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TMI Blog2006 (3) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... ome, the assessee had also claimed deduction for income earned from dealing in controlled commodities. According to the AO, such incomes as are earned by dealing in controlled commodities is not allowable under s. 80P. The assessee had also claimed interest income as exempt under s. 80P(2)(d) of the Act. 3. In all these three appeals, the legality of action taken under s. 147/148 of the Act has been challenged; the addition made on account of sale of controlled commodities supplied to the members, and the interest income received, are the main grounds. 4. Before moving further, we may mention that in the asst. yrs. 1994-95 and 1997-98, the AO while framing the assessment order under s. 143(3), under identical facts and circumstances, had accepted the similar incomes of the assessee as exempt from tax under s. 80P(2) of the Act. On the basis of an audit objection in the years under consideration, the already accepted return of income under s. 143(1)(a) of the Act, were reopened after the expiry of the period to issue notice under s. 143(2) of the Act. 5. Having stated the above relevant facts, in short, we revert back to common ground No. (1) of the appeals, which relates to addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espective procedures with an intention to send the same to under-privileged populace, at subsidized rates. These items are given to the society by the State Government, which is one of its members. The prices of these levy items are fixed by the State Government. The sales are completely and in all respects controlled by the State Government. In cl. (iii), the marketing of agricultural produce grown by its members is the subject-matter. Actually, these items are not grown by the State Government, but by the farmers, who are also its members. 10. The macroscopical perusal of the whole section reveals that there is no clause in the s. 80P(2) under which activities like purchase and sale of levy wheat/levy sugar, consumer cloth, consumer items and sale through "Bhramansheel Units" are covered. The microscopical perusal of the whole facts in relation to the above law, would reveal that the agricultural produce like, wheat, sugar, etc. are grown by the agriculturists, who are the members of the assessee-society [all agriculturists under its jurisdiction). 11. The Hon'ble Supreme Court has held in the case of Kerala State Cooperative Marketing Federation Ltd. & Ors. vs. CIT (1998) 147 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO. The AO reduced the interest income from the business income while computing the income from controlled commodities. 14. We have heard both the sides and perused the relevant material on record. 15. The interest has been earned from its members, on advances given to the members against security of goods. The interest from PNB is received on FDRs purchased out of the sale proceeds of the goods of its members and not claimed by them and remained as deposits with the assessee and against which the assessee has received credit limits. Again the interest paid is against the credit facility availed by the assessee for the purchase of goods for and on behalf of its members. 16. After considering the facts in totality, in view of the decision relied by the learned Authorised Representative, including those given below, we are of the considered opinion that all the above interest receipts are related to the assessee's business and thus cannot be treated as income from other sources. The decisions relied are: 1. CIT vs. Tirupati Woollen Mills Ltd. (1992) 193 ITR 252 (Cal) 2. Snam Progetti Spa vs. Addl. CIT (1981) 132 ITR 70 (Del) 3. CIT vs. Paramount Premiers (P) Ltd. (1991) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative has placed reliance on the orders of authorities below. 23. The interest from its members, amounts paid for security of goods, for procuring the goods from the members, finally reduces the cost of purchase of the society. This is directly related to the earning of the 'commission' income, which is exempt under s. 80P. Similarly, the interest received on late payments by the members forms part of the sale price, and therefore, directly attributable to the earning of exempt commission income. 24. Interest from bank on FDRs, placed [purchased] from out of the proceeds received on behalf of the members and not claimed by them, is an income earned by channelising the funds of the members in a manner which results in availing credit limits for the society, which further helps in smooth running of the society and in turn, helps the society to achieve its main objective of aiding its members. This income is, therefore, also directly related to the main objective of the assessee-society. Sec. 80P(2) exempts the whole amount of profits and gains of the business attributable to anyone or more of its activities. The section is wider in scope as compared to other sections in row. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt under s. 80P(2)(a)(i). Whereas in the given case, the money is advanced against the security of goods, which is one of the primary objects of the society, and the entire interest received is attributable to the main activity of marketing the goods of its members. This case has no applicability in the matter of the assessee, as the case of the assessee is not whether the interest earned is a part of banking activity. Therefore, the entire net interest earned by the assessee is an income arising from and attributable to the main activity of the facilitating and marketing the goods of its members and hence such income is exempt under s. 80P(2)(a)(i). This issue is allowed in all the years. 27. The last ground is the legal ground taken as additional ground which challenges the validity of the issue of notice under s. 14S, after the assessment made under s. 143(1)(a) had attained finality. The AO has recorded the following reasons while issuing notice under s. 148. "The assessee is a co-operative society and has shown its income as nil after claim of deduction under s. 80P(2). The assessee is also dealing in trading of controlled commodities viz., sugar, cloth, consumables on whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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