V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, has referred the following question under Section 256(1) of the Income-tax Act, 1961, for decision of this court, in respect of the assessment year 1978-79 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the interest of Rs. 17,292 received by the co-operative society from 13 members and from bank on outstanding balances could qualify for exemption under Section 80P(2)(a)(i) of the Act ?"
(2.) THE facts of the case are that during the course of examination of the books of account of the assessee, the Income-tax Officer found that the interest paid by the members on the closing balance as at the end of the accounting year was Rs. 15,167 and the assessee has also received interest from the bank of Rs. 2,125. THE Income-tax Officer came to the conclusion that the said amount of Rs. 17,292 does not qualify for exemption as provided under Section 80P(2)(a)(i) of the Income-tax Act, 1961. According to the Income-tax Officer, interest from the members attributable to extending credit facilities by way of advancing loans or giving cash assistance or "guarantee" protecting them from the heavy rate of interest from other financial institutions, qualifies for exemption under Section 80P(2)(a)(i). Since this income is on the business transactions from "C" class members and is not attributable to extend credit facility, the amount was disallowed from exemption claim. THE Commissioner of Income-tax (Appeals), following the judgment of the Tribunal for the immediately preceding year, allowed deduction and the second appeal preferred by the Revenue before the Income-tax Appellate Tribunal was also dismissed. THE Income-tax Appellate Tribunal, in respect of the preceding assessment year (1977-78), has held that, where the primary object of a society is to provide credit facilities to its members whether as a loan or in any other way it will be entitled to deduction under Section 80P(2)(a)(i) of the Income-tax Act. Reference was made in this judgment of the Tribunal to the decision of the Gujarat High Court in the case of CIT v. Karjan Co-operative Cotton Sale, Ginning and Pressing Society Ltd, [1981] 129 ITR 821 and of the Karnataka High Court in CIT (Addl.) v. Ryots Agricultural Produce Co-operative Marketing Society Ltd. [1978] 115 ITR 709, wherein the question was with regard to the interpretation of the provisions of Section 80P(2)(a)(iii), and it was held that the concept of marketing will include all activities connected with the process of taking over from the agricultural producer-members and handing over marketable commodities to the purchaser and all the intermediate processes connected with the marketing of the agricultural produce of the members. It was held that the term "marketing" cannot be restricted only to buying and selling activity. These judgments were approved by the Supreme Court in the case reported in Broach District Co-operative Cotton Sales, Ginning and Pressing Society Ltd. v. CIT [1989] 177 ITR 418. From a bare perusal of the facts of this case, it would be evident that the dispute there was with regard to the interpretation of Section 80P(2)(a)(iii) and not of Section 80P(2)(a)(i) and, therefore, the interest charges, godown charges and insurance charges which were received by the assessee society as part of its marketing activity Or in the course of its marketing activity while marketing cotton of its members cannot be extended for the interpretation of Section 80P(2)(a)(i) of the Act. Reliance was also placed by the Tribunal on the decision in U. P. State Warehousing Corporation v. ITO [1974] 94 ITR 129 (All), where it was held that Section 10(29) of the Income-tax Act applies only to an authority constituted for the marketing of commodities and, evidently, such authority will specifically be a business enterprise. Ex hypothesi, the term "authority" there cannot possibly be construed as referring to an authority having quasi-Governmental powers. Any legal entity or juristic personality constituted by law for the purpose of marketing commodities would be an "authority" within the meaning of Section 10(29). It was further held that the corporation was entitled to exemption in respect Of income from letting of godowns and warehouses for the mentioned activities including facilitating of marketing of commodities. The judgment was also confirmed by the Supreme Court in Union of India v. U, P. State Warehousing Corporation [1991] 187 ITR 54. Another judgment of the Gujarat High Court in CIT v. Gujarat State Warehousing Corporation [1980] 124 ITR 282 was also relied upon. From the facts of both these cases, it would be evident that there was no such dispute with regard to the interpretation of the provisions of Section 80P(2)(a)(i).
(3.) THE provisions of Section 80P(2)(a)(j) are as under : "Section 80P. Deduction in respect of income of co-operative societies.-- . . . (2) THE sums referred to in Sub-section (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 ..." The purpose of enactment of Section 80P was to encourage and promote growth of the co-operative sector in the economic life of the country. Construction with regard to exemption has to be taken separately when it has to be examined as to whether a particular income falls within one of the various heads of exemption as provided under Section 80P(2). The basic requirement of the above clause is that the society must be engaged in carrying on the business of banking or providing credit facilities to its members. It is an admitted fact that the society is not engaged in the business of banking. The only point which has to be determined is as to whether providing credit facilities to its members would extend to supply of goods on credit ? In CIT (Addl.) v. U.P. Co-operative Cane Union [1978] 114 ITR 70, the Allahabad High Court has interpreted this expression "providing credit facility" as taking its colour from the preceding expression, viz., "business of banking", In order that banking or providing of credit facilities may constitute a business, it is necessary that these activities must be the chief source of income. It was held that, where the goods are sold on credit, it is only a mode of carrying on of a business. It does not become a business pf providing credit facility and the society was held not entitled to exemption. ;