1997 (1) TMI 7 - SC - Income Tax

U.P. Co-operative Cane Union Federation Ltd. is a co-operative society - members of the Federation are cane unions and the members of these cane unions are individual cane growers - Federation received Rs. 55, 098 as five per cent service charges from the supplier of the pumping sets - held that assessee is not entitled to exemption u/s 80P(2)(a)(i) for income from press and income from supply of pumping sets

Summary

Issues:
Interpretation of the term "members" in section 80P(2)(a)(i) of the Income-tax Act, 1961 for co-operative societies providing credit facilities.

Detailed Analysis:

The judgment involves appeals against the Allahabad High Court's decision regarding the entitlement of a co-operative society to exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961 for income from press and supply of pumping sets. The co-operative society in question, a federation of cane unions, sponsored an irrigation scheme for small farmers, providing credit facilities for the purchase of pumping sets. The dispute arose as to whether individual cane growers, who were not direct members of the federation but members of cane unions affiliated with it, could be considered as "members" for the purpose of claiming the exemption.

The Income-tax Officer initially rejected the federation's claim for exemption, which was later upheld by the Appellate Assistant Commissioner but reversed by the Tribunal. The Tribunal held that individual cane growers could be treated as members of the federation, allowing the exemption under section 80P(2)(a)(i) but not under (iv) since the federation did not purchase or supply pumping sets. The High Court, however, ruled that the cane growers could not be considered members of the federation, thereby denying the exemption.

The core issue revolved around the interpretation of the term "members" in section 80P(2)(a)(i) of the Act. The federation argued for a liberal construction of the term to include individual cane growers based on the objective of promoting agricultural production. Conversely, the Revenue contended that the term should be construed in line with the Co-operative Societies Act, which defined members as those directly associated with the society.

The Supreme Court analyzed the definition of "members" under the Co-operative Societies Act, which clarified that members were those involved in the registration or subsequent admission as per the society's rules. The Court emphasized that the intention behind section 80P(2)(a)(i) was to grant exemptions to co-operative societies directly providing credit facilities to their own members, not to members of other affiliated societies.

Drawing parallels from a previous case, the Court highlighted the legislative intent to support basic level societies directly benefiting their members. Therefore, the Court concurred with the High Court's interpretation that the federation could not claim exemption under section 80P(2)(a)(i) as individual cane growers were not direct members of the federation.

In conclusion, the Supreme Court dismissed the appeals, upholding the High Court's decision and denying the federation's claim for exemption under section 80P(2)(a)(i) of the Act. The judgment clarified that the term "members" should be construed narrowly to include only those directly associated with the co-operative society seeking exemption, in line with the legislative intent to support societies providing direct benefits to their own members.