1986 (2) TMI 153 - AT - Income Tax

Summary

Issues Involved:
1. Whether the claim of deduction under section 80P(2)(iv) of the Income-tax Act, 1961, made by the assessee, a co-operative society, is acceptable or not.

Issue-wise Detailed Analysis:

1. Liability to Pay Water Charges:
The primary question was whether the assessee-society is liable to pay water charges to the Government. The AAC concluded that the liability arises under an agreement with the Irrigation Department, not under any specific provision of the Bombay Irrigation Act. The society was primarily responsible for the payment, although the liability was joint and several with its members.

2. Source and Purpose of Water:
The source of water was identified as the Panchganga river. The objects of the society included providing water from the river to its members for agricultural purposes. The society constructed infrastructure to lift and distribute the water.

3. Nature of the Society's Activities:
The society argued that it was responsible for the water rates and had effectively "purchased" water from the Government for supplying it to its members. The AAC supported this view, indicating that the society's activities amounted to purchasing water, thus entitling it to exemption under section 80P(2)(iv).

4. Statutory and Contractual Obligations:
The Tribunal examined whether the water charges paid by the society could be considered a "purchase." The AAC's answers revealed that the society was responsible for collecting and paying water rates to the Government, but this responsibility arose from an agreement, not statutory obligation.

5. Interpretation of 'Purchase':
The Tribunal focused on the definition of "purchase" as it appears in section 80P(2)(a)(iv). The term "purchase" implies acquisition for a price or consideration. The Tribunal noted that the society did not pay a purchase price for the water; rather, it collected water rates from its members and paid these to the Government.

6. Legal Precedents and Definitions:
The Tribunal referred to the Bombay High Court decision in Vidarbha Co-operative Marketing Society Ltd. v. CIT, which held that the term "purchase" must be interpreted in its commercial sense, implying acquisition for money or consideration. The Tribunal concluded that the society's activities did not meet this definition.

7. Government's Role and Water Ownership:
The Tribunal emphasized that the water in the river belongs to the Government, and the Government does not sell water for irrigation. The water rates charged by the Government are considered a tax, not a sale price. The society's role was to facilitate the distribution of water, not to purchase it.

8. Exemption Under Section 80P(2)(iv):
The Tribunal concluded that the society did not "purchase" water within the meaning of section 80P(2)(a)(iv). Therefore, the income derived from supplying water to its members did not qualify for exemption under this section.

Final Judgment:
The Tribunal set aside the order of the AAC and restored the ITO's decision, holding that the claim of exemption under section 80P(2)(iv) was not tenable. The appeals by the department were allowed.

Conclusion:
The Tribunal held that the co-operative society did not qualify for the exemption under section 80P(2)(iv) as it did not engage in the "purchase" of water. The society's role was limited to facilitating the distribution of water, and the charges paid were considered a tax, not a purchase price.