9911796707
TMI Blog1982 (3) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... was available to the assessee in respect of all the transactions and further in determining such profits expenditure could not be bifurcated between activities relating to the members and those relating to non-members. The matter went up to the Appellate Tribunal and in IT Appeal No. 73 (Nag.) of 1980 the Tribunal concurred with the Commissioner (Appeals). For the year under consideration the learned Commissioner (Appeals) upheld the view canvassed on behalf of the assessee. The revenue urged that the decision of the Tribunal in IT Appeal No. 73 (Nag.) of 1980 was not correct and required a revision. Accordingly, the matter was referred to the President who constituted a Special Bench for disposing of the appeal for the assessment year 1974-75, for a decision on the following issues: 1. Whether the deduction under section 80(P)(2)(a)(iv) is available to the assessee in respect of trading with non-members ? 2. Whether the deduction has to be granted with reference to the net profit and not the gross profit ? 2. The facts of the case are as follows: The assessee is a co-operative society registered under the Maharashtra Co-operative Societies Act, 1970. The objects of the society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------- 1 2 3 4 5 -------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs. Fertilisers & 59,96,829.40 2,61,049.36 70 2,61,049.36 Insecticides Agricultural 21,34,067.30 1,16,677.98 53 1,16,677.98 machinery like Pumps, Motors, Crushers, etc. Sugar 23,72,071.07 32,056.65 17 ---- Barbed--- 13,106.33 1,891.55 69.7 1,891.55 wire for fencing Gunny bags 13,808.50 846.15 88.6 846.15 ---for rebagging Cotton seeds 1,96,785.91 3,989.52 4.5 ----- (losses) Seeds---Jawar 12,831.28 134.26 --- ---- and Wheat Cement for 1,79,466.45 8,326.80 57 8,326.80 construction of Wells G.C. Sheets 2,62,199.88 13,256.26 92 13,256.26 for sheds ------------------------------------------------------------------------------------------------------------------ 1,12,80,503.00 4,32,749.35 55 4,04,547.96 ------------------------------------------------------------------------------------------------------------------ It appears that in making the above claim the assessee followed the dictum laid down by an earlier Tribunal decision that where the sales to members exceeded 50 per cent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 50 per cent of the total sales. However, he held that the guideline indicated by the Tribunal was a rule of convenience and could safely be adopted in evaluating the relief to which the assessee is entitled. Refuting the arguments advanced on behalf of the revenue, he held: 1. The Supreme Court decision in CIT v. S.C. Kothari [1971] 82 ITR 794 was not applicable to the facts of the present case. Their Lordships of the Supreme Court were concerned with the losses incurred in the carrying on of an illegal business. 2. The decision of the Gujarat High Court in CIT v. Sabarkantha Zilla Kharid Vechan Sangh Ltd. [1977] 107 ITR 447, was also not applicable. Their Lordships were interpreting section 81(1)(d) of the Act which had been deleted with effect from 1-4-1968. The decision was also based on the earlier decision of the same Court in the case of Addl. CIT v. Cloth Traders (P.) Ltd. [1974] 97 ITR 140. This decision has been overruled by the Supreme Court subsequently. 3. The decision of the Bombay High Court in the case of Chatrapati Shivaji Sahakari Sakhar Karkhana Ltd. v. CIT [1978] 115 ITR 312 was also not applicable. 4. The decision of the Supreme Court in Cloth Traders (P.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to the provisions of section 80P(2). Section 80P(2)(a) mentions the activities, the income from which is to be excluded from the total income. The section clearly states that what is excludible is the amount of profits and gains of business, attributable to any one, or more of such activities enumerated in section 80P(2)(a). The profits and gains means the profits and gains as computed according to the Act. The Act forbids taxation of gross income. Similarly, where certain incomes are to be excluded from the computation of taxable income, the exclusion can only relate to net income and not to the gross income. It is in this context that the Supreme Court decision in the case of S.C. Kothari becomes relevant. 7. The learned departmental representative then argued that the wordings used in section 80P clearly point out to the determination of income, relating to different activities carried on by the co-operative society. Section 80P(2)(b) refers to co-operative societies engaged in supplying of milk. Section 80P(2)(c) refers to co-operative societies engaged in activities other than those specified in clause (a) or clause (b). Hence, if all the activities of a society are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in Cloth Traders (P.) Ltd., was fully applicable to the assessee's case. The gross total income could mean only the gross profit. The expenditure incurred by the assessee on overheads could not be bifurcated between exempted and non-exempted categories of income---Maharashtra Sugar Mills Ltd. It was also submitted that the ITO, assuming but not admitting that he was right in principle, should have allowed relief to the assessee to the extent of Rs. 2,69,707 and not Rs. 1,29,622. 13. We have heard the rival submissions. In our opinion, the revenue is entitled to succeed. The relevant provisions in section 80P read as follows : "80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :--- (a) in the case of a co-operative society engaged in--- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ety from its investments with any other co-operative society, the whole of such income; (e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income ; (f) in the case of a co-operative society, not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities chargeable under section 18 or any income from house property chargeable under section 22. Explanation : For the purposes of this section, an 'urban consumers co-operative society' means a society, for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area Committee, town area or cantonment. (3) In a case where the assessee is entitled also to the deduction under section 80H or section 80HH or section 80HHA or section 80-I or section 80JJ or section 80JJA, the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of the Act. This would require deduction of overhead expenditure from the gross profit before arriving at the total income. 14. We also notice that there is a material difference between the wordings of section 80M and section 80P. Section 80M reads as follows: "80M. (1) Where the gross total income of an assessee, being a domestic company, includes any income by way of dividends from a domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to--- (a) in respect of such income by way of the dividends the whole of from a company formed and registered under the such income; Companies Act, 1956 (1 of 1956), after the 28th day of February, 1975, and engaged exclusively or almost exclusively in the manufacture or production of any one or more of the articles or things specified in items 2 and 3, item 4 (excluding alloy, malleable and S.G. iron castings), items 7 to 15 (both inclusive), items 17 and 18, item 23 (excluding refractories) and items 24, 26, 27, 29 and 33 in the list in the Ninth Schedule. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale to non-members is not so insignificant as to come to the conclusion that the assessee made purchases only with a view to sell the commodities to its members. 16. It remains for us to determine whether the ratio of the decision of the Supreme Court in the case of Maharashtra Sugar Mills Ltd. is applicable to the facts of this case. In that case the question before the Court was whether a part of the managing agency commission paid by the company, could be disallowed on the ground that that part related to management of sugarcane cultivation, the income from which was exempt from tax as agricultural income. The finding of fact in that case was that the cultivation of sugarcane as well as the manufacture of sugar constituted one business. That finding had not been challenged before the Supreme Court. Hence, the entire managing agency commission was held to be business expenditure. The question of determining separately income attributable to agricultural activities and income attributable to business activities, did not arise. The entire income was held to be business income and while determining the business income, a part of the managing agency commission was sought to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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