HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 188 / 2016 Principal Commissioner Of I T Jaipur-3, Statue Circle, C-Scheme, Jaipur Appellant Versus M/S Sikar Kendriya Sahakari Bank Ltd., Vasant Vihar, Sikar (Raj.), Y 2009-10 Respondent For Appellant(s) : Mr. Daksh Pareek on behalf of Mr. Sameer Jain For Respondent(s) : Mr. Ram Kumar Sharma HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 14/11/2017 1. By way of this appeal, appellant has challenged judgment and order of Tribunal whereby Tribunal has allowed appeal preferred by assessee. 2. Counsel for appellant has framed following substantial questions of law:- 1. Whether Tribunal has errd in law and on facts in allowing deduction u/s 36(1) (viia) on account of Provision for bad and doubtful debts ignoring fact that it has huge Reserve already in accounts and deposits were insured by assessee? 2. Whether Tribunal has erred in law and on facts in allowing deduction on account of Provision for contingent liability for earned leave ignoring that no such expenditure had been made in this year and any earlier year by assessee? (2 of 10) [ITA-188/2016] 3. issue No. 1 is covered by decision of Supreme Court In TRF ltd. V/s CIT, 323 ITR 397 (SC), which reads as under:- 1. Heard learned Counsel on both sides. 2. In these appeals, we are concerned with Assessment Year 1990-1991 and Assessment Year 1993-1994. Prior to 1st April, 1989, every assessee had to establish, as matter of fact, that debt advanced by assessee had, in fact, become irrecoverable. That position got altered by deletion of word "established", which earlier existed in Section 36(1)(vii) of Income Tax Act, 1961 ["Act", for short] . 3. For sake of clarity, we re-produce hereinbelow provisions of Section 36(1)(vii) of Act, both prior to 1st April, 1989 and post-1st April, 1989: Pre-1st April, 1989; Other deductions. 36.(1) deductions provided for in following clauses shall be allowed in respect of matters dealt with therein, in computing income referred to in Section 28-- (i) to (vi) xxxx xxxx xxxx (vii) subject to provisions of Sub-section (2), amount of any debt, or part thereof, which is established to have become bad debt in previous year. Post-1st April, 1989; Other deductions. 36.(1) deductions provided for in following clauses shall be allowed in respect of matters dealt with therein, in computing income referred to in Section 28-- (i) to (vi) xxxx xxxx xxxx (vii) subject to provisions of Sub-section (2), amount of any bad debt or part thereof which is (3 of 10) [ITA-188/2016] written off as irrecoverable in accounts of assessee for previous year. 4. This position in law is well-settled. After 1st April, 1989, it is not necessary for assessee to establish that debt, in fact, has become irrecoverable. It is enough if bad debt is written off as irrecoverable in accounts of assessee. However, in present case, Assessing Officer has not examined whether debt has, in fact, been written off in accounts of assessee. When bad debt occurs, bad debt account is debited and customer's account is credited, thus, closing account of customer. In case of Companies, provision is deducted from Sundry Debtors. As stated above, Assessing Officer has not examined whether, in fact, bad debt or part thereof is written off in accounts of assessee. This exercise has not been undertaken by Assessing Officer. Hence, matter is remitted to Assessing Officer for de novo consideration of above-mentioned aspect only and that too only to extent of write off. 5. Subject to above, civil appeals filed by assessee are disposed of with no order as to costs. CIVIL APPEAL NO. 5292 OF 2003 6. In view of our Order passed today in Civil Appeal No. 5293 of 2003 and Civil Appeal No. 5294 of 2003, we remit this case concerning Assessment Year 1994- 1995 also to Assessing Officer, who is directed to consider question as to whether write off is done by assessee in its accounts in accordance with law declared by us in above order. 7. civil appeal filed by assessee, accordingly, stands disposed of with no order as to costs. (4 of 10) [ITA-188/2016] 4. second issue has also been decided by this Court in D.B. Income Tax Appeal No.112/2016, Principal Commissioner of I T Jaipur 3 v/s M/s Sikar Sahakari Bhoomi Vikas Bank LT., decided on 20.12.2016, wherein it has been observed as under:- 5. Counsel for respondent in support of submission has relied on decision of Supreme Court in case of UP Co- operative Cane Union Federation Ltd. vs. Commissioner of Income Tax (1997) 11 SCC 287 and more particularly paragraph no 7, 8 and 9 which reads as under:- relevant part of section 80P(2)(a)(i) of Act is reproduced as under: Section 80P Deduction in respect of income of co- operative societies: (2) sums referred to in sub-section (1) shall be following, namely: (a) in case of co-operative society engaged in (i) carrying on business of banking or providing credit facilities to its members, or 8. expression "members" is not defined in Act. Since co-operative society has to be established under provisions of law made by State Legislature in that regard, expression members" in Section 80P(2)(a)(i) must, therefore, be construed in context of provisions of law enacted by State Legislature under which co-operative society claiming exemption, has been formed. It is, therefore, necessary to construe expression "members" in Section 80P(2)(a)(i) of Act in light of definition of that expression as contained in Section 2(n) of Co- operative Societies Act. said provision reads as under: Section 2(n). Member means person who joined in application for registration of society or person admitted to membership after such registration in accordance with provisions of this Act, rules and bye-laws for time being in force but reference to "members" anywhere in this Act in connection with possession or exercise of any right or power or existence or discharge of any liability or duty shall not include reference to any class of members who by reason of provisions of this Act do not possess such right or power or have no such liability or duty. (5 of 10) [ITA-188/2016] 9. It is not disputed that as per said provision members of Federation were cane union co-operative societies only. individual cane growers who were members of cane growers unions were not members of Federation. In this context, it may be mentioned that in Clause (b) of sub-section 2) of Section 80P, reference has been made to primary society as well as federated co- operative (societies which indicates that while enacting Section 80P was conscious of "distinction between varioustypes of co- operative societies that functioning in country, namely, federated co-operative societies and primary societies. In Section 80P(2) (a)(i), when Parliament has used expression members it has used it in normal sense of member of co-operative society. intention was to extend exemption to co-operative societies directly extending credit facilities to its members. There is nothing in said provisions to show that intention was to grant exemption to co-operative societies which were extending credit facilities to persons, though not members of said society, were members of another co- operative society which is member of co- operative society seeking exemption. meaning of expression "members" cannot, therefore, be extended to include members of primary co- operative society which is member of federated co-operative society seeking exemption. principle of lifting corporate veil which was invoked by Shri Tripurari Rai in support of his submission cannot have any application in context of provisions contained in Section 80P(2)(a)(i) of Act. 6. learned councel further contended that present substantial questions of law framed by this Court examining claim of assessee are squarely covered by judgments of Supreme Court (supra) and in light thereof assessee is not entitled for benefit under Section 80P(a)(iv), since Parliament in its wisdom was conscious of distinction between various types of cooperative societies and there appears no intention to grant exemption as being claimed by assessee and therefore this Court cannot go beyond that & there are also some stipulations in granting benefit of Sec. 80P(2)(d) to assessee and therefore, view taken by Assessing Officer and CIT (Appeals) requires confirmation & tribunal decision may be reversed 7. Per contra, counsel for respondent has relied upon decision of Supreme Court in Kerala State Cooperative Marketing Federation Ltd. And Ors. (supra) & more particularly para no.14 which reads as under: (6 of 10) [ITA-188/2016] 14. attention of this Court does not seem to have been drawn to aforesaid decision while deciding Assam Cooperative Society's case with respect, we, therefore, hold that view taken therein requires reconsideration as stated earlier by us. In result, order of Kerala High Court following decision of this Court in Assam Cooperative Societies is reversed. We hold that society engaged in marketing of agricultural produce of its members would mean not only such societies which deal with produce raised by members who are individuals or societies which are members thereof who may have purchased such goods from agriculturists. Thus, we allow civil appeal by setting aside order made by High Court and answering question referred to us in affirmative in favour of assessee and against revenue. There shall be no order as to costs. 8. In Commissioner of Income Tax vs. U. P. Co-operative Federation Ltd.: (2006) 203 CTR (ALL) 186 in para no. 6 & 7, it has been held thus: 6. It may be mentioned here that after apex Court had delivered judgment in case of Kerala State Co-operative Marketing Federation Ltd. (supra), Parliament had amended provisions of Section 80P(2)(a)(iii) of Act by substituting words "the marketing of agricultural produce grown by its members by IT (Second Amendment) Act, 1998, w.e.f. 1 st April, 1968. validity of amendment has been upheld by apex Court in case of National Agricultural Co-operative Marketing Federation of India Ltd. and Anr. v. Union of India (2003)181 CTR (SC) 1 : (2003) 260 ITR 548 (SC). However, no such amendment been has been made in Clause (iv) of Section 80P(2)(a) of Act which reads as follows: (2) sums referred to in sub-section (1) shall be following, namely : (a) in case of co-operative society engaged in-- (i) to (iii) xxxxxxx (iv) purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for purpose of supplying them to its members. Thus, interpretation placed by apex Court in case of Kerala State Cooperative Marketing Federation Ltd. (supra) would still be applicable for interpreting provision of Clause (iv). 7. Applying principles laid down by apex Court to facts of present case, it is not in dispute that apex society supplied/sold gypsum, seeds and fertilizers to its members. These goods were intended for agricultural purpose (7 of 10) [ITA-188/2016] and, therefore, benefit of section 80P(2)(a)(iv) of Act was available. 9. In Commissioner of Income Tax, Tamilnadu vs. Tamilnadu Co-operative Marketing Federation Ltd. (1999) 151 CTR 0232 in para no. 5, it has been held as under:- 5. other sub-sections not being material for discussion, they are not referred to. As already stated, marginal heading of S. 80P is Deduction in respect of Income of Cooperative Societies. 8. For reasons recorded above, we answer both questions in favour of assessee, in affirmative and hold that Tribunal was right in coming to conclusion that short-term call deposits were investments within meaning of Sec. 80P(2)(d) of Act and qualified for deduction under that provisions for both years in question. parties are left to bear their own costs. 10. In Commissioner of Income Tax vs. Haryana Cooperative Sugar Mills Ltd: (1989) 180 ITR (P&H) in para No.8 which reads as under: 8. For reasons recorded above, we answer both questions in favour of assessee, in affirmative and hold that Tribunal was right in coming to conclusion that short-term call deposits were investments within meaning of Sec. 80P(2)(d) of Act and qualified for deduction under that provisions for both years in question. parties are left to bear their own costs. 11. In Kota Cooperative Marketing Society Ltd. vs. Commissioner of Income Tax: (1994) 207 ITR 608 (Raj.) in para no. 2 which reads as under:- "2. brief facts of case are that assessee has filed return initially in which deduction under s. 80P of IT Act, 1961, was claimed on proportionate basis as assessee was having income which was partly taxable and partly non- taxable. Subsequently, said return was revised and assessee claimed deduction from gross amount of income, of amount of income derived from its members without deducting therefrom proportionate administrative and managerial expenses. assessee derives its income mainly from supply of fertilizers to its members, marketing of agricultural produce, agricultural implements, etc. assessee also running rice mill. In year in question, gross profit from supply of fertilizers to its members was in figure of Rs. (8 of 10) [ITA-188/2016] 4,60,385. This income was claimed as exempt before ITO, but ITO found that business of rice mill, trucks and tractors, etc., is separate and divisible businesses and, therefore, relying upon decision of Gujarat High Court in case of CIT vs. Sabarkantha Zilla Kharid Vechan Sangh Ltd. (1977) 107 ITR 447 (Guj) : TC26R.864, it was held that income of co-operative society from nontaxable activity has to be computed by setting off against gross profit proportionate amount expenditure. claim of assessee for allowing entire expenditure on account of managerial and administrative expenses was not accepted. On basis of said decision of Gujarat High Court, proportionate expenses from gross income of Rs.4,60,385 were reduced to extent of Rs. 3, 10,253 and exemption was allowed for Rs. 1,50,132 only. In computing expenses of Rs. 3,10,253 total income shown on credit side of profit and loss account was taken into consideration and total expenses on debit side of profit and loss account were taken into consideration and proportionate expenses come to 67 per cent. Applying this 67 per cent to figure of Rs. 4,60,385, figure of RS. 3,10,253 was arrived at which was considered as expenses not liable to deduction under s. 80P(2) of IT Act. It was not disputed that income from trucks and tractors was not exempt and other activity which was main source of income, i e., supply of fertilizers and agricultural implements to its members and marketing of agricultural produce was exempted. staff which was employed by assessee was looking after both businesses, namely, business of supply of fertilizers, agricultural implements, etc., to its members and carrying on activity of running of rice mill and deriving income from trucks and tractors income which was derived by assessee from rice mill or from operating tractors and trucks was wholly divisible and was neither connected nor having any proximate relationship with other non taxable activity of assessee. criteria which has to be adopted for purpose of determining liability and deducting expenses is as to whether business is single and indivisible one or separate businesses are being carried on by assessee. 12. In Surat Vankar Sahakari Sangh Ltd. Vs. Assistant Commissioner of Income Tax: (2016) 72 taxmann.com169 (Gujarat) in para no. 8.1 & 8.2 which reads as under:- "8. 1 Similarly, in case of Doaba Cooperative Sugar Mills Ltd. (supra), Punjab and Haryana High Court has held as under: 5. contention of Mr. Gupta, learned counsel appearing for Revenue, is that Tribunal was wrong in allowing deduction under Sec. 80P(2)(d) (9 of 10) [ITA-188/2016] of Act because it is not established that assessee had derived interest by investing all amount of surplus funds. It is further contended by Mr. Gupta that assessee has paid interest to Jalandhar Central Cooperative Bank and has also received interest from said cooperative bank, thereby showing that assessee has on aggregate paid interest to bank and, therefore, no deduction under Sec.80P(2)(d) can be allowed. To appreciate this argument, we have to look to provisions of Section 80P(2)(d) of Act, For facility of reference, it is reproduced as under: "80P.(2)(d) in respect of any income by way of interest or dividends derived by cooperative society from its investment with any other cooperative society, whole of such income." 6. So far as principle of interpretation applicable to taxing statute is concerned, we can do no better than to quote by now classic words of Rowlatt J., in Cape Brandy Syndicate v. IRC (1921) 1 KB 64, 71: "...In taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at language used," 7. principle laid down by Rowlatt J., has also been time and again approved and applied by Supreme Court in different cases including one, Hansraj Gorahandas vs. H. H. Dave, Assistant Collector of Central Excise and Customs, AIR 1970 SC 755, 759. 8. Sec. 80P(2)(d) of Act allows deduction of income by way of interest or dividends derived by cooperative society from its investment with any other cooperative society. This provisions does not make any distinction in regard to source of investment because this Section envisages deduction in respect of any income derived by cooperative society from any investment with Cooperative society. It is immaterial whether any interest paid to cooperative society exceeds interest received from bank on investments. Revenue is not required to look to nature of investment whether it was from its surplus funds or otherwise. Act does not speak of any adjustment as sought to be made out by learned counsel for Revenue. provision does not indicate any such adjustment in regard to interest derived from cooperative society from its investment in any other cooperative society. Therefore, we do not agree with argument advanced by learned counsel for Revenue. In our opinion, learned Tribunal was right in allowing deduction under Sec.80P(2)(d) of Income Tax Act, 1961. In respect of interest of Rs.4,00,919/- on account of interest received from Nawanshaln Central Cooperative Bank without (10 of 10) [ITA-188/2016] adjusting interest paid to bank. Therefore, reference is answered against Revenue in affirmative and in favour of assessee. 8.2 Moreover, Bombay High Court in case of Bai Bhuriben Lallubhai (supra) has held that purpose for which assessee borrowed money had no connection whether direct or indirect with income which she earned from fixed deposit and that she was not entitled to deduction claimed u/s 12(2). High Court held that if assessee had no option except to incur expenditure in order to make earning of income possible, then undoubtedly exercise of that option is compulsory and any expenditure incurred by reason of exercise of that option would come within ambit of section 12 (2) of Indian Income Tax Act but where option has no connection with carrying on of business or earning of income and option depends upon personal considerations or upon motives of assessee, that expenditure cannot possibly come within ambit of Section 12(2). In present case, loan was taken for business purpose more particularly purchase of yarn and not for fixed deposits." 13. We heard both counsel. 13.1 In view of decision of Supreme Court in Kerala State Co-operative Marketing Federation Ltd. (supra), we are of opinion that view taken by tribunal is required to be upheld. 13.2 Regarding issue no.2, in view of decision of Gujarat High Court and more particularly para no. 8.1 & 8.2, we are of opinion that assessee is to be given benefit of deduction under Section 80P(2)(a) (iv) of 1961. 14. view taken by tribunal is required to be accepted, and therefore both issues are answered in favour of assessee and against Department. 15. Taking into consideration above observations, these appeals being devoid of any merit and deserves to be dismissed and same is dismissed. 5. In that view of matter, no substantial question of law arises. 6. appeal being devoid of merit is dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Chouhan/5 Principal Commissioner of I T Jaipur-3, Jaipur v. Sikar Kendriya Sahakari Bank Ltd