1990 (8) TMI 226 - AT - Income Tax

Agricultural Development Allowance, Association Of Persons, Co-operative Society, Deduction In Respect, Expenditure Incurred, Weighted Deduction

Summary

Issues Involved:
1. Admissibility of deduction under section 80P(2)(e).
2. Entitlement to deduction under section 35C.
3. Status of the assessee as an Association of Persons (AOP).

Issue-wise Detailed Analysis:

1. Admissibility of Deduction under Section 80P(2)(e):
The Tribunal first addressed the second ground regarding the deduction of Rs. 37,007 under section 80P(2)(e). The Tribunal referred to its previous order dated 27-11-1980 in ITA No. 62/Nag/80 for the assessment year 1976-77, wherein the admissibility of this deduction was considered. The Tribunal upheld the decision of the CIT(Appeals), finding no reason to interfere with the allowance of the deduction.

2. Entitlement to Deduction under Section 35C:
The Tribunal then considered the first ground concerning the deduction under section 35C. The assessee, a co-operative society engaged in ginning and pressing cotton, claimed a deduction of Rs. 3,72,150 (120% of the actual expenditure of Rs. 3,10,125) for facilities and incentives provided to cultivators. The ITO rejected this claim, but the CIT(Appeals) allowed it, observing that the expenditure fell within the scope of section 35C and not section 40A(2). The CIT(Appeals) restricted the deduction to Rs. 3,46,500 based on the actual expenditure of Rs. 2,88,750. The Tribunal confirmed the CIT(Appeals)'s decision, agreeing that the expenditure did not fall under section 40A(2) and citing relevant case law to support this view.

3. Status of the Assessee as an Association of Persons (AOP):
The Tribunal then addressed the argument raised by the assessee's counsel, Shri L.S. Dewani, under Rule 27 of the Tribunal Rules, contending that the assessee should not be treated as an AOP. The Tribunal considered various provisions of the Maharashtra Co-operative Societies Act, 1960, and the Income-tax Act, 1961, to determine the status of the co-operative society. Shri Dewani argued that a co-operative society is a separate assessable entity under section 2(31) of the Income-tax Act and should not be treated as an AOP. He cited several Supreme Court decisions and provisions of the Maharashtra Co-operative Societies Act to support his argument.

The Tribunal found merit in Shri Dewani's arguments, noting that the co-operative society was formed for the economic interests and welfare of its members, not solely for earning income. The Tribunal also recognized the statutory distinction and separate tax rates for co-operative societies under the Finance Act, 1982, and the separate status codes in the return forms. The Tribunal concluded that treating the co-operative society as an AOP would defeat the purpose of the co-operative movement and the Maharashtra Co-operative Societies Act.

Conclusion:
The Tribunal held that the assessee should not be assessed as an AOP and modified the order of the CIT(Appeals) accordingly. The departmental appeal was dismissed, and the arguments supporting the order of the CIT(Appeals) were accepted.