2002 (10) TMI 89 - HC - Income Tax

Co-operative Society, Special Exemption - Whether, on the facts and in the circumstances of the case and on a proper interpretation of the objects of the society and the provisions of section 80P of the Income-tax Act, 1961, the Appellate Tribunal was justified in holding that the interest earned by the assessee-co-operative society from its members was covered by the provisions of section 80P(2)(a)(i) of the Income tax Act, 1961, and, therefore, exempt from tax? we answer the question referred to us in the affirmative, in favour of the assessee-co-operative society and against the Revenue.

Summary

Issues Involved:
1. Interpretation of section 80P of the Income-tax Act, 1961.
2. Eligibility of interest income earned by a co-operative society from its members for tax exemption under section 80P(2)(a)(i).

Issue-wise Detailed Analysis:

1. Interpretation of section 80P of the Income-tax Act, 1961:
The case revolves around the interpretation of section 80P of the Income-tax Act, 1961, which provides tax exemptions to co-operative societies. The main question is whether the interest earned by the assessee-co-operative society from its members falls under the exemption provided by section 80P(2)(a)(i). The court examined the objects of the society and the provisions of section 80P to determine if the society's activities qualify for the exemption.

2. Eligibility of interest income earned by a co-operative society from its members for tax exemption under section 80P(2)(a)(i):
The assessee-society, Krishak Sahkari Ganna Samiti Ltd., Lakhimpur Kheri, claimed exemption for interest received from its members under section 80P. The Income-tax Officer denied the exemption, stating that the society's main business was not banking or providing credit facilities. The appellate authority agreed but directed a fresh assessment. The Appellate Tribunal, however, held that the society's object included lending to its members, thus qualifying for the exemption under section 80P(2)(a)(i).

The Revenue argued that the term "credit facilities" should be interpreted narrowly, implying that only societies primarily engaged in banking or providing credit facilities qualify for the exemption. They cited several case laws to support their argument, emphasizing that the main activity of the society should be providing credit facilities.

The assessee's counsel argued that section 80P was designed to promote the co-operative sector and that the exemption applies to various activities, including providing credit facilities. They contended that the society's activities, including lending to members for agricultural purposes, fall within the scope of section 80P(2)(a)(i).

The court analyzed the objects of the society, particularly the provision of credit facilities for agricultural purposes, and concluded that the society's activities qualify for the exemption. The court referenced the decision in CIT v. Co-operative Cane Development Union Ltd., which held that income attributable to activities of a co-operative society, including interest from statutory investments, qualifies for exemption under section 80P.

Judgment:
The court held that the interest income earned by the assessee-co-operative society from its members is exempt from tax under section 80P(2)(a)(i) of the Income-tax Act, 1961. The court found that the society's activities, including lending to its members for agricultural purposes, fall within the scope of the exemption. The court answered the question in favor of the assessee-co-operative society and against the Revenue, making no order as to costs.