE, GINNING AND PRESSING SOCIETY LTD. [1981] 159 ITR 821 (GUJ), AGAIN AN IDENTICAL QU ESTION WAS CONSIDERED. THE GUJARAT HIGH COURT EXPLAINED THE EXPRE SSION USED IN SECTION 80P OF THE INCOME-TAX ACT. SO LONG AS THE COM MODITY BROUGHT TO THE ASSESSEE-SOCIETY WAS AGRICULTURAL PRODUCE AND BE LONGED TO ITS MEMBERS, IT WAS AGRICULTURAL PRODUCE OF ITS MEMBERS , BE THE MEMBER A CO-OPERATIVE SOCIETY IN ITSELF OR AN INDIVIDUAL MEM BER, THE CONCEPT WAS OF OWNERSHIP OF AGRICULTURAL PRODUCE. ON THAT BASIS, THE SAID PROVISION WAS INTERPRETED AND IT FITS IN WITH THE VIEW TAKEN BY US. XXXXXXXXXXXXXXXXXXXXXXXX THE ATTENTION OF THIS COURT DOES NOT SEEM TO HAVE BEEN DRAWN TO THE AFORESAID DECISIONS WHILE DECIDING ASSAM CO-OPERATIV E APEX MARKETING SOCIETYS CASE [1993] 201 ITR 338 (SC). WITH RESPECT, WE, THEREFORE, HOLD THAT THE VIEW TAKEN THEREIN REQUIRES RECONSIDERATION A S STATED EARLIER BY US. IN THE RESULT, THE ORDER OF THE KERALA HIGH COURT FOLLOWING THE DECISION OF THIS COURT IN ASSAM CO-OPERATIVE APEX MA RKETING SOCIETY [1993] 201 ITR 338 IS REVERSED. WE HOLD THAT THE SOCIETY ENGAGED IN THE MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS WO ULD MEAN NOT ONLY SUCH SOCIETIES WHICH DEAL WITH THE PRODUCE RAISED BY THE MEMBERS WHO ARE INDIVIDUALS OR SOCIETIES WHICH ARE MEMBERS THEREOF WHO MAY HAVE PURCHASED SUCH GOODS FROM THE AGRICULTURISTS. THUS, WE ALLOW THE CIVIL APPEAL BY SETTING ASIDE THE ORDER MADE BY THE HIGH COU RT AND ANSWERING THE QUESTION REFERRED TO US IN THE AFFIRMATIVE IN FAV OUR OF THE ASSESSEE AND AGAINST THE REVENUE. THERE SHALL BE NO ORDER AS TO COSTS. 2.14. IDENTICAL RATIO WAS LAID DOWN BY HONBLE PUN JAB & HARYANA HIGH COURT IN KARNAL COOPERATIVE SUGAR MI LLS LTD. VS CIT (2002) 253 ITR 659, 666 (P & H). IN CI T V. HARYANA STATE CO-OPERATIVE SUPPLY AND MARKETING FEDERATION LIMITED [1990] 182 ITR 53 (P & H), A N ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 17 IDENTICAL VIEW AS TAKEN BY THE GUJARAT HIGH COURT A DVERTED TO BY US JUST NOW WAS TAKEN. IN MEENACHIL RUBBER MARKETING AND PROCESSING CO-OPERATIVE SOCIETY LIMIT ED V. CIT [1992] 193 ITR 108, THE KERALA HIGH COURT HAD OCCASION TO EXAMINE THIS SHORT QUESTION AND IT TOOK THE VIEW THAT THE PROVISION HAD BEEN INCORPORATED BEARI NG IN MIND THAT THE EXEMPTION HAD BEEN GRANTED TO ENCOURA GE VITAL NATIONAL ACTIVITY IN THE NATURE OF RURAL ECON OMY IN THE CO-OPERATIVE SECTOR AND, THEREFORE, THE CONSTRUCTIO N TO BE PLACED ON THE PROVISION SHOULD ADVANCE THAT INTENTI ON. EXPLAINING THE MEANING OF MARKETING AS WAS DONE BY THE KARNATAKA HIGH COURT TO WHICH I HAVE ADVERTED TO EA RLIER, THE KERALA HIGH COURT WAS OF THE VIEW THAT ONCE THE CO- OPERATIVE SOCIETY BUYS THE AGRICULTURAL PRODUCE OF THE MEMBERS OF THE SOCIETY, THAT BUYING IS THE FIRST AC TIVITY IN THE SEVERAL LINKS OF THE ACTIVITIES TO CONSTITUTE M ARKETING AND THE CO-OPERATIVE SOCIETY IS ENTITLED TO EXEMPTI ON. SIMILARLY IN CIT V. KERALA STATE CO-OPERATIVE MARKE TING FEDERATION LTD. [1992] 193 ITR 624 (KER), THIS QUES TION WAS AGAIN CONSIDERED AND THE VIEW TAKEN BY THE GUJARAT HIGH COURT TO WHICH WE HAVE ADVERTED IN KARJAN CO-OPERAT IVE COTTON SALE, GINNING AND PRESSING SOCIETY LTD.S CA SE [1981] 129 ITR 821, WAS REITERATED. IN CIT V. TAMIL NADU CO-OPERATIVE MARKETING FEDERATION LTD. [1983] 144 I TR 74 (MAD), IT WAS HELD THAT THE EXPRESSION CO-OPERATIV E SOCIETY OCCURRING IN SECTION 80P(1) COVERS ANY CO-OPERATIVE SOCIETY ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 18 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 B ANK.? ORDINARILY, BANKS DO INVEST THEIR MONEY IN GOVERNME NT 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, HO LDING OF GOVERNMENT SECURITIES WOULD INDEED APPROPRIATELY CONNECTED WITH THE BANKING BUSINESS AND THUS THEIR MATTER WOULD BE COVERED BY THE FIRST PART OF SECTION 80P(2 )(A)(I) OF THE ACT. THE RATIO LAID DOWN IN FOLLOWING CASES SUP PORTS MY VIEW. I. BERHAMPUR CO-OPERATIVE CENTRAL BANK V. ADDL. CIT, (19 74) 93 ITR 168 (ORI); II. MALABAR CO-OP. CENTRAL BANK LTD. V. CIT, (1975) 101 I TR 87 (KER); III. PUNJAB CO-OP. BANK LTD. V. CIT, (1940) 8ITR 635 (PC) ; IV. BIHAR STATE CO-OP. BANK LTD. V. CIT, (1960) 39 ITR 114 (SC); V. ADDL. CIT V. AHMEDABAD DIST. CO-OP. BANK LTD. (1975) 101 ITR 733 (GUJ); VI. CIT V. CO-OP. CANE DEVELOPMENT UNION LTD., (1973) TAX LR 869 (ALL); VII. CIT V. ORISSA STATE CO-OPERATIVE HOUSING CORPORATION LT D., (1976) 104 ITR 157 (ORI). ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 19 CONTRA, ON ITS OWN FACTS: ANDHRA PRADESH CO-OP. CENTRAL LAND MORTGAGE BANK LTD. V. CIT, (1975) 100 ITR 472 (AP)]. AT THE SAME TIME, THE INVESTMENT' CONTEMPLATED ABO VE MUST BE FROM OUT OF THE CIRCULATING CAPITAL OR STOC K- TRADE OF THE SOCIETY [MP. STATE CO-OPERATIVE BANK LTD. VS ADDL.CIT, (1979) 119 327 (MP)J THUS, THE INCOME DER IVED BY THE ASSESSEE FROM THE INVESTMENT IN GOVERNMENT SEC URITIES PLACED WITH THE STATE BANK OF INDIA/RESERVE BANK OF INDIA CANNOT BE REGARDED AS AN ESSENTIAL PART OF ITS BANK ING ACTIVITY INASMUCH AS THE SAME DOES NOT FORM PART O F ITS STOCK-IN-TRADE OR WORKING/ CIRCULATING CAPITAL [MAD HYA PRADESH CO-OPERATIVE BANK LTD. V. ADDL. CIT, (1996) 218 ITR 438,447 (SC), AFFIRMING, (1979) 119 ITR 327 (MP )]. SIMILARLY, INTEREST ON SECURITIES EARMARKED AGAINST RESERVE AND PROVIDENT FUNDS HAS BEEN HELD NOT TO BE INCOME FROM BANKING BUSINESS [MADHYA PRADESH RAJYA SAHAKARI BAN K V. CIT, (1988) 174ITR 150 (MP)]. 2.16. THE ABOVE DISCUSSED SUPREME COURT DECISION [218 ITR 438 (SC)] HAS BEEN OVER- RULED IN CIT V. K ARNATAKA STATE CO-OPERATIVE APEX BANK [(2001) 251 ITR 194, 1 96-97 (SC)], WHERE THE LATER SUPREME COURT HAS RULED THAT INTEREST INCOME ARISING FROM THE INVESTMENT MADE, I N COMPLIANCE WITH THE STATUTORY PROVISIONS TO ENABLE IT TO CARRY ON BANKING BUSINESS, OUT OF THE RESERVE FUND BY A CO- OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS, IS E XEMPT ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 20 UNDER SECTION 80P(2)(A)(I). THE PLACEMENT OF SUCH F UNDS BEING IMPERATIVE FOR THE PURPOSE OF CARRYING ON BAN KING BUSINESS THE INCOME THEREFROM WOULD BE INCOME FROM THE ASSESSEE'S BUSINESS. FURTHER, THERE IS NOTHING IN THE PHRASEOLOGY OF SEC TION 80P(2)(A)(I) WHICH MAKES IT APPLICABLE ONLY TO INCO ME DERIVED FROM WORKING OR CIRCULATING CAPITAL [CIT V. KARNATAKA STATE CO-OPERATIVE APEX BANK, (2001) 251 ITR 194, 196 (SC)]. 2.17. IN THAT VIEW OF THE MATTER, INTEREST ON GOVERNMENT SECURITIES HELD AS STOCK-IN-TRADE IS ELI GIBLE FOR DEDUCTION UNDER THE PROVISIONS SIMILAR TO SECTION 80P(2)(A)(I). TO SUCH INTEREST PROVISIONS SIMILAR T O SECTION 80P(2)(F) ARE NOT APPLICABLE [ADDL. CIT. V. RAJASTH AN STATE CO-OPERATIVE BANK LTD., (1987) 163 ITR 213 (RAJ); C IT V. RAJASTHAN STATE CO-OPERATIVE BANK LTD., (1985) 22 T AXMAN 69 (RAJ)]. FOLLOWING THE SUPREME COURT DECISION [21 8 ITR 438 (SC)], THE RAJASTHAN HIGH COURT HAS, IN CIT V. RAJASTHAN STATE CO-OPERATIVE BANK [(1997) 223 ITR 5 5, 66- 67 (RAJ)], HELD THAT THE RAJASTHAN DECISION [163 IT R 213 (RAJ)] CANNOT BE CONSIDERED TO BE GOOD LAW, ON FACT S, IN VIEW OF THE ABOVE SUPREME COURT DECISION [218 ITR 438 (S C)] AND THE PROVISIONS OF THE RAJASTHAN CO-OPERATIVE SO CIETIES ACT, 1965 (13 OF 1965), AND THE RULES MADE THEREUND ER FROM WHICH IT IS EVIDENT THAT INTEREST EARNED ON SE CURITIES ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 21 INVESTMENTS BY THE BANK IS NOT A BANKING BUSINESS A S THE SAID INVESTMENT IS NEITHER OF CIRCULATING CAPITAL O R STOCK-IN- TRADE OF THE CO-OPERATIVE BANK AS IT HAS NO ABSOLUT E OR UNFETTERED RIGHT TO WITHDRAW THE SAME WHENEVER IT L IKES. IT CAN BE WITHDRAWN ONLY IN THE PROCEEDINGS OF WINDING UP OF THE CO-OPERATIVE SOCIETY. IN THAT VIEW OF THE MATTE R, THE TRIBUNAL WAS HELD NOT JUSTIFIED IN HOLDING THAT THE INCOME OF RS.35,69,868 FROM INVESTMENT OF RESERVE FUNDS WA S EXEMPT UNDER SECTION 80P [CIT V. RAJASTHAN STATE CO - OPERATIVE BANK, (1997) 223 ITR 55, 66-67 (RAJ)]. AL SO SEE, RAJASTHAN STATE CO-OPERATIVE BANK LTD. V. CIT, SLP (C) NOS. 12652-53 OF 2002 :. (2003) 259 ITR (ST.) 66 (SC). 2.18. IN CIT V. JILA SAHAKARI KENDRIYA BANK MARYAD IT [(1997) 225 ITR 421, 425-26 (MP)], INCOME FROM INTE REST ON SECURITIES EARMARKED TO RESERVE FUND AND GRATUITY H AS BEEN HELD NOT ENTITLED TO DEDUCTION UNDER SECTION 80P. 2.19. HOWEVER, IT IS NOT NECESSARY THAT A CO-OPERA TIVE SOCIETY SHOULD BE PRIMARILY OR EXCLUSIVELY A DEALER IN SECURITIES IN ORDER THAT INTEREST ON SECURITIES HEL D BY IT SHOULD BE ENTITLED TO EXEMPTION UNDER SECTION 80P(2 )(A)(I) [SEE, ASSAM CO-OPERATIVE APEX BANK LTD. V. CIT, (19 78) 112 ITR 87 (GAUH)]. IN CIT V. U.R. RAJYA SAHKARI BHUMI VIKAS BANK LTD. [(1994) 208 ITR 758, 760-61(ALL)], THE AS SESSEE- CO-OPERATIVE SOCIETY WAS FUNCTIONING AS A BANK FOR THE PURPOSES OF PROVIDING FINANCE TO CULTIVATORS AND CO - ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 22 OPERATIVE SOCIETIES, ETC. THE ASSESSEE HELD CERTAIN SHARES IN THE AGRICULTURAL REFINANCE CORPORATION AS WELL AS C ERTAIN UNITS OF THE UNIT TRUST OF INDIA. THE FINDINGS OF T HE TRIBUNAL THAT SUCH SHARES AND UNITS WERE HELD BY THE ASSESSE E AS ITS STOCK-IN-TRADE HAVE BEEN HELD TO BE PURE FINDINGS O F FACT RECORDED ON THE BASIS OF APPRECIATION OF EVIDENCE, NOT GIVING RISE TO ANY QUESTION OF LAW. FURTHER, THE TRIBUNAL' S HOLDING THAT INCOME FROM SUCH SHARES AND UNITS WAS INCOME F ROM BUSINESS CARRIED ON BY THE ASSESSEE AND WAS EXEMPT UNDER SECTION 80P(2)(A)(I) WAS HELD GIVING RISE TO NO STA TABLE QUESTION OF LAW. ALSO SEE, CIT V. ZILA SAHAKARI BAN K LTD., SLP (CIVIL) NO. 6328 OF 1985: (1991) 189 ITR (ST.) 115 (SC). IN CIT V. BANGALORE DISTT. CO-OPERATIVE CENTRAL BAN K LTD. [(1998) 233 ITR 282, 284-85 (SC)], IT HAS BEEN HELD THAT THE DECISION IN MADHYA PRADESH CO-OPERATIVE BANK LTD. V . ADDL. CIT [(1996) 218 ITR 438 (SC)] WAS RENDERED ON THE FACTS OF THAT CASE AND IT WAS NOT APPLICABLE TO THI S CASE IN VIEW OF THE FINDING OF THE TRIBUNAL THAT THE INCOME BY WAY OF INTEREST ON GOVERNMENT SECURITIES AND DIVIDENDS ON SHARES OF THE INDUSTRIAL FINANCIAL CORPORATION WAS ATTRIBUTABLE TO THE BANKING BUSINESS OF THE ASSESSE E. THEREFORE, SUCH INCOME WAS ELIGIBLE FOR DEDUCTION U NDER 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 I TR 194, 196 (SC)] DID NOT AGREE WITH THE FINDING IN TH AT CASE ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 23 [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 BORRO WED FOR THIS PURPOSE WOULD HAVE TO BE SET OFF AGAINST THE I NTEREST CHARGED FROM THE STAFF MEMBERS, THE NET RESULT IN T HIS 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 (PUN J)] , 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 (CIVI L) 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 HIMSELF IS A MEMBER OF THE SOCIETY. WHERE ANOTHER SOCIETY IS A MEMBER O F THE ASSESSEE-SOCIETY, ALL MEMBERS OF THE FORMER DO NOT IPSO FACTO BECOME MEMBERS OF THE ASSESSEE-SOCIETY [SEE, CIT V. U'P. CO-OPERATIVE CANE UNION FEDERATION LTD., (1980 ) 122 ITR 913 (ALL)]. AFFIRMING THE SAID ALLAHABAD DECISI ON [122 ITR 913 (ALL)], THE SUPREME COURT HAS, IN U'P. CO-O PERATIVE CANE UNIONS' FEDERATION LTD. V. CIT [(1997) 11 SCC 287, 291], HELD THAT IN SECTION 80P(2)(A)(I), WHEN PARLI AMENT HAS ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 24 USED THE EXPRESSION 'MEMBERS' IT HAS USED IT IN THE NORMAL SENSE OF A MEMBER OF A CO-OPERATIVE SOCIETY. THE IN TENTION WAS TO EXTEND THE EXEMPTION TO CO-OPERATIVE SOCIETI ES DIRECTLY EXTENDING CREDIT FACILITIES TO ITS MEMBERS . THERE IS NOTHING IN THE SAID PROVISION TO SHOW THAT THE INTE NTION WAS TO GRANT EXEMPTION TO CO-OPERATIVE SOCIETIES WHICH WERE EXTENDING CREDIT FACILITIES TO PERSONS WHO, THOUGH NOT THE MEMBERS OF THE SAID SOCIETY, WERE MEMBERS OF ANOTHE R CO- OPERATIVE SOCIETY WHICH IS A MEMBER OF THE CO-OPERA TIVE SOCIETY SEEKING EXEMPTION. THE PRINCIPLE OF LIFTING THE CORPORATE VEIL CANNOT HAVE ANY APPLICATION IN THE C ONTEXT OF THE PROVISIONS CONTAINED IN SECTION 80P(2)(A)(I). I N THAT VIEW OF THE MATTER, THE ASSESSEE-FEDERATION, HAVING CANE UNIONS AS ITS MEMBERS, WAS HELD NOT ENTITLED TO EXEMPTION FROM INCOME FROM PRESS AND INCOME FROM SUPPLY OF PUMPING SETS TO CANE-GROWERS, WHO WERE MEMBERS OF THE CANE UNION S, UNDER SECTION 80P(2)(A)(I) OF THE ACT. PROVIDING CREDIT FACILITIES.- THE EXPRESSION 'PROVI DING CREDIT FACILITIES', IN SECTION 80P(2)(A)(I) OF THE ACT, TAKES ITS COLOUR FROM THE ACTIVITY OF BANKING. IN ORDER THAT THE SAME MAY CONSTITUTE A BUSINESS, IT IS NECESSARY THAT THE SE ACTIVITIES MUST BE THE CHIEF SOURCE OF INCOME. A PE RSON WHO ADVANCES LOANS OR SUPPLIES GOODS ON CREDIT IN CONNE CTION WITH AND IN THE COURSE OF SOME OTHER BUSINESS OF MANUFACTURE OR PURCHASE OR SALE OF GOODS, ETC., CAN NOT BE SAID TO BE CARRYING ON THE BUSINESS OF PROVIDING CR EDIT ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 25 FACILITIES [ADDL. CIT V. U.P. CO-OP. CANE UNION, (1 978) 114 ITR 70 (ALL)]. A 'CREDIT SOCIETY' WITHIN THE MEANIN G OF THESE PROVISIONS CAN ONLY MEAN A SOCIETY WHICH PROVIDES C REDIT BY WAY OF LOANS OF MONEY TO ITS MEMBERS AND NOT A SOCI ETY WHICH SELLS GOODS ON CREDIT [CIT V. CORAL MILLS WOR KERS CO- OPERATIVE STORES LTD., (1977) 106 ITR 868, 871 (MAD ), SPECIAL LEAVE PETITION GRANTED BY THE SUPREME COURT : (1991) 187 ITR (ST.) 44 (SC)]. ALSO SEE, MALWA MILLS KARAM CHARI PARASPAR SAHAKARI SANSTHA V. CIT, (1982) 134 ITR 50 5 (MP); RODIER MILL EMPLOYEES' CO-OPERATIVE STORES LT D. V. CIT, (1982) 135 ITR 355 (MAD). THUS, WHERE THE ASSE SSEE- SOCIETY WAS ENGAGED IN PURCHASING AUTO-RICKSHAWS AN D SELLING THEM TO ITS MEMBERS UNDER HIRE-PURCHASE TER MS, IT WAS HELD THAT THE ASSESSEE COULD NOT BE TREATED AS PROVIDING CREDIT FACILITIES [CIT V. MADRAS AUTORICK SHAW DRIVERS' CO-OPERATIVE SOCIETY LTD., (1983) 143 ITR 981 (MAD), SPECIAL LEAVE PETITION GRANTED BY THE SUPREM E COURT: (1991) 187 ITR (ST.) 44 (SC), AFFIRMED IN MADRAS AU TO RICKSHAW DRIVERS' CO-OPERATIVE SOCIETY V. CIT, (200 1) 249 ITR 330, 331 (SC)]. SO MUCH SO, SELLING GOODS ON CR EDIT TO THE MEMBERS DOES NOT AMOUNT TO 'PROVIDING CREDIT FA CILITIES' WITHIN THE MEANING OF SECTION 80P(2)(A)(I) [KERALA CO- OPERATIVE CONSUMERS' FEDERATION LTD. V. CIT, (1988) 170 ITR 455 (KER), FOLLOWED IN CIT V. KERALA STATE CO-O PERATIVE MARKETING FEDERATION LTD., (1998) 234 ITR 301,302-0 3 (KER)]. ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 26 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 THE BUSINESS OF LENDING SERVICES ON PROFIT FOR GUARANTE EING PAYMENTS, BECAUSE GUARANTEEING PAYMENTS IS AS MUCH A PART OF BANKING BUSINESS FOR AFFORDING CREDIT FACIL ITY AS ADVANCING LOANS [CIT V. UP, CO-OPERATIVE CANE UNION FEDERATION LTD., (1980) 122 ITR 913, 916 (ALL)]. IN CIT V. PONDICHERRY CO-OPERATIVE HOUSING SOCIETY LTD. [(1991) 188 ITR 671. 675 (MAD)], THE ACTIVITY OF THE ASSESSEE-SOCIETY, A CO-OPERATIVE HOUSING SOCIETY, I N MAKING AVAILABLE FUNDS FOR HOUSE BUILDING TO A MEMBER HAS BEEN HELD TO BE REGARDED AS ONE OF CARRYING ON THE BUSIN ESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE RES TRICTION IMPOSED ON THE USER OF THE CREDIT FACILITIES EXTEND ED BY THE ASSESSEE SOCIETY FOR HOUSE BUILDING COULD NOT BE CO NSTRUED AS A MEANS INTENDED TO SECURE THE OBJECT OF THE SOC IETY, VIZ., HOUSE BUILDING. AT BEST, IT COULD BE REGARDED ONLY AS THE IMPOSITION OF A CONDITION FOR OBTAINING CREDIT FACI LITIES AND WOULD NOT IN ANY MANNER AFFECT THE CHARACTER OF THE ACTIVITY OR DETRACT FROM THE ACTIVITY BEING ONE OF PROVIDING CREDIT FACILITIES. THE FACILITY OF SELLING THE GOODS ON CREDIT TO ITS MEMBERS BY A CO-OPERATIVE SOCIETY IS AN ACTIVITY OF BUSINESS OF SELLING OF GOODS OF WHICH THE FACILITY IS ONLY A N INCIDENCE ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 27 AND IT WILL NOT AMOUNT TO PROVIDING CREDIT FACILITI ES IN THE NATURE OF THE BUSINESS OF BANKING SO AS TO AMOUNT T O CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CR EDIT FACILITIES TO ITS MEMBERS [CIT V. CO-OPERATIVE SUPP LY & COMMISSION SHOP LTD.. (1993) 204 ITR 713, 718 (RAJ) ). 2.23. IN THE CASE OF CIT V. MADURAI DISTRICT CENTR AL CO- OPERATIVE BANK LTD., (1984) 148 ITR 196 (MAD) [INTE REST FROM SECURITIES HELD AS PER STATUTORY REQUIREMENTS AS ALSO SUBSIDIES RECEIVED FROM GOVERNMENT FOR OPENING NEW BRANCHES AND GIVING LOANS TO POORER SECTIONS AT LOW ER RATE OF INTEREST WERE HELD INCOME ATTRIBUTABLE TO BANKIN G BUSINESS AND ELIGIBLE FOR DEDUCTION]; ALSO SEE, CIT V. RAMANATHAPURAM DISTRICT CENTRAL CO-OPERATIVE BANK L TD., (1997) 224 ITR 226, 227 (MAD); CIT V. MADURAI DISTR ICT CENTRAL CO-OPERATIVE BANK LTD., (1997) 224 ITR 237, 238 (MAD); CIT V. RAMANATHAPURAM DISTRICT CO-OPERATIVE CENTRAL BANK LTD., (1996) TAX LR 621,622 (MAD). IT IS NOTED THAT IN THE CASE OF CIT V. DHAR CENTRAL CO- OPERATIVE BANK, (1984) 149 ITR 438 (MP) [INCOME EAR NED BY THE ASSESSEE, A CO-OPERATIVE SOCIETY CARRYING ON TH E BUSINESS OF BANKING AND PROVIDING CREDIT FACILITIES TO ITS MEMBERS, FROM COMMISSION AND BROKERAGE BY DEALING I N BILLS OF EXCHANGE, GOVERNMENT SUBSIDY, ADMISSION FE E FROM MEMBERS, INCIDENTAL CHARGES, ETC., WERE HELD ELIGIB LE FOR DEDUCTION BENEFIT]. ALSO SEE, BHOPAL CO- OPERATIVE CENTRAL ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 28 BANK LTD. V. CIT, (1985) 156 ITR 655 (MP); BHOPAL C O- OPERATIVE CENTRAL BANK V. CIT, (1983) 169 ITR 573 ( MP); CIT V. BHOPAL CO-OPERATIVE CENTRAL BANK LTD., (1988) 17 2 ITR 423 (MP); MADHYA PRADESH RAJYA SAHAKARI BANK V. CIT , (1988) 174 ITR 150 (MP), SPECIAL LEAVE PETITION GRA NTED BY THE SUPREME COURT: (1992) 195 ITR (ST.) 5-6 (SC); C IT 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) [INTERES T FROM GOVERNMENT SECURITIES HELD AS PER STATUTORY REQUIRE MENTS- HELD ELIGIBLE FOR DEDUCTION. IN THE CASE OF CIT V. PONDICHERRY CO-OPERATIVE HOUSING SOCIETY LTD., (1991) 188 ITR 6 71, 677 (MAD), SPECIAL LEAVE PETITION DISMISSED BY THE SUPR EME COURT: (1994) 209 ITR (ST.) 87 (SC) [INTEREST RECEI VED 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 IT WAS ENGAGED IN CARRYING ON THE BU SINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, AMON GST ITS OTHER ACTIVITIES. 2.24. IT IS NOTED THAT IN THE CASE OF CIT V. CO-OP ERATIVE SUPPLY & COMMISSION SHOP LTD., (1993) 204 ITR 713,7 18 RAJ) [INTEREST ON THE OUTSTANDING BALANCES IN RESPE CT OF SUPPLIES OF GOODS-HELD NOT ELIGIBLE FOR DEDUCTION]. ALSO SEE, ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 29 CIT V. CO-OPERATIVE SUPPLY & COMMISSION SHOP LTD., (1996) 220 ITR 352, 354 (RAJ); CIT V. CO-OPERATIVE SUPPLY & COMMISSION SHOP LTD., (1996) 133 CTR (RAJ) 40, 41. 2.25. IN CIT V. U.P. CO-OPERATIVE CANE UNION FEDERATION, (1996) 217 ITR 231, 233 ALL) [ASSESSEE' S INCOME FROM SERVICE CHARGES REALISED FROM CANE GROWERS FOR ARRANGING CREDIT FACILITIES FOR THEM FOR THE PURCHA SE OF PUMP SETS WAS HELD NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) BECAUSE THE CANE GROWERS COULD NOT BE TREATED AS MEMBERS OF THE ASSESSEE-SOCIETY]. THIS ALLAHABAD DECISION [217 ITR 231 (ALL)] HAS BEEN AFFIRMED IN U 'P. CO- OPERATIVE CANE UNION FEDERATION LTD. V. CIT [(1999) 237 ITR 574 (SC)], FOLLOWING ASSAM CO-OPERATIVE APEX MARKETING SOCIETY LTD. V. ADDL. CIT [(1993) 201 ITR 338 (SC)], WHICH, IN THE CONTEXT OF THE PROVISIONS OF S ECION 80P(2)(A)(III) HAS BEEN IMPLIEDLY OVERRULED IN KERA LA STATE CO-OPERATIVE MARKETING FEDERATION LTD. V. CIT [(199 8) 231 ITR 814 (SC)], WHICH, IN ITS TURN HAS STATUTORILY B EEN SUPERSEDED AS A RESULT OF THE AMENDMENT (W.R.E.F. 1 -4- 1968) OF SECTION 80P(2)(A)(III) BY THE INCOME-TAX ( SECOND AMENDMENT) ACT, 1998 (11 OF 1999). IN THE CASE OF CIT V. JILA SAHAKARI KENDRIYA BANK MARYADIT, (1997) 225 ITR 421, 424 (MP) [INCOME DERI VED FROM LOCKER RENT IS NOT ELIGIBLE FOR DEDUCTION UNDE R SECTION80P(2)(A)(I) BECAUSE SUCH INCOME CANNOT BE ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 30 CORRELATED TO ANY OF THE ACTIVITIES WHICH MAY FALL WITHIN THE DEFINITION OF 'BANKING'. HOWEVER, MISCELLANEOUS REC EIPTS ATTRIBUTABLE TO THE BANKING BUSINESS OF THE ASSESSE E ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I). BUT, HOUSE RENT, WHICH IS NOT ATTRIBUTABLE TO THE BANKING BUSI NESS OF THE ASSESSEE, IS NOT ELIGIBLE FOR DEDUCTION]. 2.26. IN CIT V. MADURAI DISTRICT CO-OPERATIVE BANK LTD., (1999) 239 ITR 700, 701-02 (MAD), FOLLOWING 1 48 ITR 196 (MAD) AND 224 ITR 237 (MAD), DISCUSSED AT SERIA L NO. (2) U/S. 80P, ANTE . [INTEREST ON SECURITIES; SUBSIDY FROM GOVERNMENT; INTEREST FROM OTHER CO-OPERATIVE INSTIT UTIONS AND BANKS; DIVIDEND RECEIVED BY THE ASSESSEE WERE BUSINESS INCOME ENTITLED TO DEDUCTION UNDER SECTION 80P(2)(A)(I)]. ALSO SEE, CIT V. MADURAI DISTRICT CE NTRAL CO- OPERATIVE BANK LTD., (2000) 164 CTR (MAD) 71, 72, 7 3-74. THE HONBLE 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 MEETI NG HALL OF THE ASSESSEE, WHICH WAS PROPERLY ASSESSED AS BUS INESS INCOME WAS HELD ELIGIBLE FOR DEDUCTION. THE HONBLE HIGH COURT IN CIT V. ANAKAPALLI CO- OPERATIVE MARKETING SOCIETY LTD., (2000) 245 ITR 61 6, 618,624 (AP) [AMOUNT OF SERVICE CHARGES COLLECTED B Y THE ASSESSEE FROM ITS MEMBERS DID NOT QUALIFY FOR EXEMP TION ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 31 UNDER SECTION 80P(2)(A)(I) OF THE ACT ESPECIALLY WH EN 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 HONBLE APEX COURT IN THE CASE OF GUJARA T 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 HELD ENTI TLED TO DEDUCTION UNDER SECTION 80P(2)(A)(I) IN RESPECT OF THE INTEREST EARNED FROM FUNDS UTILISED FOR THE STATUTO RY RESERVES; INCOME DERIVED BY THE ASSESSEE FROM THE H IRING OUT OF THE SAFE DEPOSIT VAULTS, PROVISION OF WHICH WAS PART OF THE ORDINARY BANKING BUSINESS OF A BANK AS SHOWN BY SECTION 6(1)(A) OF THE BANKING REGULATION ACT, 1949 , WAS INCOME FROM THE BUSINESS OF BANKING AND DEDUCTIBLE UNDER SECTION 80P(2)(A)(I)]. THE SUPREME COURT DECISION [ 251 ITR 194 (SC)] HAS BEEN FOLLOWED IN CIT V. RAJASTHAN STA TE CO- OPERATIVE BANK [(2005) 272 ITR 600 (RAJ)] HOLDING T HAT THE INCOME FROM INVESTMENT COULD BE SAID TO BE FROM BAN KING BUSINESS AND EXEMPT UNDER SECTION 80P(2)(A)(I) OF T HE ACT. 2.28. THE HONBLE APEX COURT IN MEHSANA DISTRICT CENTRAL CO-OPERATIVE BANK LTD. V. ITO, (2001) 251 I TR 522, ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 32 525 (SC), REVERSED THE DECISION OF HONBLE GUJARAT HIGH COURT IN MEHSANA DISTRICT CO-OPERATIVE BANK LTD. V. ITO, (2001) 251 ITR 520 (GUJ). IN CIT V. RATNAGIRI DISTRICT CENTRAL CO-OPERATIVE BANK LTD., (2002) 254 ITR 697, 707 (BORN), SPECIAL LEAVE PETITION DISMISSED BY THE SUP REME COURT: (2002) 256 ITR (ST.) 48 (SC) AND (2003) 260 ITR (ST.) 272 (SC) [INTEREST ACCRUED ON THE INVESTMENT MADE I N INDIRA VIKAS PATRA WAS HELD INCOME ARISING OUT OF B ANKING BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2 )(A)(I) OF THE ACT. IN CIT V. RAMANATHAPURAM DISTRICT CO-OPERATIVE CENTRAL BANK LTD., (2002) 255 ITR 423, 425 (SC) [IN TEREST ON SECURITIES, SUBSIDIES FROM THE GOVERNMENT, AND D IVIDEND RECEIVED BY THE ASSESSEE, A CO-OPERATIVE SOCIETY CA RRYING ON BANKING BUSINESS, WERE BUSINESS INCOME OF THE ASSES SEE AND THE SAME WERE ELIGIBLE FOR DEDUCTION UNDER SECT ION 80P(2)(A)(I)OF THE ACT. 2.29. IN CIT V. KRISHAK SAHKARI GANNA SAMITI LTD., (2002) 258 ITR 594, 599-600 (ALL) [INTEREST EARNED BY THE ASSESSEE-CO-OPERATIVE SOCIETY FROM ITS MEMBERS WAS HELD ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) O F THE ACT AS THE MAIN OBJECT OF IT WAS TO LEND TO ITS MEMBERS OR TO ARRANGE FINANCE TO ITS MEMBERS TO ENABLE THEM TO PU RCHASE GOOD SEEDS OF SUGARCANE, FERTILIZERS, ETC.]. ALSO S EE, CFT V. CO-OPERATIVE CANE DEVELOPMENT UNION LTD., (2003) 13 0 ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 33 TAXMAN 603, 604 (ALL). IN CIT V. NAWANSHAHAR CENTRA L CO- OPERATIVE BANK LTD., (2003) 263 ITR 320, 321-22 (P & H) [INCOME FROM INVESTMENT IN PSEB BONDS, WHICH WAS IN THE NATURE OF SECURITY SPECIFIED UNDER SECTION 20 OF TH E INDIAN TRUSTS ACT, 1882, AND THEREFORE, WAS AN INVESTMENT IN ACCORDANCE WITH THE MANDATORY PROVISIONS OF SECTION 44 OF THE PUNJAB CO-OPERATIVE SOCIETIES ACT, 1961, WAS EL IGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT FOR THE ASSESSMENT YEAR 1994-95. 2.30. THE HONBLE 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 ACTIVITIE S/FORMS OF BUSINESS ENUMERATED IN CLAUSES (A) TO (0) OF THA T 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., (200 4) 266 ITR 632, 634 (KARN) [INTEREST AND DIVIDEND INCOME O F RS. 2,50,664/- DERIVED OUT OF INVESTMENT IN NATIONAL SA VINGS CERTIFICATES, INDIRA VIKAS PATRAS, KISAN VIKAS PATR AS, SHORT- TERM DEPOSITS IN BANKS AND SHARES OF MAHARASHTRA ST ATE FINANCIAL CORPORATION OF INDIA, WERE HELD TO BE ELI GIBLE FOR ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 34 DEDUCTION UNDER SECTION 80P(2)(A)(I)]. THIS VIEW HA S BEEN FOLLOWED IN ITO V. KARNATAKA CENTRAL CO-OPERATIVE B ANK LTD. [(2004) 266 ITR 635, 636 (KARN)]. IN CIT V. GRAIN MERCHANTS CO-OPERATIVE BANK LTD., (2004) 267 ITR 742, 743-44, 749 (KARN) INCOME RECEI VED BY THE CO-OPERATIVE SOCIETY BY LETTING OUT THE PREMISE BELONGING TO IT, AS ALSO INTEREST RECEIVED OUT OF THE FUNDS D EPOSITED IN THE RESERVE BANK AND OTHER BANKS HAVE BEEN HELD EXE MPT UNDER SECTION 80P(2)(A)(I) OF THE ACT FOR THE ASSES SMENT YEARS 1989-90 TO 1991-92. 2.31. IN CIT V. RAJASTHAN STATE CO-OPERATIVE BANK, (2005) 272 ITR 600, 602 (RAJ), FOLLOWING CIT V. KAR NATAKA STATE CO-OPERATIVE APEX BANK, (2001) 251 ITR 194 (S C) [INCOME FROM INVESTMENT OF THE RESERVES AND OTHER F UNDS IN VARIOUS SECURITIES HAS BEEN HELD ELIGIBLE FOR DEDUC TION UNDER SECTION 80P(2)(A)(I)] OF THE ACT. IN GORAKHPUR KSHETRIYA GRAMIN BANK V. CIT, (2007) 292 ITR 205 (ALL) [FOR ASSESSMENT YEAR 1988-89, REC EIPTS ON ACCOUNT OF PAY RECOVERED FROM RESIGNED STAFF, RECOV ERY OF TRAINING COST AND SECURITY FORFEITURE WERE ADMISSIB LE AS DEDUCTION. IN CIT V. SALEM CO-OPERATIVE SUGAR MILLS LTD., (2006) 286 ITR 635 (MAD), FOLLOWED IN CIT V. ATTUR AGRICULTURAL PRODUCERS CO-OPERATIVE MARKETING SOCIE TY LTD., (2008) 306 ITR 151 (MAD); CIT V. TAMIL NADU CO-OPER ATIVE SILK PRODUCERS LTD., (2009) 311 ITR 224 (MAD), SLP ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 35 GRANTED: (2008) 299 ITR (ST.) 91 (SC) [TAKING INTO CONSIDERATION THE OBJECT FOR WHICH THE ASSESSEE-SUG AR MILL HAD BEEN CREATED AND THE OBJECTS CLAUSE AND/OR THE BUSINESS ACTIVITIES OF THE ASSESSEE WHICH MENTIONED GRANTING LOANS AND ADVANCES TO THE MEMBERS AT SUCH RATES AS MAY BE PRESCRIBED BY THE COMMITTEE, THE OBJECT O F THE ASSESSEE CAME WITHIN THE PURVIEW OF SECTION 80P(2)( A)(I) OF THE ACT AND AS SUCH ELIGIBLE TO DEDUCTION FOR ASSES SMENT YEAR 1986-87]. 2.32. IN THE CASE OF CIT V. SIROHI S. B. V. BANK L TD., (2010) 321 ITR 533 (RAJ), SLP DISMISSED: (2010) 320 ITR (ST.) 19 (SC) THE ACTIVITY OF THE BANK IN ADVANCING HOUSE BUILDING LOANS OR PROVIDENT FUND LOANS WAS NOT THE ADVANCEMENT TO THE CUSTOMERS OF THE BANK BUT TO EMPLOYEES ONLY. THE AMOUNT OF INTEREST EARNED BY TH E ASSESSEE ON VARIOUS LOANS EXTENDED TO ITS EMPLOYEES ON PROVIDENT FUND AND HOUSE BUILDING LOANS WAS NOT EXI GIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . IN BIHAR STATE HOUSING CO-OPERATIVE FEDERATION LTD. V. CLT, (2009) 315 ITR 286 (PAT) THE ASSESSEE WAS AN A PEX HOUSING CO-OPERATIVE SOCIETY AND ITS BUSINESS WAS T O PROVIDE CREDIT FACILITIES TO ITS MEMBERS, WHICH WER E PRIMARY CO-OPERATIVE SOCIETIES. THE SUM OF RS. 15,98,592 RE CEIVED BY WAY OF INTEREST ON BANK DEPOSIT WAS ANCILLARY AN D INCIDENTAL TO THE BUSINESS OF PROVIDING CREDIT FACI LITY TO ITS ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 36 MEMBERS AND, HENCE, DEDUCTIBLE UNDER SECTION 80P(2) (A)(I) OF THE ACT. 2.33. IN CIT V. HARYANA STATE CO-OPERATIVE APEX BA NK LTD., (2010) 322 ITR 404 (PUNJ) [THE ASSESSEE WAS E NTITLED TO DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT ON THE INTEREST ON REFUND OF EXCESS OF INCOME-TAX. ONCE IN COME-TAX PAID WAS DERIVED FROM BUSINESS INCOME THEN INTEREST INCOME WOULD PARTAKE OF THE CHARACTER OF THE PRINCI PAL AMOUNT BECAUSE THE INTEREST PAID TO THE ASSESSEE IS COMPENSATION ON ACCOUNT OF DEPRIVATION OF THE USE O F MONEY. IT IS NOTED THAT IN THE CASE OF CIT V. PUNJ AB STATE CO-OPERATIVE BANK LTD., (2008) 304 ITR 113 (PUNJ), SLP DISMISSED: (2008) 306 ITR (ST.) 3 (SC) [THE ASSESSE E, A CO- OPERATIVE BANK, ENGAGED IN THE BUSINESS OF BANKING, CLAIMED DEDUCTION UNDER SECTION 80P(2)(A)(I). THE I NCOME EARNED FROM HDFC BONDS WAS ELIGIBLE FOR DEDUCTION U NDER SECTION 80P(2)(A)(I)] OF THE ACT. THE HONBLE GUJARAT HIGH COURT IN CIT V. BARODA PEOPLES CO-OPERATIVE BANK LTD., (2006) 280 ITR 282 (GUJ) [THE DEDUCTION UNDER SECTION 80P(2)(A)(I) WAS RIGHT LY ALLOWED ON INTEREST INCOME AS BEING ATTRIBUTABLE TO THE BUS INESS OF BANKING. CIT V. MUZAFFAR NAGAR KSHETRIYA GRAMIN BANK LTD., (2010) 323 ITR 202 (ALL) [THE DEPOSIT EXCEEDING THE STATUTORY LIQUIDITY RATIO WAS ALSO IN RELATION TO B ANKING ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 37 ACTIVITY. THUS, THE INCOME ACCRUED OUT OF SUCH DEPO SIT WAS ALSO ATTRIBUTABLE TO THE BANKING BUSINESS AND WAS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE ACT. 2.34. THE HONBLE BOMBAY HIGH COURT IN CIT V. MAHARASHTRA STATE CO-OPERATIVE BANK LTD., (2006) 28 2 ITR 581 (BOM) HELD THAT THE INTEREST ARISING FROM INVES TMENT MADE BY A CO-OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS, IN COMPLIANCE WITH STATUTORY PROVISIONS T O ENABLE IT TO CARRY ON BANKING BUSINESS, OUT OF RESERVE FUN D IS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I)) OF THE ACT. IN BIHAR RAJYA SAHKARI BHOOMI VIKAS CO-OPERATIVE BANK LTD. V. CIT, (2009) 313 ITR 247 (PAT), THE INT EREST DERIVED FROM INVESTMENT OF THE PROVIDENT FUND AMOUN T AND THE RENTAL INCOME, IT WAS HELD THAT IT DID NOT QUAL IFY FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. 2.35. IN CIT V. SOLAPUR NAGARI AUDYOGIC SAHAKARI BANK LTD., (2010) 328 ITR 292 (BOM), THE INTEREST R ECEIVED FROM KVPS AND IVPS HELD TO BE INCOME FROM BANKING BUSINESS ELIGIBLE FOR DEDUCTION). IN CIT V. H. P. S TATE CO- OPERATIVE BANK LTD., (2010) 323 ITR 1 (HP), THE IN- VESTMENT OF THE FUNDS BY THE BANKS INCLUDING THE NO N- RESERVES WERE PART OF THE BANKING ACTIVITIES SINCE NO BANK WOULD LIKE ITS RESERVE FUNDS TO REMAIN IDLE AND NOT EARN ANY INTEREST. THIS IS NOT ONLY PRUDENT BUSINESS MANAGEM ENT BUT IS ALSO A PART OF THE ACTIVITY OF BANKING. THUS , THE ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 38 INTEREST EARNED ON SUCH DEPOSITS WAS DIRECTLY ATTRI BUTABLE TO THE BUSINESS OF BANKING. THE ASSESSEE-BANK WAS E NTITLED TO DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT IN RESPECT OF INTEREST EARNED ON DEPOSITS MADE EVEN OUT OF NON -SLR FUND ). IN BIHAR STATE CO-OPERATIVE BANK LTD. V. CIT, (2010 ) 328 ITR 139 (PAT) [THE RENTAL INCOME FROM PROPERTY HELD ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I)] OF THE ACT. IN CIT V. RAJASTHAN STATE CO-OPERATIVE BANK, (2005) 272 ITR 600 (RAJ) [THE TRIBUNAL WAS CORRECT IN HOLD ING THAT THE INCOME FROM INVESTMENT COULD BE SAID TO BE FROM BANKING BUSINESS AND EXEMPT UNDER SECTION 80P(2)(A) (I)] OF THE 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-OPERATI VE BANK LTD., (2008) 300 ITR 24 (PUNJ); CIT V. KANGRA CO-OP ERATIVE BANK LTD., (2009) 309 ITR 106 (HP); CIT V. NAWANSHA HAR CENTRAL CO-OP. BANK LTD., (2012) 349 ITR 689 (SC) [ WHERE A CO-OPERATIVE BANK CARRYING ON BUSINESS OF BANKING I S STATUTORILY REQUIRED TO PLACE A PART OF ITS FUNDS I N APPROVED SECURITIES, THE INCOME ATTRIBUTABLE THERETO IS DEDU CTIBLE UNDER SECTION 80P(2)(A)(I) OF THE ACT. ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 39 IN PUNJAB STATE CO-OPERATIVE MILK PRODUCERS FEDERAT ION LTD. V. CIT, (2011) 336 ITR 501 (P & H) THE CREDIT FACILITY EXTENDED BY THE ASSESSEE TO ITS MEMBERS WAS ANCILLA RY TO ITS MAIN OBJECT AND IT WAS NOT CARRYING ON THE BUSI NESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBE RS 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 B Y BANKS INCLUDING THE NON-RESERVES IS PART OF BANKING ACTIV ITIES SINCE NO BANK WOULD LIKE ITS RESERVE FUNDS TO REMAI N IDLE AND NOT EARN ANY INTEREST THUS, THE INTEREST EARNED ON SUCH DEPOSITS IS DIRECTLY ATTRIBUTABLE TO THE BUSINESS O F BANKING AND, HENCE, EXEMPT UNDER SECTION 80P(2)(A)(I) OF TH E ACT. 2.37. SO FAR AS THE MEANING OF BANK IS CONCERNED, BENEFICIALLY, REFERENCE MAY BE MADE TO PART V OF BA NKING REGULATION ACT 1949, WHEREAS, A PRIMARY CO-OPERATIV E BANK IS DEFINED IN SECTION 56 OF BANKING REGULATION ACT, 1949. 2.38. BEFORE I PROCEED FURTHER, IT WOULD BE NECESS ARY TO APPRECIATE THE GENERAL UNDERSTANDING OF DOCTRINE OF MUTUALITY. THE PRINCIPLE RELATES TO THE NOTION THAT A PERSON CANNOT MAKE A PROFIT FROM HIMSELF. AN AMOUNT RECEIVED FROM ONESELF IS NOT REGARDED AS INCOME AND IS THEREFORE NOT SUBJECT TO TAX; ONLY THE INCOME WHICH COMES WITHIN THE DEFINITION OF SECTION 2(24) OF THE ACT I S SUBJECT ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 40 TO TAX (INCOME FROM BUSINESS INVOLVING THE DOCTRINE OF MUTUALITY IS DENIED EXEMPTION ONLY IN SPECIAL CASES COVERED UNDER CLAUSE (VII) OF SECTION 2(24) OF THE ACT). THE CONCEPT OF MUTUALITY HAS BEEN EXTENDED TO DEFINED G ROUPS OF PEOPLE WHO CONTRIBUTE TO A COMMON FUND, CONTROLL ED BY THE GROUP, FOR A COMMON BENEFIT. ANY AMOUNT SURPLUS TO THAT NEEDED TO PURSUE THE COMMON PURPOSE IS SAID TO BE SIMPLY AN INCREASE OF THE COMMON FUND AND AS SUCH NEITHER CONSIDERED INCOME NOR TAXABLE. OVER TIME, G ROUPS WHICH HAVE BEEN CONSIDERED TO HAVE MUTUAL INCOME HA VE INCLUDED CORPORATE BODIES, CLUBS, FRIENDLY SOCIETIE S, CREDIT UNIONS, AUTOMOBILE ASSOCIATIONS, INSURANCE COMPANIE S AND FINANCE ORGANIZATIONS. MUTUALITY IS NOT A FORM OF ORGANIZATION, EVEN IF THE PARTICIPANTS ARE OFTEN CA LLED MEMBERS. ANY ORGANIZATION CAN HAVE MUTUAL ACTIVITIE S. 2.39. THE DOCTRINE OF MUTUALITY FINDS ITS ORIGIN IN COMMON LAW. ONE OF THE EARLIEST MODERN JUDICIAL STATEMENTS OF THE MUTUALITY PRINCIPLE IS BY LORD WA TSON IN THE HOUSE OF LORDS, IN 1889, IN STYLES (SURVEYOR OF TAXES) V. NEW YORK LIFE INSURANCE CO. [1889] 2 TC 4 60 (HEREINAFTER REFERRED TO AS THE 'STYLES CASE'). THE APPELLANT IN THAT CASE WAS AN INCORPORATED COMPANY. THE COMPANY ISSUED LIFE POLICIES OF TWO KINDS, NAMELY, PARTICIPATING AND NON-PARTICIPATING. THE MEMBERS OF THE MUTUAL LIFE INSURANCE COMPANY WERE CONFINED TO THE HOLDERS OF THE PARTICIPATING POLICIES, AND EACH YEA R, THE ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 41 SURPLUS OF RECEIPTS OVER EXPENSES AND ESTIMATED LIA BILITIES WAS DIVIDED AMONG THEM, EITHER IN THE FORM OF A REDUCTION OF FUTURE PREMIUMS 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 I PSO 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 SHA PE OF PREMIUMS WERE MADE ON THE MEMBERS ACCORDINGLY. AN ACCOUNT USED TO BE TAKEN ANNUALLY AND THE GREATER P ART OF THE SURPLUS OF SUCH PREMIUMS, OVER THE EXPENDITURE REFERABLE TO SUCH POLICIES, WAS RETURNED TO THE MEM BERS I.E. (HOLDERS OF PARTICIPATING POLICIES) AND THE BA LANCE WAS CARRIED FORWARD AS A FUND IN HAND TO THE CREDIT OF THE GENERAL BODY OF MEMBERS. THE QUESTION WAS WHETHER T HE SURPLUS RETURNED TO THE MEMBERS WAS LIABLE TO BE ASSESSED TO INCOME TAX AS PROFITS OR GAINS. THE MAJ ORITY OF THE LAW LORDS ANSWERED THE QUESTION IN THE NEGAT IVE. 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 MUTU AL ASSURANCE, THAT IS TO SAY, THEY CONTRIBUTED ANNUALL Y TO A COMMON FUND OUT OF WHICH PAYMENTS WERE TO BE MADE, IN ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 42 THE EVENT OF DEATH, TO THE REPRESENTATIVES OF THE D ECEASED MEMBERS. THOSE PERSONS WERE ALONE THE OWNERS OF THE COMMON FUND AND THEY ALONE WERE ENTITLED TO PARTICI PATE IN THE SURPLUS. THIS SURPLUS WAS OBTAINED PARTLY FR OM THE PROFITS ARISING FROM NON-PARTICIPATING POLICIES AND OTHER BUSINESS. IT WAS HELD THAT THAT PORTION OF THE SURP LUS WHICH AROSE FROM THE EXCESS CONTRIBUTIONS OF THE HO LDERS OF PARTICIPATING POLICIES WAS NOT AN ASSESSABLE PRO FIT. IT WAS THEREFORE, HELD TO BE A CASE OF MUTUAL ASSURANC E. THE INDIVIDUALS INSURED AND THOSE ASSOCIATED FOR THE PU RPOSE OF RECEIVING THEIR DIVIDENDS AND MEETING OTHER STIP ULATED REQUISITES UNDER THE POLICIES WERE IDENTICAL. IT WA S HELD THAT THAT IDENTITY WAS NOT DESTROYED BY THE INCORPO RATION OF THE COMPANY. LORD WATSON EVEN WENT TO THE EXTENT OF SAYING THAT THE COMPANY IN THAT CASE DID NOT CARRY ON ANY BUSINESS AT ALL, WHICH PERHAPS WAS STATING THE POSITION A LITTLE TOO WIDELY AS POINTED OUT BY VISC OUNT CAVE IN A LATER CASE; BUT, BE THAT AS IT MAY, ALL T HE NOBLE LORDS, WHO FORMED THE MAJORITY, WERE OF THE VIEW TH AT WHAT THE MEMBERS RECEIVED WERE NOT PROFITS BUT THEI R RESPECTIVE SHARES OF THE EXCESS AMOUNT CONTRIBUTED BY THEMSELVES. THEY HELD THUS: '... WHEN A NUMBER OF INDIVIDUALS AGREE TO CONTRIBU TE FUNDS FOR A COMMON PURPOSE ... AND STIPULATE THAT THEIR CONTRIBUTIONS, SO FAR AS NOT REQUIRED FOR THAT PURP OSE, SHALL BE REPAID TO THEM. I CANNOT CONCEIVE WHY THEY SHOUL D BE ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 43 REGARDED AS TRADERS, OR WHY CONTRIBUTIONS RETURNED TO THEM SHOULD BE REGARDED AS PROFITS.' 2.40 . LORD WATSON'S STATEMENT WAS EXPLAINED BY THE HOUSE OF LORDS IN COMMISSIONERS OF INLAND REVENUE V. CORNISH MUTUAL ASSURANCE CO. LTD. [1926] 12 TC 841 (HL) WHEREIN IT WAS HELD THAT A MUTUAL CONCE RN MAY BE HELD TO CARRY ON A BUSINESS OR TRADE WITH IT S MEMBERS, THOUGH THE SURPLUS ARISING FROM SUCH TRADE IS NOT TAXABLE INCOME OR PROFIT. 2.41. THE HONBLE HIGH COURT OF AUSTRALIA FIRST CONSIDERED THE MUTUALITY PRINCIPLE IN BOHEMIANS CLU B V. ACTING FEDERAL COMMISSIONER OF TAXATION [1918] 2 4 CLR 334 : 'A MAN IS NOT THE SOURCE OF HIS OWN INCOME ... A MA N'S INCOME CONSISTS OF MONEYS DERIVED FROM SOURCES OUTS IDE OF HIMSELF. CONTRIBUTIONS MADE BY A PERSON FOR EXPENDI TURE IN HIS BUSINESS OR OTHERWISE FOR HIS OWN BENEFIT CANNO T BE REGARDED AS HIS INCOME ... THE CONTRIBUTIONS ARE, I 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 COL LECTIVE BODY OF MEMBERS ANY MORE THAN THE CALLS PAID BY MEMBERS OF A COMPANY UPON THEIR SHARES ARE INCOME O F THE COMPANY. IF ANYTHING IS LEFT UNEXPENDED IT IS NOT I NCOME OR PROFITS, BUT SAVINGS, WHICH THE MEMBERS MAY CLAIM T O HAVE RETURNED TO THEM.' (EMPHASIS ADDED) ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 44 2.42. ONE OF THE FIRST INDIAN CASES THAT DEALT WITH THE PRINCIPLE WAS CIT V. ROYAL WESTERN INDIA TURF C LUB LTD. AIR 1954 SC 85. IT QUOTED WITH APPROVAL THREE CONDITIONS STIPULATED IN THE ENGLISH & SCOTTISH JOI NT CO- OPERATIVE WHOLESALE SOCIETY LTD. (SUPRA), WHICH WER E PROPOUNDED AFTER REFERRING TO VARIOUS PASSAGES FROM THE SPEECHES OF THE DIFFERENT LAW LORDS IN STYLES (SURV EYOR OF TAXES) CASE (SUPRA). LORD NORMAND, WHO DELIVERED TH E 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 EXEMPTIO N WAS BASED ON (1) THE IDENTITY OF THE CONTRIBUTORS TO TH E FUND AND THE RECIPIENTS FROM THE FUND; (2) THE TREATMENT OF THE COMPANY, THOUGH INCORPORATED, AS A MERE ENTITY FOR THE CONVENIENCE OF THE MEMBERS AND POLICY HOLDERS, IN O THER WORDS, AS AN INSTRUMENT OBEDIENT TO THEIR MANDATE; AND (3) THE IMPOSSIBILITY THAT CONTRIBUTORS SHOULD DERIVE P ROFITS FROM CONTRIBUTIONS MADE BY THEMSELVES TO A FUND WHICH CO ULD ONLY BE EXPENDED OR RETURNED TO THEMSELVES.' 2.43. NOW, I SHALL CONSIDER EACH OF THESE CONDITI ONS IN DETAIL BEFORE PROCEEDING TO THE FACTS OF THE CASE. THE FIRST CONDITION REQUIRES THAT THERE MUST BE A C OMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND PARTICIPATORS . THIS WAS FIRST LAID DOWN BY LORD MACMILLAN IN MUNICIPAL MUTUAL INSURANCE LTD. V. HILLS[1932] 16 TC 430, 448 ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 45 (HL); CIT V. FEROZEPUR ICE MANUFACTURERS' ASSOCIATION [1972] 84 ITR 607 (PUNJ. & HAR.) WHEREI N HE OBSERVED: 'THE CARDINAL REQUIREMENT IS THAT ALL THE CONTRIBUT ORS TO THE COMMON FUND MUST BE ENTITLED TO PARTICIPATE IN THE SURPLUS AND THAT ALL THE PARTICIPATORS IN THE SURPLUS MUST BE CONTRIBUTORS TO THE COMMON FUND; IN OTHER WORDS, TH ERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS.' 2.44 . ON THIS ASPECT OF THE DOCTRINE, ESPECIALLY WITH REGARD TO THE NON-MEMBERS, HALSBURY'S LAWS OF ENGLA ND, 4TH EDITION, REISSUE, VOL. 23, PARAS 161 AND 162 (P P. 130 AND 132) STATES: 'WHERE THE TRADE OR ACTIVITY IS MUTUAL, THE FACT TH AT, AS REGARDS CERTAIN ACTIVITIES, CERTAIN MEMBERS ONLY OF THE ASSOCIATION TAKE ADVANTAGE OF THE FACILITIES WHICH IT OFFERS DOES NOT AFFECT THE MUTUALITY OF THE ENTERPR ISE. MEMBERS' CLUBS ARE AN EXAMPLE OF A MUTUAL UNDERTAKING; BUT, WHERE A CLUB EXTENDS FACILITIES TO NON-MEMBERS, TO THAT EXTENT THE ELEMENT OF MUTUALITY IS WANTING.... ' 2.45. SIMON'S TAXES, VOL. B, 3RD EDN., PARAS B1.218 AND B1. 222 (PP. 159 AND 167) FORMULATE THE LAW ON THE POINT, THUS: '..IT IS SETTLED LAW THAT IF THE PERSONS CARRYING O N A TRADE DO SO IN SUCH A WAY THAT THEY AND THE CUSTOMERS ARE THE ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 46 SAME PERSONS, NO PROFITS OR GAINS ARE YIELDED BY TH E TRADE FOR TAX PURPOSES AND THEREFORE NO ASSESSMENT IN RES PECT OF THE TRADE CAN BE MADE. ANY SURPLUS RESULTING FRO M THIS FORM OF TRADING REPRESENTS ONLY THE EXTENT TO WHICH THE CONTRIBUTIONS OF THE PARTICIPATORS HAVE PROVED TO B E IN EXCESS OF REQUIREMENTS. SUCH A SURPLUS IS REGARDED AS THEIR OWN MONEY AND RETURNABLE TO THEM. IN ORDER TH AT THIS EXEMPTING ELEMENT OF MUTUALITY SHOULD EXIST IT IS ESSENTIAL THAT THE PROFITS SHOULD BE CAPABLE OF COM ING BACK AT SOME TIME AND IN SOME FORM TO THE PERSONS T O WHOM THE GOODS WERE SOLD OR THE SERVICES RENDERED.. .. IT HAS BEEN HELD THAT A COMPANY CONDUCTING A MEMBER S' (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 CHARA CTER FOR PURPOSES OF THE FORMER CORPORATION PROFITS TAX. A MEMBERS' CLUB IS ASSESSABLE, HOWEVER, IN RESPECT OF PROFITS DERIVED FROM AFFORDING ITS FACILITIES TO NO N- MEMBERS. 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) ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 47 2.46. IN SHORT, THERE HAS TO BE A COMPLETE IDENTI TY BETWEEN THE CLASS OF PARTICIPATORS AND CLASS OF CON TRIBUTORS; 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 PRA CTICE OF INCOME TAX' (8TH EDN. VOL. I, 1990) AT P. 113 AS FO LLOWS: '...THE CONTRIBUTORS TO THE COMMON FUND AND THE PAR TICIPATORS IN THE SURPLUS MUST BE AN IDENTICAL BODY. THAT DOES NO T MEAN THAT EACH MEMBER SHOULD CONTRIBUTE TO THE COMMON FUND OR THAT EACH MEMBER SHOULD PARTICIPATE IN THE SURPLUS OR GE T BACK FROM THE SURPLUS PRECISELY WHAT HE HAS PAID.' THE MADRAS , ANDHRA PRADESH AND KERALA HIGH COURTS HAVE HELD THAT THE T EST OF MUTUALITY DOES NOT REQUIRE THAT THE CONTRIBUTORS TO THE COMMON FUND SHOULD WILLY-NILLY DISTRIBUTE THE SURPLUS AMON GST THEMSELVES : IT IS ENOUGH IF THEY HAVE A RIGHT OF D ISPOSAL OVER THE SURPLUS, AND IN EXERCISE OF THAT RIGHT THEY MAY AGREE THAT ON WINDING UP THE SURPLUS WILL BE TRANSFERRED TO A SIM ILAR ASSOCIATION OR USED FOR SOME CHARITABLE OBJECTS.... ' (EMPHASIS SUPPLIED) 2.47. BRITISH TAX ENCYCLOPEDIA (I), 1962 EDN. (ED ITED BY G.S.A. WHEATCROFT) AT PP. 1201, DEALING WITH 'MU TUAL TRADING OPERATIONS', THE LAW IS STATED AS UNDER: 'FOR THIS DOCTRINE TO APPLY IT IS ESSENTIAL THAT AL L THE CONTRIBUTORS TO THE COMMON FUND ARE ENTITLED TO PAR TICIPATE IN THE SURPLUS AND THAT ALL THE PARTICIPATORS IN THE S URPLUS ARE CONTRIBUTORS, SO THAT THERE IS COMPLETE IDENTITY BE TWEEN CONTRIBUTORS AND PARTICIPATORS. THIS MEANS IDENTITY AS A CLASS, ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 48 SO THAT AT ANY GIVEN MOMENT OF TIME THE PERSONS WHO ARE CONTRIBUTING ARE IDENTICAL WITH THE PERSONS ENTITLE D TO PARTICIPATE; IT DOES NOT MATTER THAT THE CLASS MAY BE DIMINISHED BY PERSONS GOING OUT OF THE SCHEME OR IN CREASED BY OTHERS COMING IN....' (EMPHASIS SUPPLIED) 2.48. IN JONES V. SOUTH-WEST LANCASHIRE COAL OWNE RS' ASSOCIATION LTD. 1927 AC 827, VISCOUNT CAVE LC HELD THAT 'SOONER OR LATER, IN MEAL OR IN MALT, THE WHOLE OF THE ASSOCIATIONS' RECEIPTS MUST GO BACK TO THE POLICY H OLDERS AS A CLASS, THOUGH NOT PRECISELY IN THE PROPORTIONS IN WHICH THEY HAVE CONTRIBUTED TO THEM AND THE ASSOCIATION D OES NOT IN ANY TRUE SENSE MAKE ANY PROFIT OUT OF THEIR CONTRIBUTIONS. 2.49. THEREFORE, IN THE CASE OF ROYAL WESTERN IND IA TURF CLUB LTD. (SUPRA), SINCE THE CLUB REALIZED MONEY FROM BOTH MEMBERS AND NON- MEMBERS, IN LIEU OF THE SAME SERVICES RENDERED IN THE COURSE OF THE SAME BUSINES S, THE EXEMPTION OF MUTUALITY COULD NOT BE GRANTED. THE HO NBLE SUPREME COURT HELD THUS: 'AS ALREADY STATED, IN THE INSTANT CASE THERE IS NO MUTUAL DEALING BETWEEN THE MEMBERS INTER SE AND NO PUTTING UP OF A COMMON FUND FOR DISCHARGING THE COMMON OBLIGATIONS TO EACH OTHER UNDERTAKEN BY THE CONTRIBUTORS FOR THEIR MUTU AL BENEFIT. ON THE CONTRARY, WE HAVE HERE AN INCORPORATED COMPA NY AUTHORISED TO CARRY ON AN ORDINARY BUSINESS OF A RA CE COURSE COMPANY AND THAT OF LICENSED VICTUALLERS AND REFRES HMENT ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 49 PURVEYORS AND IN FACT CARRYING ON SUCH A BUSINESS. THERE IS NO DISPUTE THAT THE DEALINGS OF THE COMPANY WITH NON-M EMBERS TAKE PLACE IN THE ORDINARY COURSE OF BUSINESS CARRI ED 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 FURTH ERANCE 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, AN D IN TURN ITS MEMBERS. THEREFORE, IN CHELMSFORD CLUB (SUPRA ), SINCE THE APPELLANT PROVIDED RECREATIONAL FACILITIES EXCL USIVELY TO ITS MEMBERS AND THEIR GUESTS ON 'NO-PROFIT-NO-LOSS' BASIS AND SURPLUS, IF ANY, WAS USED SOLELY FOR MAINTENANC E AND DEVELOPMENT OF THE CLUB , THE COURT ALLOWED THE EXC EPTION OF MUTUALITY. 2.51. THE MANDATE OF THE CLUB IS A QUESTION OF FACT AND CAN BE DETERMINED FROM THE MEMORANDUM OR ARTICL ES OF ASSOCIATION, RULES OF MEMBERSHIP, RULES OF THE ORGA NIZATION, ETC. HOWEVER, THE MANDATE MUST NOT BE CONSTRUED MYOPICALLY. WHILE IN SOME SITUATIONS, THE BENEFITS MAY BE EVIDENT DIRECTLY IN THE SHORT-RUN, IN OTHERS, THEY MAY BE ACCRUABLE TO AN ORGANIZATION INDIRECTLY, IN THE LON G-RUN. SPACE MUST BE MADE FOR BOTH SUCH FORMS OF INTERACTI ONS BETWEEN THE ORGANIZATION AND ITS MEMBERS. THEREFORE , AS FINLAY J. OBSERVED IN NATIONAL ASSOCIATION OF LOCAL ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 50 GOVERNMENT OFFICERS V. WATKINS [1934] 18 TC 499 WHE RE MEMBER OF A CLUB ORDERS DINNER AND CONSUMES IT, T HERE IS NO SALE TO HIM. AT THE SAME TIME, AS IN CASE OF CIT V. BANKIPUR CLUB LTD. [1997] 5 SCC 394, WH ERE A CLUB MAKES 'SURPLUS RECEIPTS' FROM THE SUBSCRIPT IONS AND CHARGES FOR THE VARIOUS CONVENIENCES PAID BY MEMBER S, EVEN THOUGH THERE IS NO DIRECT BENEFIT OF THE RECEI PTS TO THE CUSTOMERS, THE FACT THAT THEY WILL EVENTUALLY BE US ED IN FURTHERANCE OF THE SERVICES OF THE CLUB MUST BE C ONSIDERED AS A FURTHERANCE OF THE MANDATE OF THE CLUB. 2.52. THIRDLY, THERE MUST BE NO SCOPE OF PROFITEERING BY THE CONTRIBUTORS FROM A FUND MADE BY THEM WHICH COULD ONLY BE EXPENDED OR RETURNED TO THEMSELVES. THE LOC US CLASSICUS PRONOUNCEMENT COMES FROM ROWLATT, J'S OBSERVATIONS IN THOMAS V. RICHARD EVANS & CO. LTD. [1927] 11 TC 790 WHEREIN, WHILE INTERPRETING STYLES (SURVE YOR OF TAXES) CASE (SUPRA), HE HELD THAT IF PROFITS ARE DI STRIBUTED TO SHAREHOLDERS AS SHAREHOLDERS, THE PRINCIPLE OF MUTU ALITY IS NOT SATISFIED. HE OBSERVED THUS: 'BUT A COMPANY CAN MAKE A PROFIT OUT OF ITS MEMBERS AS CUSTOMERS, ALTHOUGH ITS RANGE OF CUSTOMERS IS LIMIT ED TO ITS SHAREHOLDERS. IF A RAILWAY COMPANY MAKES A PROFIT B Y CARRYING ITS SHAREHOLDERS, OR IF A TRADING COMPANY, BY TRADING WITH THE SHAREHOLDERS - EVEN IF IT LIMITED TO TRADI NG WITH THEM - MAKES A PROFIT, THAT PROFIT BELONGS TO THE SHAREH OLDERS, IN A SENSE, BUT IT BELONGS TO THEM QUA SHAREHOLDERS. IT DOES NOT COME BACK TO THEM AS PURCHASERS OR CUSTOMERS. IT CO MES ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 51 BACK TO THEM AS SHAREHOLDERS, UPON THEIR SHARES. WH ERE ALL THAT A COMPANY DOES IS TO COLLECT MONEY FROM A CERT AIN NUMBER OF PEOPLE - IT DOES NOT MATTER WHETHER THEY ARE CALLED MEMBERS OF THE COMPANY, OR PARTICIPATING POLICY HOL DERS - AND APPLY IT FOR THE BENEFIT OF THOSE SAME PEOPLE, NOT AS SHAREHOLDERS IN THE COMPANY, BUT AS THE PEOPLE WHO SUBSCRIBED IT, THEN, AS I UNDERSTAND THE NEW YORK C ASE, THERE IS NO PROFIT. IF THE PEOPLE WERE TO DO THE THING FO R THEMSELVES, THERE WOULD BE NO PROFIT, AND THE FACT THAT THEY IN CORPORATE A LEGAL ENTITY TO DO IT FOR THEM MAKES NO DIFFERENCE, THERE IS STILL NO PROFIT. THIS IS NOT BECAUSE THE ENTITY OF THE CO MPANY IS TO BE DISREGARDED, IT IS BECAUSE THERE IS NO PROFIT, T HE 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 UND ERSTAND 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 HONBLE APEX COURT DIFFERE NTIATED THE FACTS OF THE CASE BEFORE IT FROM THOSE OF STYLE S (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 S TYLE'S CASE APPLIES TO THE FACTS OF THE CASE. A SHAREHOLDER IN THE ASSESSEE COMPANY IS ENTITLED TO PARTICIPATE IN THE PROFITS W ITHOUT CONTRIBUTING TO THE FUNDS OF THE COMPANY BY TAKING LOANS. HE IS ENTITLED TO RECEIVE HIS DIVIDEND AS LONG AS HE HOLD S A SHARE. HE HAS NOT TO FULFIL ANY OTHER CONDITION. HIS POSITION IS IN NO WAY ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 52 DIFFERENT FROM A SHAREHOLDER IN A BANKING COMPANY, LIMITED BY SHARES. INDEED, THE POSITION OF THE ASSESSEE IS NO DIFFERENT FROM AN ORDINARY BANK EXCEPT THAT IT LENDS MONEY TO AND RECEIVES DEPOSITS FROM ITS SHAREHOLDERS. THIS DOES NOT BY ITSELF MAKE ITS INCOME ANY THE LESS INCOME FROM BUSINESS W ITHIN S. 10 OF THE INDIAN INCOME TAX ACT.' 2.54. HOWEVER, AT WHAT POINT MUTUALITY ENDS AND COMMERCIALITY BEGINS IS A DIFFICULT QUESTION OF FAC T. IT IS BEST SUMMARIZED IN BANKIPUR CLUB (SUPRA) WHEREIN HONBL E APEX COURT ECHOED THE FOLLOWING VIEWS: 'IF THE OBJECT OF THE ASSESSEE COMPANY CLAIMING TO BE A 'MUTUAL CONCERN' OR CLUB IS TO CARRY ON A PARTICU LAR BUSINESS AND MONEY IS REALISED BOTH FROM THE MEMBERS AND FRO M NON- MEMBERS, FOR THE SAME CONSIDERATION BY GIVING THE S AME OR SIMILAR FACILITIES TO ALL ALIKE IN RESPECT OF THE O NE AND THE SAME BUSINESS CARRIED ON BY IT, THE DEALINGS AS A WHOLE DISCLOSE THE SAME PROFIT EARNING MOTIVE AND ARE ALIKE TAINTED WI TH COMMERCIALITY. IN OTHER WORDS, THE ACTIVITY CARRIED ON BY THE ASSESSEE IN SUCH CASES, CLAIMING TO BE A 'MUTUAL CO NCERN' OR 'MEMBERS 'CLUB ' IS A TRADE OR AN ADVENTURE IN THE NATURE OF TRADE AND THE TRANSACTIONS ENTERED INTO WITH THE ME MBERS OR NON-MEMBERS ALIKE IS A TRADE/BUSINESS/TRANSACTION A ND THE RESULTANT SURPLUS IS CERTAINLY PROFIT - INCOME LIAB LE TO TAX. WE SHOULD ALSO STATE, THAT 'AT WHAT POINT, DOES THE RE LATIONSHIP OF MUTUALITY END AND THAT OF TRADING BEGIN' IS A DIFFI CULT AND VEXED QUESTION. A HOST OF FACTORS MAY HAVE TO BE CO NSIDERED TO ARRIVE AT A CONCLUSION. 'WHETHER OR NOT THE PERSONS DEALING WITH EACH OTHER, IS A 'MUTUAL CLUB OR CARRYING ON A TRADING ACTIVITY OR AN ADVENTURE IN THE NATURE OF TRADE', I S LARGELY A ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 53 QUESTION OF FACT [WILCOCK'S CASE - 9 TAX CASES 111, (P.132); C.A. (1925) (1) KB 30 AT P. 44 AND 45].' 2.55. IN ROYAL WESTERN INDIA TURF CLUB LTD. (SUPRA), HONBLE SUPREME COURT MADE SIMILAR OBSERVATIONS, HO LDING THAT IT IS NOT ALWAYS THE CASE THAT A LEGAL ENTITY CANNOT MAKE PROFITS OUT OF ITS MEMBERS. IT HELD AS FOLLOWS : '14THE PRINCIPLE THAT NO ONE CAN MAKE A PROFIT OUT OF HIMSELF IS TRUE ENOUGH BUT MAY IN ITS APPLICATION EASILY LE AD TO CONFUSION. THERE IS NOTHING 'PER SE' TO PREVENT A C OMPANY FROM MAKING A PROFIT OUT OF ITS OWN MEMBERS. THUS A RAIL WAY COMPANY WHICH EARNS PROFITS BY CARRYING PASSENGERS MAY ALSO MAKE A PROFIT BY CARRYING ITS SHAREHOLDERS OR A TRA DING COMPANY MAY MAKE A PROFIT OUT OF ITS TRADING WITH I TS MEMBERS BESIDES THE PROFIT IT MAKES FROM THE GENERAL PUBLIC WHICH DEALS WITH IT BUT THAT PROFIT BELONGS TO THE MEMBERS AS S HAREHOLDERS 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 PER SONS WHO PUT UP THE FUND THE COMPANY MAKES NO PROFIT. IN SUCH CA SES WHERE THERE IS IDENTITY IN THE CHARACTER OF THOSE WHO CON TRIBUTE AND OF THOSE WHO PARTICIPATE IN THE SURPLUS, THE FACT OF I NCORPORATION MAY BE IMMATERIAL AND THE INCORPORATED COMPANY MAY WELL BE REGARDED AS A MERE INSTRUMENT, A CONVENIENT AGENT F OR CARRYING OUT WHAT THE MEMBERS MIGHT MORE LABORIOUSLY DO FOR THEMSELVES. BUT IT CANNOT BE SAID THAT INCORPORATIO N WHICH BRINGS INTO BEING A LEGAL ENTITY SEPARATE FROM ITS CONSTITUENT MEMBERS IS TO BE DISREGARDED ALWAYS AND THAT THE LE GAL ENTITY CAN NEVER MAKE A PROFIT OUT OF ITS OWN MEMBERS' ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 54 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 SECTION, T HERE HAS TO BE DIRECT AND PROXIMATE CONNECTION OR NEXUS TO T HE EARNING OF THE ASSESSEE SOCIETY. PROVISION OF SECTI ON 80P WAS INTENDED TO ENCOURAGE AND PROMOTE TO GROWTH OF CO- OPERATIVE SOCIETIES, THEREFORE, A LIBERAL CONSTRUCT ION SHOULD BE GIVEN TO THE LANGUAGE EMPLOYED IN THE PROVISION AS WAS HELD IN CIT VS SOUTH ARCOT DISTRICT CO-OPERATIVE MA RKETING SOCIETY LTD. 176 ITR 117, 119 (SC), BROACH DISTRICT CO- OPERATIVE COTTON SALES, GINNING AND PRESSING SOCIET Y LTD. VS CIT 177 ITR 418, 422 (SC), CIT VS PONDICHERY CO- OPERATIVE HOUSING SOCIETY LTD. 188 ITR 671 (MAD.), MEEENACHIL RUBBER MARKETING AND PROCESSING CO-OPERA TIVE SOCIETY LTD. VS CIT 193 ITR 108 (KERALA) AND KARNAL CO- OPERATIVE SUGAR MILLS LTD. VS CIT (2002) 253 ITR 65 9, 666 (P & H). IDENTICAL RATIO WAS LAID DOWN IN U.P. CO- OPERATIVE BANK LTD. VS CIT 61 ITR 563 (ALL.). SO FAR AS, THE FINDING OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WITH R ESPECT TO PROVISIONS OF SECTION 80P(2)(A)(I) IS CONCERNED, IN THE LIGHT OF THE DECISION IN THE CASE OF TOTAGAR CO-OPERATIVE VS ITO, IT IS AGAINST THE ASSESSEE AS IT CANNOT BE SAID TO BE INCOME DERIVED FROM PROVIDING CREDIT FACILITIES TO ITS M EMBERS. IT IS NOTED THAT IN THE CASE OF ACIT VS M/S BAJAJ AUTO LT D. EMPLOYEES CO-OP. SOCIETY CREDIT LTD, RELIEF WAS GRA NTED U/S 80P(2)(D) OF THE ACT. HOWEVER, I FIND THAT SUB-SECT ION 2(D) ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 55 ALSO SPEAKS IN RESPECT OF ANY INCOME BY WAY OF IN TEREST OR DIVIDENDS DERIVED BY THE CO-OPERATIVE SOCIETY FROM ITS INVESTMENT WITH ANY OTHER CO-OPERATIVE SOCIETY AND NOWHERE SPEAKS ABOUT BANK. IT IS ALSO NOTED THAT SE CTION 80P(4) SPECIFICALLY SAYS THAT PROVISIONS OF THIS SE CTION SHALL NOT APPLY IN RELATION TO ANY CO-OPERATIVE BANK OTHE R THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO -OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. WITH THE INSERTION OF EXPLANATION FOR THE PURPOSES OF THIS S UB- SECTION, A CO-OPERATIVE BANK AND PRIMARY AGRICULT URAL CREDIT SOCIETY SHALL HAVE THE MEANINGS RESPECTIVEL Y ASSIGNED TO THEM IN PART V OF THE BANKING REGULATIO N ACT, 1949 (10 OF 1949) AND PRIMARY CO-OPERATIVE AGRICUL TURAL AND RURAL DEVELOPMENT BANK MEANS A SOCIETY HAVING ITS AREA OF OPERATION CONFINED TO A TALUK AND THE PRINC IPLE OF OBJECT OF WHICH IS TO PROVIDE FOR LONG TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES. WH EREAS, SUB-SECTION (4) OF SECTION 80P HAS WITHDRAWN THE DE DUCTION TO THE CO-OPERATIVE BANK OTHER THAN CO-OPERATIVE AG RICULTURE SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK W.E.F. A.Y. 2007-08. IF THE TOTAL ITY OF FACTS ARE ANALYZED WITH THE FACTS OF THE PRESENT AP PEAL IS NOT CLEAR AS TO HOW MUCH INTEREST WAS RECEIVED FROM FIXED DEPOSITS MAINTAINED WITH THE BANKS AND HOW MUCH FR OM CO-OPERATIVE SOCIETIES. THE AHMEDABAD BENCH OF THE TRIBUNAL IN STATE BANK OF INDIA EMPLOYEES CO-OPERAT IVE ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 56 CREDIT SOCIETY LTD. (2015) 57 TAXMAN.COM 367 VIDE O RDER DATED 26/03/2015, WHEREIN THE ASSESSEE SOCIETY, HAV ING ACCEPTED DEPOSITS FROM ITS MEMBERS, KEPT THE IDLE F UND WITH BANK, SINCE THERE WAS NO NEXUS BETWEEN THE INTEREST EARNED ON THE SAID DEPOSITS AND BUSINESS OF THE ASS ESSEE PROVIDING CREDIT FACILITY TO ITS MEMBERS, HELD THAT IT COULD NOT CLAIM DEDUCTION U/S 80P(2)(D) OF THE ACT. SINC E, THE SOURCE OF INTEREST, AS MENTIONED EARLIER, HOW MUCH FROM THE BANK AND FROM THE CO-OPERATIVE SOCIETY ARE NOT CLEA R, I REMAND THIS APPEAL TO THE FILE OF THE LD. ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE ASSESSEE AFRESH. THE ASSE SSEE IS DIRECTED TO FURNISH EVIDENCE AS TO HOW MUCH INTERES T WAS RECEIVED FROM BANKS AND HOW MUCH FROM THE CO-OPERAT IVE SOCIETY. AFTER GETTING SUCH BIFURCATION, THE LD. A SSESSING OFFICER IS DIRECTED TO DECIDE, IN THE LIGHT OF THE AFORESAID DECISIONS AND DISCUSSION MADE HEREINABOVE, INCLUDIN G THE DECISION FROM HONBLE APEX COURT IN BANGALORE CLUB (2013) 29 TAXMAN.COM 29 (SC) (ON DOCTRINE OF MUTUALITY), TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS ITO (2010) 322 IT R 283 (SC), CIT VS USHA INTERNATIONAL LTD. (2012) 348 ITR 485 (DEL.) AND IN ACCORDANCE WITH LAW. THE ASSESSEE BE GIVEN OPPORTUNITY OF BEING HEARD AND FURTHER LIBERTY TO F URNISH EVIDENCE, IF ANY, IN SUPPORT OF ITS CLAIM. THUS, TH E APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES ON LY. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ITA NO.2379/MUM/2015 SHREE SAIDATTA CO-OP. CREDIT SOCIETY LTD. 57 THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 15/01/2016. SD/- (JOGINDER SINGH) !' / JUDICIAL MEMBER MUMBAI; DATED : 15/01/2016 F{X~{T? P.S / ! &$)!*+,&+-* / COPY OF THE ORDER FORWARDED TO : 1. '#$%& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. ) ) * ( '#$ ) / THE CIT, MUMBAI. 4. ) ) * / CIT(A)- , MUMBAI 5. -./ ' , ) '#$ ' 1 , / DR, ITAT, MUMBAI 6. /2 3$ / GUARD FILE. & / BY ORDER, (-# ' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI