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TMI Blog1984 (8) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... a)(iii) of the Income-tax Act, 1961 (' the Act '), should have been allowed on gross profit and not on processed income under the Act. The IAC, who completed the assessment, had allowed deduction of Rs. 68,97,076 under the above provision. This amount was shown by the assessee as the net income attributable to the activity of marketing the agricultural produce of the society's members. A bifurcation between the activities, vis-a-vis, members and non-members, was made by the assessee and there is no dispute about it. However, the assessee claimed before the Commissioner (Appeals) that the deduction to be allowed under section 80P(2)(a)(iii) should be on the whole of gross profit attributable to the marketing of agricultural produce of its me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from '. He also pointed out that in that provision, the specific words used were ' as computed in accordance with the other provisions of the Act '. Their Lordships have further held that section 72(1) of the Act regarding the carry forward of losses has direct impact upon the computation under the head ' Profits and gains of business or profession '. In this connection, the learned counsel drew our attention to certain decisions of the Calcutta High Court. He first referred to the decision in the case of CIT v. Belliss Morcom (I.) Ltd. [1982] 136 ITR 481, where the Calcutta High Court had considered the scope of the provisions of section 80-I of the Act. Their Lordships held that the expression ' where the gross total income includes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., which was a decision given by a larger Bench. The learned counsel has further relied on another decision in the case of CIT v. Oil India Ltd. [1983] 143 ITR 848 (Cal.), but we need not go into the details of that decision as it merely follows the earlier decisions already referred to in this order. The departmental representative on this point has mainly relied on the decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd., to which a reference has already been made. He submitted that the plea of the assessee that gross profit should be considered as profits and gains of business is not acceptable on any principle and he further submitted that the profits and gains should always be as computed according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectness of the claim of the assessee. 5. As the section speaks of ' the amount of profits and gains of business ', we have to see as to what is the meaning of these words. There is no definition of these terms in the Act and we have, therefore, to consider the import of these terms by looking to the common usage as well as in a commercial sense. When we speak of profits and gains of a business, we always speak of net profit and not of gross profit. The gross profit is arrived at before considering the legitimate business expenses which the person earning the income has to incur in order to carry on that business and to earn the profit. Only what remains after considering such legitimate business expenses, can be considered as profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble income or loss has to be determined. Besides what is provided in the various sections, there can be certain allowances under section 28 itself which may be in the nature of a business loss or a trading loss. 7. Now we have to determine whether profits and gains of a business for the purposes of section 80P should be taken as profits and gains in a commercial sense or it should be only gross profit without taking into consideration any expenses or, on the other hand, it can be only the profit arrived at according to the provisions of the Act. In our opinion, it cannot be the gross profit of a trade as that would create anomalous situation and in any sense, gross profit could not be considered as profits and gains of a business. There c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voked to interpret the expression ' profits and gains of business ' as profit computed under the provisions of the Act, as there are certain deductions and disallowances which are specially allowed under the provisions of the Act but are not otherwise taken for determining the profits of a business in a commercial sense. We are, therefore, of the view that for ascertaining the amount of profits and gains of business attributable to the marketing of agricultural produce of the members of the society, we must first consider all the business expenses which have been incurred by the assessee for earning such profit and such deduction would also include normal depreciation which is allowed even under the general principles of accountancy. We do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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