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TMI Blog2016 (4) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... business income of the Assessee-Co- operative Society and further that the income declared after disbursement of profits is not logical and has no relevance to determination of taxable profit under the Income Tax Act. Revenue collection augments State exchequer. A prosperous treasury is a means for development leading to good living of citizenry. Income Tax one of the tributaries which flows into State coffers. Therefore, we are of the view it is imperative for the Courts to opt strict interpretation while dealing with fiscal laws. Based on evidence and admission of appellant, we have held, that the Society has transferred funds to Distribution Pool before offering to Tax. On facts, we have held that, the Society has indulged in the enterprise of manufacture and sale of salt. Non-compliance of statutory provisions is sought to be justified by the Society on a plea that Society indulges in such enterprise on behalf of members of the society and tax demand on the entire income would run counter to cooperative movement. There can be perhaps no disagreement with the proposition that Co-operative movement is benevolent to its members. Nonetheless, an ideology however lofty does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count' for distribution among the members of the Society. After such transfer, the Society would offer remaining income to tax; (v) For the assessment year 2007-08, a return of income was filed on 31.10.2006, returning a sum of ₹ 1,20,170/- being the loss carried forward. The income was computed at Rs.NIL after claiming deduction of ₹ 50,000/- under Section 80P(2)(c)(ii) of the Income Tax Act, 1961 ('the Act' for short) as per the Profit and Loss account; (vi) A notice under Section 148 was issued on 25.3.2013. Respondent-Society filed its reply stating that the income filed on 30.10.2006 declaring a total income of Rs.NIL for the assessment year 2007-08 was correct and the same may be treated as its income. The case was taken up for scrutiny and a notice under Section 143(2) of the Act was issued. Assessee-Society was represented by one Shri Anil Shantharam Nadkarni, Manager of the Society and Shri R.V.Hublikar, an Income Tax Practitioner. They filed copies of Bye-laws, brief notes about the activities of the Society, certified copies of final accounts - Profit Loss Account, Balance Sheet, Schedules showing Debtors and Creditors, Audit report under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers. Society had also installed suitable plant and machinery to manufacture salt and its by-product. It is not in dispute that the entire quantity of salt and the by-product are sold by the Society. Thus, Society having acquired the 'Maliks' rights had established facility to manufacture salt and its by-product and carrying on the said business. He contended that Society is a 'juristic person' registered under the provisions of the Karnataka Co-operative Societies Act and managed by a Governing body. Manufacturing and sale is undertaken as a business venture by the assessee Co-operative Society and therefore the income earned in the course of business is liable to tax under the Act. 5. He further submitted that the Society was required to get the accounts audited under Section 44AB of the Act. The fact that the Chartered Accountant refused to answer the questions and particularly, the relevant question with regard to the status of funds transferred to the Distribution Pool Fund Account and subsequently, forwarding his explanation in tune with the stand taken by the Society is a sufficient piece of evidence to conclusively infer that the Chartered Accountant had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder a Co-operative sector appeared to be a sole remedy to save them of their uneconomical size and unfavourable climatic conditions. He contended that the philosophy of Co-operative movement is to augment community resources with an aim and objective to achieve maximum benefit to the members of the Society. Therefore, the Society was justified in transferring the funds to the Pool for further distribution among the members. This practice was in vogue for several years and to be precise, even prior to the Karnataka Co-operative Societies Act coming into force. Therefore, a notice under Section 148 and all proceedings thereon by the Assessing Authority is not only misconceived but hit by doctrine of res judicata. 9. Shri Kulkarni adverting to Chapter-XVI of the Bye-laws submitted that the income of the Society would accrue from levy of commission, collection of interest on loans, collection of rents, and collection of service charges. Therefore, it was erroneous on the part of the Assessing Authority to include any other income as income of the Society. In support of his contentions, he placed reliance on the few judgments and prayed for dismissal of the appeals. 10. We have g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... described under the head 'expenses'. The General Body is authorised to distribute the 'net profits' of the Society under Chapter-XVIII. During the course of the argument, though transfer to the Distribution Pool Fund before offering to tax was sought to be justified as it is meant for benefit of members of Co-operative Society, no satisfactory explanation was forthcoming, It was not pointed out as to under what provision or Bye-law, the transfer of funds is authorised to the 'Distribution Pool Fund'. As noted herein, Bye-laws are exhaustive in nature and there is no provision in the Bye-law to transfer the fund to the Distribution Pool for onward payment to the members. The provisions made towards depreciation of machinery, building etc. are sufficient indications to infer that the Bye- laws were framed with clear intention in mind to acquire the 'Malik' rights of the persons who were holders of land ('Agar'), to manufacture and sell salt and its' by-products. 13. It is not in dispute that the assessee-Society is in control of the lands and paying the 'Moolageni' or the lease rent charges. It is also not in dispute that the so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the appeal filed by the Revenue deserves to be rejected. The facts in the above case are that an owner of a large area of land which he had leased out in favour of two persons and for a certain period of time both lessees had appointed a common Manager for cultivation of land. The question which fell for consideration was whether in the facts of that case, two owners could be assessed as an association of individuals. The Manager of the lessees was acting as their agent. In contrast, in the instant case, the Assessee - Society manufactures salt and markets the same in furtherance of the decisions taken by the Board of Management of the Society. Therefore, this judgment does not support the case of the Assessee in any manner. 2. B.T.Manjappa Gowda and others v. State of Karnataka (Through Commissioner of Agricultural Income-tax) reported in (1984) 150 ITR 303: In the above case, this Court has recorded a specific finding which reads as follows: There is absolutely no indication to hold that they had formed themselves into an association of individuals for promotion of a joint enterprise to earn income, profits or gains. It is to be noted that, in the above case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest so generated will be his income. This income can be utilised by the Assessee in whichever way he likes. However, the learned standing Counsel for the appellant quickly pointed out that the above judgment supports the case of the Revenue with regard to the accounting practice. He placed reliance on the following observation of the Apex Court in the very case: It is true that this Court has very often referred to accounting practice for ascertainment of profit made by a company or value of assets of the company. But when the question is whether the receipt of money is taxable or not or whether, certain deductions from that receipt are permissible in law or not, the question has to be decided according to principles of law and not in accordance with the accounting practice. 17. A careful analysis of the rival contentions urged by the Revenue, the Assessee and perusal of records, leads us to infer and deduce that; (a) that no person other than a 'Malik' can be a member of the Assessee- Society; (b) a 'Malik' is a person owning jointly or severally or having an interest in 'Agar' (land on which salt is manufactured); (c) Society ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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