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TMI Blog2000 (3) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... produce and leasing godown for rent besides arranging loans through State Bank of India, Anakapalli. The State Bank of India has been granting loans to the members of the assessee for growing sugarcane. But the bank has been insisting that the loanees produce certificates from the assessee certifying the details of the lands owned or cultivated by the ryots ; the crop grown as seen by personal inspection ; and the indebtedness of the ryots to any society or bank. The assessee has been issuing such certificates to its members by appending the same to the loan applications while forwarding the same to the bank. In this regard, it has been collecting certain service charges from its members. For the assessment year 1983-84, the society filed its return of income. In the return it claimed exemption of Rs. 93,360 collected towards service charges. However, the Income-tax Officer treated the same as income from other sources. In the appeal, the Commissioner of Income-tax allowed the claim of the assessee. Having been aggrieved by the same, the Department filed the appeal before the Income-tax Appellate Tribunal. The Tribunal by its order dated June 20, 1989, dismissed the appeal. The Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members. the whole of the amount of profits and gains of business attributable to any one or more of such activities ;" It is apparent from a plain reading of the above provision that if the assessee is a co-operative society, its income referred to in sub-section (2) shall be deducted in computing the total income of the assessee. The income referred to in sub-section (2) is the whole of the amount of profits and gains derived by the society in engaging itself in carrying on the business attributable to any one or more of such activities referred to in clauses (i) to (vii) of sub-section (2)(a) of section 80P of the Act. Clause (i) of sub-section (2)(a) is apposite here for consideration. It envisages two categories of businesses, namely, (1) engaging in carrying on the business of banking, and (2) engaging in the business of providing credit facilities to its members. We are not concerned with the former category of business. The latter category of business and the income derived therefrom is germane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. A Bench of the Allahabad High Court held thus : "On these observations, the expression 'providing credit facilities' would comprehend the business of lending money on interest. We might add that it would as well comprehend the business of lending services on profit for guaranteeing payments. We say so because guaranteeing payments is as much a part of banking business for affording credit facility as advancing loans." According to the facts in that case, the society was assessed on the income from the printing press and service charges for the supply of pumping sets by Southern Engineering, repelling its plea for exemption. The applications for purchasing the pump sets were processed by the society and it stood as guarantor for the payment. The society took the responsibility for the payment of the invoice price within seven days from the date of the invoice and it is also responsible for the payment. It has undertaken the liability for making available the loans to the farmers either from its own resources or from the financing institutions. Thus, the society has provided credit facilities to the cane-growers who purchased pumping sets. The final payment was guaranteed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source of his income." It is obvious even from the excerpts extracted supra that the twin requirements to be satisfied are (1) providing credit facility must be one of the activities of the society, and (2) the income derived therefrom as a profit or gain shall be one of the main sources of income. Returning to the facts of the instant case, issuing the requisite certificate while forwarding the loan applications and recommending the sanction of the loans de hors guaranteeing the payment and earning profits or gains thereby, under the facts and circumstances of this case cannot be said to be an activity of the society. Even if the expression "engaged in the business of providing credit facilities to its members" is stretched so as to construe that it comprehends the business of providing credit facilities through the State Bank of India, Anakapalli branch also, as is done by the Allahabad High Court referred to supra that act in isolation de hors the other act of guaranteeing the payments and undertaking the responsibility of repayment thereby making it a source of income cannot reasonably be construed as one of the activities of the assessee. The judgment of the Allahabad High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such categories of income are not exempt from income-tax under section 81(i)(a). This court has further held as follows : "The business of the assessee must have a direct or proximate connection with or nexus to the earnings in order to attract the provisions of section 81(i). Under section 81(i)(a) unless and until the assessee establishes that the income sought to be exempted was earned in carrying on the business of banking or providing credit facilities to its members, its claim to exemption must be rejected." It is obvious from the above judgment of this court that the income earned by the society must have a direct or proximate nexus or connection with the business of the society. Turning to the instant case, there is no evidence to show that service charges being collected by the assessee constitute one of the sources of income and is attributable to the business of providing credit facilities. The assessee should engage itself in the business of providing credit facility to its members. If the society makes any profit or gain out of business attributable to such an activity then that income earned by the society by way of profit or gain qualifies for exemption under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple requires it to be construed strictly. Truly speaking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is Whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction, Therefore, the first exercise that has to be undertaken is if the production of packing and wrapping material in the factory as it existed prior to 1964 is covered in the notification." The above excerpt has been extracted with approval by the apex court in its latest judgment in Grasim Industries Ltd. v. State of M. P., AIR 2000 SC 66 ; [1999] 8 SCC 547. The burden is on the assessee, which is seeking to claim the benefit of exemption to show that it is covered by the said exemption. Therefore, it must invariably show that it forwarded the loan applications pursuant to one of its activities of providing credit facilities to its members and that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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