1991 (7) TMI 125 - AT - Income Tax

Issues Involved:

1. Exemption under section 80P(2)(a)(iv) for income derived from the sale of fertilizers, seeds, insecticides, etc.
2. Deduction under section 80P(2)(e) for rent received from Gujarat State Co-operative Marketing Federation.
3. Deduction of Rs. 25,000 contributed to the State Education Fund under section 69 of the Gujarat Co-operative Societies' Act, 1961.
4. Deduction of Rs. 98,862 as rebate given to customers.
5. Exemption under section 80P(2)(d) for interest received from Gujarat State Co-operative Marketing Federation.
6. Disallowance of bonus payments exceeding the amount payable under the Payment of Bonus Act.
7. Deduction under section 80P(2)(a)(i) for interest received from member co-operative societies.
8. Penalty under section 271(1)(a) for late filing of the return of income.

Detailed Analysis:

1. Exemption under section 80P(2)(a)(iv):
The assessee, a co-operative society, claimed exemption for income derived from the sale of fertilizers, seeds, insecticides, etc. The ITO computed the exemption at nil, referencing an order from the assessment year 1975-76. The CIT(A) directed the ITO to compute the exemption, including interest income on fertilizers. The Tribunal upheld the CIT(A)'s decision, stating that the words "other articles intended for agriculture" in section 80P(2)(a)(iv) are broad enough to include fertilizers, insecticides, light diesel, and mobil oil.

2. Deduction under section 80P(2)(e):
The CIT(A) allowed a deduction of Rs. 31,200 for rent received from Gujarat State Co-operative Marketing Federation, relying on a judgment from the Madras High Court. The Tribunal confirmed this deduction, noting that the rent was for storing agricultural commodities, thus qualifying under section 80P(2)(e).

3. Deduction of Rs. 25,000 to State Education Fund:
The CIT(A) allowed the deduction, considering it a compulsory levy under section 69 of the Gujarat Co-operative Societies' Act, 1961. The Tribunal upheld this, referencing a Karnataka High Court decision that such statutory contributions are allowable deductions.

4. Deduction of Rs. 98,862 as rebate:
The CIT(A) allowed this deduction, treating it as a reduction in the sale price. The Tribunal restored the matter to the ITO for verification, directing that if the amount represents a rebate, it should be allowed as a deduction.

5. Exemption under section 80P(2)(d):
The CIT(A) granted exemption for interest received from Gujarat State Co-operative Marketing Federation. The Tribunal partially upheld this, allowing exemption only for the net interest income of Rs. 2,37,210, not the gross amount of Rs. 13,93,250, in line with the Supreme Court's decision in CIT v. U.P. Co-operative Federation Ltd.

6. Disallowance of bonus payments:
The CIT(A) disallowed bonus payments exceeding the amount payable under the Payment of Bonus Act. The Tribunal allowed these payments as business expenditure under the second proviso to section 36(1)(ii), referencing the Supreme Court's decision in Shahzada Nand & Sons v. CIT.

7. Deduction under section 80P(2)(a)(i):
The CIT(A) denied the deduction for interest received from member co-operative societies, noting a net deficit in the interest account. The Tribunal upheld this, clarifying that the exemption under section 80P(2)(a)(i) applies only to income derived from the business of banking or providing credit facilities to members, not from selling goods on credit.

8. Penalty under section 271(1)(a):
The ITO imposed a penalty for late filing of the return. The CIT(A) confirmed the penalty but directed recomputation after the quantum appeal. The Tribunal canceled the penalty, recognizing the assessee's bona fide belief that its income was not liable to tax, supported by the CIT(A)'s order converting the assessed income into a loss.

Conclusion:
The Tribunal's judgment addressed various issues, upholding some of the CIT(A)'s decisions while modifying others. The key takeaways include the broad interpretation of "other articles intended for agriculture" under section 80P(2)(a)(iv), the allowance of statutory contributions as deductions, and the recognition of bona fide belief as reasonable cause for late filing of returns. The Tribunal emphasized the importance of net income calculations for exemptions and deductions, aligning with relevant judicial precedents.

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