Judgment:
SMT. K. K. USHA J. :
At the instance of the Revenue the Tribunal, Cochin Bench has referred the following question of law for the decision of this Court in each of the above IT Reference cases :
'Whether, on the facts and in the circumstances of the case, and also in the light of the decision of the Supreme Court reported in Assam Co-operative Apex Marketing Society Ltd. vs . Addl. CIT : [1993]201ITR338(SC) and of the Kerala High Court decision in IT Ref. 33 of 1991, the assessee is entitled to exemption under s. 80P(2)(a)(iv) of the IT Act, 1961 ?'
The relevant assessment years are 1980-81, 1981-82 and 1982-83. The assessee, a Co-operative Society, was originally allowed deduction under s. 80P(2)(a)(iv) of the IT Act, 1961, hereinafter referred to as the Act, for the years 1980-81 and 1981-82 to the extent of Rs. 1,22,567 and Rs. 89,927 respectively. These assessment orders were later set aside by the CIT under order dt. 17th July, 1985 invoking powers under s. 263 of the Act and the assessing authority was directed to re-compute the income in accordance with law after determining the correct amount of exemption allowable to the assessee. The AO passed fresh assessment orders on 10th October, 1985 in respect of asst. yrs. 1980-81 and 1981-82 rejecting the claim of the assessee for exemption under s. 80P(2)(a)(iv) of the Act. For the asst. yr. 1982-83 also the assessing authority rejected the claim, as mentioned above, and passed assessment order on 12th February, 1985. On appeal, the CIT(A) confirmed the orders of assessing authority.
2. The assessee filed appeals before the Tribunal as ITA Nos. 2, 3 and 4 of 1989 respectively. In the meantime, the assessee had challenged the order passed by the CIT in exercise of his power under s. 263 of the Act for the asst. yrs. 1980-81 and 1981-82 before the Tribunal as ITA Nos. 570 and 571/85. These appeals were allowed by the Tribunal by its order dt. 13th November, 1990 holding that the assessee is entitled to get exemption under s. 80P(2)(a)(iv) of the Act.
3. When ITA Nos. 2, 3 and 4 of 1989 came up for consideration, the Tribunal rejected the appeals relating to asst. yrs. 1980-81 and 1981-82 in the light of its earlier order dt. 13th November, 1990. As far as the appeal for the asst. yr. 1982-83 was concerned, the Tribunal on merits took the view that the assessee is entitled to exemption under s. 80P(2)(a)(iv) of the Act.
4. Learned counsel appearing on behalf of the respondent-assessee took a preliminary objection regarding the maintainability of ITR Nos. 119 and 120 of 1994 relating to the asst. yrs. 1980-81 and 1981-82. The learned counsel submitted that the Revenue having not taken reference from the order passed by the Tribunal in ITA Nos. 570 and 571 of 1985 for the asst. yrs. 1980-81 and 1981-82 the present reference ITR Nos. 119 and 120 of 1994 for the very same assessment years are only to be dismissed. We are inclined to accept the objection raised by the assessee. Admittedly the Revenue has not sought any reference from the common order passed by the Tribunal in ITA Nos. 570 and 571 of 1985 relating to the asst. yrs. 1980-81 and 1981-82. Under these circumstances, ITR Nos. 119 and 120 of 1994 are not maintainable.
5. Now coming to the question raised in ITR No. 121/94 we will consider the contentions put forward by both sides on merits. The respondent-assessee, a co-operative society, is engaged in purchase and sale of electric motor pump sets, diesel engine pump sets sprayers, tillers and pesticides. As per the bye-law of the assessee society A class membership is open to all co-operative institutions registered or deemed to have been registered under the Kerala Co-operative Societies Act. E class membership is open to any individual/firm who/which purchase any equipment/machinery from the assessee society. The E class members who were not originally having any right to attend or vote at the general body meeting were granted such right by way of an amendment to the bye-law of the society made at a meeting held on 4th May, 1980. After the amendment, the assessee society claimed, that it had effected sale to the extent of Rs. 39,09,533 to A class members of the society and to the extent of Rs. 10,83,136 to B class members of the society and assessee claimed that it is entitled to deduction under s. 80P(2)(a)(iv) of the Act in respect of sales to the A class members as well as the E class members. The assessing authority took the view that the assessee is not entitled to claim deduction. There was no sale to its A class members viz., the primary societies, since the bills are issued in the name of individual users who are members of the primary societies. It also took the view that the E class members have only the status of customers of the Society and they cannot be treated as members of the society. Therefore, the assessee cannot claim any deduction under s. 80P(2)(a)(iv) of the Act.
6. On appeal, the CIT(A) affirmed the findings of the assessing authority. But on further appeal the Tribunal found that the assessee is entitled to exemption under s. 80P(2)(a)(iv) of the Act to the full extent of its claim. In coming to the above conclusion the Tribunal relied on a decision of this Court in CIT vs . Kerala State Co-operative Marketing Federation Ltd. : [1992]193ITR624(Ker) The question that has to be considered in this reference is whether a different view has to be taken in the light of the decision of the Supreme Court reported in Assam Co-operative Apex Marketing Society Ltd. vs . Addl. CIT : [1993]201ITR338(SC) and the decision of this Court in CIT vs . Kerala State Co-operative Marketing Federation Ltd. : [1994]207ITR319(Ker) The relevant provision of s. 80P under which deduction is claimed by the assessee reads as follows :
'(2) The sums referred to in sub-s. (1) shall be 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 the agricultural produce of its members,
(iv) the purchase of agricultural implements, seeds, live-stock or other articles intended for agriculture for the purpose of supplying them to its members, or
(v) the processing, without the aid of power, of the agricultural produce of its members, or
(vi) fishing or allied activities, that is to say, the 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 Supreme Court considered the scope of s. 81(i)(c) of the Act, which was substituted by the present section namely, s. 80P by Finance Act, 1967. Sec. 81(i) reads as follows :
'81. Income of Co-operative societies - Income-tax shall not be payable by a co-operative society -
(i) in respect of the profits and gains of business carried on by it, if it is
(a) a society engaged in carrying on the business of banking or providing credit facilities to its members, or
(b) a society engaged in a cottage industry; or
(c) a society engaged in the marketing of the agricultural produce of its members; or
(d) a society engaged in the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members; or
(e) a society engaged in the processing without the aid of power of the agricultural produce of its members; or
(f) a primary society engaged in supplying milk raised by its members to a federal milk co-operative society.
Provided that, in the case of a co-operative society which is also engaged in activities other than those mentioned in this clause, nothing contained therein shall apply to that part of its profits and gains as is attributable to such activities and as exceeds fifteen thousands rupees'.
Even though the Tribunal has allowed the entire deduction claimed by the assessee in respect of its sales to its class A as well as class E members, there was no separate consideration regarding the nature of the sale to class E members who are direct individual members of the assessee-society. Since the Revenue has not raised a question in this reference regarding the non-consideration of this specific question, we do not propose to go into the issue whether the assessee is entitled to claim deduction in respect of its sale to class E members. Therefore, in this reference we are concerned only with the claim of the assessee in respect of its sale to class A members.
7. Admittedly class A members of the assessee-society are primary societies. It is contended by the learned standing counsel for the Revenue that since the sale by the assessee-society is to other primary societies and not to its individual members, the assessee cannot claim deduction under s. 80P(2)(a)(iv) of the Act in the light of the decisions of the Supreme Court in : [1993]201ITR338(SC) (supra). In : [1992]193ITR624(Ker) (supra) this Court took the view that the operation of s. 80P(2)(a)(iv) is not limited to the marketing of the agricultural produce of individual members of a co-operative society but also the agricultural produce belonging to the primary societies who are members of an apex society. It was this decision which was quoted and followed by the Tribunal in coming to the conclusion that the assessee is entitled to claim deduction under s. 80P(2)(a)(iv) in respect of the sales made to its Class A members who are primary societies. But subsequently the Supreme Court in : [1993]201ITR338(SC) (supra) took a different view in the interpretation of s. 81(i)(c) which is in pari materia with the present s. 80P(2)(a)(iii). On a later occasion when cl. (iii) of s. 80P(2)(a) came up for consideration in : [1994]207ITR319(Ker) (supra) following the decision of the Supreme Court this Court also took the view that in order to claim relief under cl. (iii) the assessee has to show that the agricultural produce was produced by the individual members of the assessee-society. It is not enough that the assessee-society was marketing agricultural produce belonging to the primary societies who are members of the assessee-society. It was brought to our notice by the learned counsel appearing in this case that Supreme Court has granted special leave to the assessee to appeal against this judgment.
8. The learned standing counsel appearing on behalf of the Revenue submits that the principle laid down by the Supreme Court in the above case has to be applied in interpreting cl. (iv) of s. 80P(2)(a) also. In support of his contention he relied on the following portion of the decision of the Supreme Court :
'A reading of cl. (i) of s. 81 shows that the idea and intention behind the said clause was to encourage basic level societies engaged in cottage industries, marketing agricultural produce of its members and those engaged in purchasing and supplying agricultural implements, seeds etc. to their members and so on. The words 'agricultural produce of its members' must be understood consistent with this object and if so understood, the words mean the agricultural produce produced by the members. If it is not so understood, even a co-operative society comprising traders dealing in agricultural produce would also become entitled to exemption which could never have been the intention of Parliament. The agricultural produce produced by the agriculturist can legitimately be called agricultural produce in his hands but in the hands of traders, it would be appropriate to call it agricultural commodities; it would not be his agricultural produce. Accordingly, it must be held in this case that since the agricultural produce marketed by the assessee was not the agricultural produce produced by its members, namely, the primary co-operative society, the assessee cannot claim the benefit of the said exemption'.
The contention of the Revenue is that since the sale in this case was effected to the primary co-operative societies and not to agriculturist members, no deduction can be claimed by the assessee. In the light of the observation made by the Supreme Court as quoted above, according to the Revenue, marketing of the agricultural produce also should be directly to the agriculturists and not to the primary societies. The Revenue would submit that the Tribunal has committed an error in allowing deduction claimed by the assessee.
9. On the other hand, the learned counsel appearing on behalf of the assessee would point out that there is substantial difference in the wording of cls. (c) and (d) of s. 81(i) which are equivalent to cl. (iii) and cl. (iv) of s. 80P(2)(a). Reliance was placed on behalf of the assessee on two decisions of High Courts of Madras and Andhra Pradesh, CIT vs . Tamil Nadu Co-operative Marketing Federation Ltd. : [1983]144ITR74(Mad) and CIT vs . Guntur District Co-operative Marketing Society Ltd. : [1985]154ITR799(AP) It is true that these decisions would support the contention of the assessee but they were rendered before the decision of the Supreme Court in : [1993]201ITR338(SC) (supra). They are, therefore, of no help to understand the contentions raised by the Revenue on the basis of the observations of the Supreme Court.
10. In the facts of the case considered by the Supreme Court there was a three tyre system of procurement. Village service co-operative societies procured agricultural produce from their respective members at prescribed price and made it over to the Primary Marketing Society which in turn made over the same to the assessee-society. The remuneration received by the assessee-society at the rate of Rs. 1 per maund was being divided between the apex society, the village co-operative society and the Primary Marketing Society in the ratio of paise 19:19:62. The assessee-society claimed exemption of its income thus received under s. 81(i)(c). Considering the wording of cl. (c) agricultural produce of its members Supreme Court took the view that the produce marketed must have been produced by members of the assessee-society. It was therefore held that since the agricultural produce marketed by the assessee was not the agricultural produce produced by its members, namely the primary co-operative society, the assessee cannot claim the benefit of the said exemption. It is true at the beginning of quoted portion reference is made to s. 81(i)(b) and (d) along with (c) while observing that the provision is intended to encourage basic level societies and it was held that these provisions are to be understood consistent with the above objective. But from the last sentence of the quoted portion it can be taken that if the Primary Society which is a member of the assessee-society itself was carrying on agricultural operation, marketing of its produce would entitle the assessee-society to claim the benefit. Apart from the above, the wording of cl. (c) and cl. (a) of s. 81(i) are different from cl. (d). The only condition to be satisfied under cl. (d) is that the society shall be engaged in the purchase of agricultural implements etc. intended for agriculture for the purpose of supplying them to its members. Similar is the difference in the wording of cls. (iii) and (v) of s. 80P(2)(a) from cl. (iv). It is clear from the facts of the case that the assessee-society satisfies the conditions under cl. (iv). The assessee is engaged in purchase of agricultural implements intended for agriculture purpose and it is supplying them to its members namely, A class member societies'.
11. We therefore, find that the situation available in this case is entirely different from the facts of the case reported in (1994) 201 ITR 338 (supra). In the above case the Supreme Court had to consider marketing of agricultural produce of the members of the Society and not sale to members of the Society. So was the case in : [1994]207ITR319(Ker) (supra) which arose under S. 80P(2)(a)(iii).
12. In the light of the above discussion, we are inclined to take the view that even taking into consideration the dictum laid down by the Supreme Court in (1994) 201 ITR 338 (supra) the assessee was entitled to exemption under s. 80P(2)(a)(iv) of the Act. The question referred is thus answered in the affirmative in favour of the assessee and against the Revenue.