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Commissioner of Income-tax Vs. Shetkari Sahakari Sakhar Karkhana Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 133 of 1987
Judge
Reported in[1999]238ITR983(Bom); 2000(4)MhLj65
ActsIncome Tax Act, 1961 - Sections 80P(2)
AppellantCommissioner of Income-tax
RespondentShetkari Sahakari Sakhar Karkhana Ltd.
Appellant AdvocateR.V. Desai and ;B.M. Chatterjee, Advs., i/b., ;L.S. Shetty, Adv.
Respondent AdvocateAtul Jasani, ;K.B. Bhujle and ;Vipul Joshi, Advs.
Excerpt:
.....the above view. [jagannath singh v dr. ajay upadyay & anr 2006 cri lj 4274; 2006 (5) air bom r held per incuriam]. - the assessee appealed to the commissioner of income-tax (appeals). the commissioner of income-tax (appeals) considered the entire scheme of supply of water by the assessee-society to its members and on a perusal of the same came to the conclusion that the requirement of section 80p(2)(a)(iv) of the act was satisfied in the case of income derived from supply of water through lift irrigation scheme by the assessee-society to its members......state co-operative societies act. it applied to the government of maharashtra for permission to lift water from krishna, warna and warala rivers. the government of maharashtra gave permission to the assessee-society to lift water from these rivers on the following conditions :(i) the society should supply water only to the members who are beneficiaries of the scheme. (ii) the society should have to execute necessary agreement to the government. (iii) the society shall lift water against the payment of water charges as fixed by the government from time to time. (iv) if there is any breach of the above conditions, sanctions are liable for cancellation including electric connections.5. the assessee, accordingly, undertook schemes to lift water from these rivers known as lift irrigation.....
Judgment:

B.P. Saraf, J.

1. By this reference under Section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this court for opinion at the instance of the Revenue :

'Whether, on the facts and in the circumstances of the case, the Tribunal is justified in upholding the decision of the Commissioner of Income-tax (Appeals) that the assessee was entitled to exemption under Section 80P(2)(a)(iv) of the Income-tax Act, 1961, in respect of the income of Rs. 5,51,651 from the Lift Irrigation Scheme ?'

2. The assessee is a co-operative society engaged in the manufacture and sale of sugar. It is also engaged in supplying lift irrigation water to its members cultivating sugarcane in that area to supply to the assessee-society's sugar factory. The assessee-society executed 45 Lift Irrigation Schemes in the area of its operation. The members of each of the Lift Irrigation Schemes were the members of the assessee-society. Each scheme was a separate scheme. The beneficiary members contributed only 1/4th cost of the scheme. The rest of the cost was met from the Government loans obtained by the assessee-society and its current capital. The assessee suffered loss up to the assessment year 1975-76 to the tune of Rs. 46,06,597 from the running of the Lift Irrigation Scheme. It was only in the assessment year 1977-78, the year under reference, that the assessee earned a profit of Rs. 5,51,651 from the activity of providing water to its members through the Lift Irrigation Scheme. The assessee claimed deduction in respect of the above income under Section 80P(2)(a)(iv) of the Income-tax Act, 1961 ('the Act'). The case of the assessee was that it had purchased water from the State Government on payment of water tax, which during the relevant year amounted to Rs. 17,000, for supplying the same to its members. It was contended on behalf of the assessee-society before the Income-tax Officer that the income arising from the water, which is one of the articles intended for agriculture purchased for supplying it to its members, was exempt under the above provision. The Income-tax Officer, however, did not accept this contention of the assessee as he was of the opinion that the payment of Rs. 17,000 by way of water tax to the Government did not represent purchase price of water. He, therefore, rejected the claim of the assessee. The assessee appealed to the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) considered the entire scheme of supply of water by the assessee-society to its members and on a perusal of the same came to the conclusion that the requirement of Section 80P(2)(a)(iv) of the Act was satisfied in the case of income derived from supply of water through Lift Irrigation Scheme by the assessee-society to its members. The Commissioner (Appeals), therefore, allowed the appeal of the assessee and held that the income derived *by the assessee from the supply of water to its members through Lift Irrigation. Scheme was exempt from income-tax under Section 80P(2)(a)(iv) of the Act. Aggrieved by the order of the Commissioner (Appeals), the Department appealed to the Income-tax Appellate Tribunal ('the Tribunal'). The Tribunal upheld the order of the Commissioner (Appeals) and dismissed the appeal of the Revenue. While doing so, the Tribunal observed that the water charges paid by the assessee to the State Government for lifting water from the rivers represented the purchase price of water and the income derived by the assessee from the supply of the same to its members was income covered by Section 80P(2)(a)(iv) of the Act. Hence, this reference at the instance of the Revenue.

3. We have heard Mr. R. V. Desai, learned counsel for the Revenue, who submits that the income derived by the assessee from the supply of water to its members through Lift Irrigation Scheme does not fall under Section 80P(2)(a)(iv) of the Act. In support of this contention, it is stated that the water is not an article intended for agriculture and hence would not fall under the provisions of Sub-clause (iv) of Clause (a) of Sub-section (2) of Section 80P of the Act. He further submits that even if it is held to be an article intended for agriculture, the assessee had not purchased the same for the purpose of supplying it to its members and in that view of the matter, it would not be exempt from income-tax under the above provision. Mr. Jasani, learned counsel for the assessee, on the other hand, submits that water is one of the most essential articles intended for agriculture and the water tax paid by the assessee-society to the Government undoubtedly represents purchase price of the same. He submits that the case of the assessee is squarely covered by the provisions of Section 80P(2)(a)(iv) of the Act and hence the income in question is exempt from income-tax under the said provision.

4. We have carefully considered the rival submissions in the light of the uncontroverted facts of the case. The assessee is a co-operative society registered under the Maharashtra State Co-operative Societies Act. It applied to the Government of Maharashtra for permission to lift water from Krishna, Warna and Warala rivers. The Government of Maharashtra gave permission to the assessee-society to lift water from these rivers on the following conditions :

(i) The society should supply water only to the members who are beneficiaries of the scheme.

(ii) The society should have to execute necessary agreement to the Government.

(iii) The society shall lift water against the payment of water charges as fixed by the Government from time to time.

(iv) If there is any breach of the above conditions, sanctions are liable for cancellation including electric connections.

5. The assessee, accordingly, undertook schemes to lift water from these rivers known as Lift Irrigation Scheme. The water lifted by the assessee was supplied by it to its members for the purpose of cultivation. The asses-see-society paid water charges to the Government for the water lifted by it. The members to whom the water was supplied were not required to pay anything to the Government. What they were required to pay to the asses-see-society was only for the supply of water. It is thus clear that the assessee lifted water through Lift Irrigation Scheme from the rivers on payment of water charges to the Government of Maharashtra for the purpose of supplying the same to its members for agriculture. The question is whether in these circumstances, the benefit of Section 80P of the Act would be available to the assessee or not. Section 80P provides for deduction of certain income of the co-operative societies from the taxable income. Exemption claimed in this case by the assessee has been allowed by the Tribunal in respect of income from supply of water to its members under the Lift Irrigation Scheme under Sub-clause (iv) of Clause (a) of Subsection (2) of Section 80P of the Act. Section 80P, so far as relevant, as it stood at the material time, reads as under :

'80P. Deduction in respect of income of co-operative societies.--(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in Sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this Section, the sums specified in Sub-section (2), in computing the total income of the assessee.

(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--. . . (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or . . .'

6. It is clear from a plain reading of the above provision that exemption is granted to a co-operative society in respect of income referred to in sub-section (2), Sub-clause (iv) of Clause (a) thereof deals with the income from the purchase of agricultural implements, seeds, livestock and 'other articles intended for agriculture for supplying them to its members'. The question for consideration is whether water is an article intended for agriculture and whether the assessee has purchased the same for the purpose of supplying it to its members. There can be no dispute about the fact that the water is an 'article' intended for agriculture. There is also no dispute about the fact that the water was obtained by the assessee for the purpose of supplying it to its members. The only controversy that is sought to be raised is whether it is purchased by the assessee-society from the State Government. The case of the Revenue is that there is no purchase of water by the assessee as there was no purchase consideration. The case of the assesses is that it is clear from the terms and conditions laid down by the Government that it is purchase of water on payment of water charges.

7. On a careful consideration of the facts and circumstances of the case and the terms of the arrangement between the assessee and the Government of Maharashtra for lifting the water from the rivers for supplying it to its members for agriculture, it is clear that the water charges paid by the assessee, in fact, represent the purchase price of water. That being so, the assessee is entitled to exemption in respect of income from the Lift Irrigation Scheme under Section 80P(2)(a)(iv) of the Act.

8. In view of the above, the question referred to us is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

9. This reference is disposed of accordingly with no order as to costs.


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