2018 (6) TMI 1515 - HC - Income Tax

Entitled to claim deduction u/s 80P(2)(iii) - denial of claim mere reason that no return was filed; when deduction as permissible under Section 80A(1) is of the total income - Held that - Only when a return is filed claiming deduction under Section 80P, the AO will be enabled to first consider the question of eligibility of the assessee and then consider the allowability of deduction from the total income. - Decided against the assessee. Agriculture produce or intoxicating liquor - Held that - As has been found by the first appellate authority and the Tribunal, toddy is a product which is extracted from a tree just as any other agricultural produce is extracted. AO in his order as also his report before the first appellate authority had waxed eloquent about there being no activity of sawing and tilling and so on and so forth. A coconut or palm cultivation would not require such sawing and tilling as is required with a paddy cultivation. The mere fact of a particular agricultural activity having not been carried out would not be the sole ground for denying the exemption as available to the marketing of an agricultural produce when carried out by the Co-operative Society. The fact of the tree tax being paid by the Society is only on account of the license of tapping and vending having been obtained by the Society. The tax so paid is on behalf of the members of the Society. We also have to notice that tapping of toddy is a traditional agricultural enterprise within the State and the State also encourages it; as distinguished from the foreign liquor trade. We, hence, do not find any reason to interfere with the orders of the Tribunal. We answer the questions of law as framed by us in the appeals filed by the Revenue, against the Revenue and in favour of the assessee. Income from toddy marketing as eligible for deduction - Held that - Out of 636 members, 498 members are toddy tappers who have their own property from which toddy is extracted. The 498 members together have 3845 trees on their own land. A specimen of 974 trees were considered for the purpose of verifying the yield. As found that 90% of the total of 19,85,461 litres of toddy traded by the assessee came from 498 members having 3845 trees on their own land. It is hence the Tribunal found that 100% of the assessee s income from toddy marketing was eligible for deduction. We do not find any perversity in the findings on facts. We, hence, on that question also hold against the Revenue and in favour of the assessee. The appeals by the Revenue are dismissed.

Summary

Issues:
1. Deduction under Section 80P for Co-operative Societies not filing returns.
2. Eligibility of toddy as an agricultural produce for deduction under Section 80P(2)(iii).
3. Whether toddy tapping activities qualify as marketing of agricultural produce under Section 80P(2)(iii).

Analysis:
1. The first issue revolves around the deduction under Section 80P for Co-operative Societies not filing returns. The court considered the applicability of Section 80A(1) and the case law of CIT v. Yokogawa India Ltd. The court held that the deduction under Section 80P is applicable to the total income and can be claimed even without filing a return. However, the failure to file a return under Section 139, even after a notice under Section 142(1), was not considered a technical defect. The court emphasized that the AO can only consider the eligibility and allowability of the deduction under Section 80P when a return is filed, ruling against the assessee and in favor of the Revenue.

2. The second issue pertains to toddy's classification as an agricultural produce for claiming a deduction under Section 80P(2)(iii). The Revenue argued that toddy, being an intoxicating liquor regulated under the Abkari Act, does not qualify as an agricultural produce. The court disagreed, stating that toddy is extracted from trees like any other agricultural produce. The court highlighted that the regulatory regime under the Abkari Act does not affect the Society's entitlement to the exemption under Section 80P. It was noted that toddy tapping is a traditional agricultural enterprise encouraged by the State, and the activity of growing trees for tapping toddy qualifies as marketing of agricultural produce, leading to a ruling in favor of the assessee.

3. The third issue focuses on whether toddy tapping activities constitute marketing of agricultural produce under Section 80P(2)(iii). The court examined the findings on facts by the Tribunal, which indicated that toddy was predominantly sourced from trees owned by the Society's members. The court upheld the Tribunal's decision that 100% of the assessee's income from toddy marketing was eligible for deduction under Section 80P. It was concluded that there was no perversity in the Tribunal's findings, leading to a dismissal of the Revenue's appeals.

In conclusion, the judgment addressed the issues related to deduction claims by Co-operative Societies, the classification of toddy as an agricultural produce, and the eligibility of toddy tapping activities for deduction under Section 80P(2)(iii), providing detailed analysis and rulings on each aspect.