1973 (3) TMI 40 - HC - Income Tax

(1) Whether the sum being the reserve created under the society s bye-law 37(1)(iv) was includible in the income of the society ? (2) Whether the assessee was entitled to the exemption in respect of the sum of Rs. 62, 540 under section 14(3)(i)(c) of the Indian Income-tax Act 1922? and (3) Whether on the facts and in the circumstances of the case the assessee was entitled to rebate under section 15B(2)(v) of the Income-tax Act in the sum of Rs. 22, 013 paid to the Central Co-operative Training Institute ?

Issues Involved:
1. Inclusion of reserve created under society's bye-law in the income of the society.
2. Entitlement to exemption under section 14(3)(i)(c) of the Indian Income-tax Act, 1922.
3. Entitlement to rebate under section 15B(2)(v) of the Income-tax Act for donation to Central Co-operative Training Institute.

Detailed Analysis:

1. Inclusion of Reserve Created Under Society's Bye-law in the Income of the Society:
The primary issue was whether the sum of Rs. 1,05,357, credited to a reserve account as per the society's bye-law 37(a)(3), should be included in the income of the society. The society argued that this reserve was a statutory obligation and thus should be treated as a diversion by an overriding title. The Income-tax Officer, Appellate Assistant Commissioner, and the Appellate Tribunal all rejected this claim, stating that the creation of such a reserve was an appropriation of profits, not a diversion of income. The Tribunal distinguished this case from the Supreme Court decision in Poona Electric Supply Co. Ltd. v. Commissioner of Income-tax, noting that the facts were different. The court held that the bye-law did not have statutory force and that the reserve was created after the income had accrued to the society, making it an appropriation of income. Consequently, the sum was includible in the income of the society.

2. Entitlement to Exemption Under Section 14(3)(i)(c) of the Indian Income-tax Act, 1922:
The second issue was whether the society was entitled to an exemption for the sum of Rs. 62,540 under section 14(3)(i)(c). The society had purchased paddy from its members, hulled it, and sold the rice to other members. The Income-tax Officer and the Tribunal found that rice was not an agricultural produce of the members and that the process of hulling paddy into rice was not a usual agricultural process. The court agreed with this assessment, noting that rice and paddy are separate marketable commodities and that hulling is not a process normally employed by a cultivator to render produce fit for market. Thus, the society was not entitled to the exemption.

3. Entitlement to Rebate Under Section 15B(2)(v) of the Income-tax Act for Donation to Central Co-operative Training Institute:
The third issue concerned the society's claim for a rebate on a donation of Rs. 22,013 to the Madras Co-operative Training Institute. The Income-tax Officer rejected this claim, stating that the institute had not started functioning and was not affiliated with any university. The Tribunal upheld this view. However, the court found this reasoning erroneous, noting that the donation was made to an institution receiving financial help from the government, satisfying the conditions of section 15B(2)(v). Therefore, the society was entitled to the rebate.

Summary:
1. Inclusion of Reserve in Income: The court held that the reserve created under the society's bye-law was an appropriation of profits and includible in the society's income.
2. Exemption Under Section 14(3)(i)(c): The court determined that the society was not entitled to the exemption as the rice sold was not considered an agricultural produce of its members.
3. Rebate for Donation: The court concluded that the society was entitled to a rebate for the donation made to the Co-operative Training Institute under section 15B(2)(v).

← Previous Next →