Commissioner of Income Tax vs Ambur Co-operative Sugar Mills Ltd.

K. Raviraja Pandian, J.—The revenue is on appeals against the order of the Tribunal, Madras B Bench, dated 29-7-2003 made in ITA Nos. 1393 and 1394/Mad/1996. The relevant assessment years are 1986-87 and 1987-88 respectively.

The assessee is a co-operative society engaged in the manufacture and sale of sugar and had claimed deduction of interest accrued out of molasses storage fund u/s 80P(2)(a)(i) of the Income Tax Act, 1961. The assessing officer negatived the claim of the assessee in respect of deduction u/s 80P(2)(a)(i) of the Act on the ground that the appellant was in the business of manufacture of sugar and was not in the business of banking or credit finance, and therefore, the interest paid by its members on loan, which was an incidental activity could not be deducted u/s 80P(2)(a)(i) of the Income Tax Act. The assessee filed an appeal before the Commissioner (Appeals), who allowed the appeal following the earlier year order. The revenue filed an appeal to the Tribunal questioning the correctness of the order of the Commissioner (Appeals), which by the order impugned in this appeal, has dismissed the appeal. The correctness of the same is now canvassed in this appeal by the revenue by framing the following questions of law:

Whether in the facts and under the circumstances of the case, the Tribunal was right in holding that the assessee co-operative society which is engaged in the manufacture and sale of sugar is eligible for the benefit of Section 80P(2)(a) in respect of interest received from members ?

Whether in the facts and under the circumstances of the case, the Tribunal was right in holding that the interest accrued on molasses storage fund does not constitute the assessees income?

We heard the learned Counsel on either side.

In respect of the earlier case followed in this case, the matter has been taken out to the Supreme Court. The Supreme Court in the case of Commissioner of Income Tax, Madras Vs. Ponni Sugars and Chemicals Ltd., has remitted the case to the Tribunal by observing as follows:

Coming to the second question namely, whether the assessee was entitled to exemption u/s 80P(2)(a)(i) of the Income Tax Act, 1961 (hereinafter referred to as "1961 Act") in respect of interest received from the members of the society, we find that none of the authorities below, including the High Court, have examined the memorandum of association filed by Salem Co-operative Sugar Mills Ltd., Madurantakam Co-operative Sugar Mills Ltd., Ambur Co-operative Sugar Mills Ltd., Dharmapuri District Co-operative Sugar Mills Ltd., Vellore Co-operative Sugar Mills Ltd., Attur Agricultural Producers Co-operative Society Ltd., and Modern Engineers Construction Co-operative Society Ltd., u/s 80P(2) deduction in respect of income of co-operative societies is provided for. u/s 80P(1), where the gross total income of a co-operative society includes any income referred to in Sub-section (2) then the sums specified in Sub-section (2) shall be deducted from the gross total income to arrive at the total income of the assessee society. In order to earn exemption u/s 80P(2) a co-operative society must prove that it had engaged itself in carrying on any of the several businesses referred to in Sub-section (2). In that connection, it is important to note that under Sub-section (2), in the context of co-operative society, Parliament has stipulated that the society must be engaged in carrying on the business of banking or providing credit facilities to its members. Therefore, in each case, the Tribunal was required to examine the memorandum of association, the articles of association, the return of income filed with the department, the status of business indicated in such returns etc. This exercise had not been undertaken at all.

As already stated, the appeal filed by the assessee before the Commissioner (Appeals) was allowed. Aggrieved by the same, the revenue filed appeal before the Tribunal and the Tribunal has followed the earlier decision in which case also the exercise directed to be made by the Supreme Court in the above referred case has not been done. The matter has to be remitted to the Tribunal to consider the direction issued by the Supreme Court in the above referred case in this case also.

In respect of the second question of law, the learned Counsel appearing for the revenue fairly submitted that this question does not arise for consideration on the basis of the remittal of the matter to the Tribunal. The same is recorded and the second question of law does not arise for consideration.

For the foregoing reasons, the appeal is allowed and the order impugned is set aside and the matter is remitted back to the Tribunal.