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TMI Blog1991 (2) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... called for. The Income-tax Officer disallowed the claim of the assessee under section 80P(2)(a)(iii) of the Income-tax Act. He was of the view that cultivators to whom the agricultural produce belonged were not members of the assessee-society and as such the society is not entitled to the exemption under section 80P(2)(a)(iii). On appeal, the Commissioner (Appeals) held that the assessee would be entitled to exemption in respect of the income derived from the marketing of agricultural produce belonging to its members. Since the break-up of the figures regarding the quantum or value of materials supplied by the primary societies who were not members of the society was not available, the Commissioner directed the Income-tax Officer to redetermine the income derived by the society from the marketing of the agricultural produce of its members by apportioning the income in the ratio of the turnover on the information being furnished by the assessee before August 30, 1983. The matter was carried by the assessee to the Income-tax Appellate Tribunal in second appeal. The Revenue filed cross-objections. Regarding the exemption claimed by the assessee under section 80P((2)(a)(iii), the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the Tribunal was right in law in finding that the assessee is entitled to claim deduction of Rs. 6,05,646 in the absence of any material on record in support of the claim ?" The first question to be considered is whether the assessee is entitled to exemption under section 80P(2)(a)(iii) of the Income-tax Act. Section 80P grants deduction in respect of certain categories of income of a cooperative society. Section 8-P(1) provides that in the case of a society being a co-operative society, the sums specified in sub-section (2) shall be deducted in computing the total income of the assessee. Sub-section (2)(a)(iii) stipulates that the whole of the amount of profits and gains of business attributable to the marketing of the agricultural produce of its members in the case of a co-operative society shall be deducted. "Cooperative society" is defined in section 2(19) of the Act. Co-operative society means a co-operative society registered under the Co-operative Societies Act, 1912 (Act 2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies. The assessee is an apex society registered under the Kerala Co-operative Soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that the produce marketed by the assessee does not belong to the members of the society. Counsel would point out that even non-members had supplied cashewnuts to the society and the produce so supplied will not be the produce of a member of the society. Counsel has a further contention that the assessee ceases to be mutual society when once it procured cashewnuts from non-members in which case, the produce marketed is not that of the members but of members and non-members. It is the contention that, in such a case, the benefits of section 80P(2)(a)(iii) cannot be claimed by the society. On the other hand, it is urged by learned counsel for the assessee that the words "agricultural produce of its members" do not mean "agricultural produce grown by its members" whereas the produce belongs to the members of the society. The contention is that primary societies are also members of the apex society and the produce marketed is that of the members of the society. In this connection, our attention is drawn to the decision in CIT v. Karjan Co-operative Cotton Sale, Ginning and Pressing Society Ltd. [1981] 129 ITR 821 (Guj). The concept of the term "marketing" came up for consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that provision. In that case, a substantial quantity of fertilizers was supplied to the members of the society, although there were supplies to non-members also. It was observed that the supply of fertilizers to non-members does not make it any the less co-operative society engaged in the supply of fertilizers to its members. In a later decision of the same High Court in CIT v. Mulkanoor Cooperative Rural Bank Ltd. [1988] 173 ITR 629, it was held that the agricultural produce marketed by the society should belong, at all points of time, to the agriculturists. It was made clear that only the income derived by a co-operative society from marketing the agricultural produce of its members earns exemption under clause (iii) of section 80P(2)(a). In order to earn the exemption under section 80P(2)(a)(iii) it is sufficient if the agricultural produce belonged to the members of the society, as observed by the Gujarat High Court in CIT v. Karjan Co-operative Cotton Sale, Ginning and Pressing Society Ltd. [1981] 129 ITR 821. The words used are not "agricultural produce grown by its members" but "agricultural produce of its members". The cashewnuts brought to the assessee-society were a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable is Rs. 40,000 and in any other case Rs. 20,000. What a consumers' co-operative society is, has been clarified in the Explanation to clause (c). Specific provisions are, therefore, seen made in section 80P itself wherever the legislature wanted to restrict the operation of a provision to a primary society or to a consumers' co-operative society. It, necessarily, follows that no such restriction is imposed on section 80P(2)(a)(iii). The result is that the society can claim deduction in respect of the business of marketing of agricultural produce of its members including that of member-societies of an apex society. An apex society, as defined in the Kerala Co-operative Societies Act, means a society having the whole of the State as its area of operation and having as its members only other societies with similar objects and declared as such by the Registrar. An individual can be a member of society. Any other society can also be a member. Even the Government can be a member of a co-operative society. The members of the apex society, as defined in section 2(a) of the Act, are only other societies with similar objects. The produce supplied by the primary societies who are m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its profits, as it was not a mere mutual trading society making "quasi-profits" by trading with its own members and returning such "profits" to its members. That principle cannot be extended to the facts of the present case since the question of deduction of profits and gains of a co-operative society is to be determined with reference to the express provisions contained in section 80P of the Income-tax Act. The profits and gains of the co-operative society engaged in the marketing of agricultural produce of its members are deductible from the total income of the assessee. The two aspects to be looked into are whether the society has marketed agricultural produce and whether that produce belongs to its members. The purchase of cashewnuts from non-members does not make the assessee-society any the less a co-operative society engaged in marketing the agricultural produce of its members. There is nothing in section 80P to take a different view. In the light of the decisions referred to above and the reasons enumerated by us, we are of the view that the assessee-co-operative society is eligible for the deduction of the whole of the amount of profits and gains of the business attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Income-tax Officer or the Commissioner of Income-tax (Appeals). An error of law has been committed by the Tribunal, according to counsel, in directing the Commissioner of Income-tax (Appeals) to look into the matter and to decide the same after giving an opportunity to the assessee to be heard in the matter. Counsel relies on the decision of the Supreme Court in Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1, which was cited before the Appellate Tribunal also. In that case, no claim was made by the assessee before the Income-tax Officer that he was entitled to exemption in respect of its profits under section 84 of the Income-tax Act. The Appellate Assistant Commissioner dismissed the appeal. The Tribunal took a different view and directed the Income-tax Officer to allow appropriate relief for the reason that, since the entire assessment was open before the Appellate Assistant Commissioner, there was no reason for not entertaining the claim of the assessee. On a reference by the Tribunal, the High Court agreed with the Tribunal's view. On appeal, the Supreme Court reversed the decision of the High Court and held that since neither was any claim made before the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for admitting new evidence in the sense that there must be some explanation to show that the failure to adduce evidence earlier sought to be adduced before the Appellate Assistant Commissioner was not wilful and not unreasonable. The Supreme Court further held (p. 695 of 187 ITR) : "There may be several factors justifying the raising of such new plea in appeal, and each case has to be considered on its own facts. If the Appellate Assistant Commissioner is satisfied, he would be acting within his jurisdiction in considering the question so raised in all its aspects. Of course, while permitting the assessee to raise an additional ground, the Appellate Assistant Commissioner should exercise his discretion in accordance with law and reason. He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The satisfaction of the Appellate Assistant Commissioner depends upon the facts and circumstances of each case and no rigid principles or any hard and fast rule can be laid down for this purpose." In the decision cited above, the Supreme Court was considering the power of the Appellate Assistant Commissioner under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity of being heard on that ground. An appellant before the Tribunal can, therefore, urge a new ground in appeal only with the leave of the Tribunal. The Tribunal has thus jurisdiction to permit the appellant to raise any ground which has not been raised before the assessing authority or the Commissioner of Income-tax (Appeals). The powers of the appellate authorities under the Income-tax Act had come up for consideration in three decisions of the Supreme Court. (1) CIT v. McMillan and Co. [1958] 33 ITR 182, (2) Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 and (3) CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710. In McMillan's case [1958] 33 ITR 182, the Supreme Court held that the appellate authority's powers are coequal to those of the assessing authority. It was further held that even though a particular statutory provision mentions by name only the assessing authority and not the appellate authorities, as a matter of construction, that power must be held to inhere even in the appellate authorities, exercisable by the appellate authorities at the appellate stage, in the same way the assessing authority would do in the assessment in the first instance. In Huk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssments on those who are not liable and cases of that kind. It is further observed that these measures are all directed to the end that the taxpayer is not mulcted of more than what is strictly due from him under the taxing enactment. For these reasons it was held that the real function of an appeal against an assessment must be considered to be the same as the function of the assessment itself and not in any way different from it. Following the decisions of the Supreme Court cited above and agreeing with the view expressed by the Madras High Court in Brahadeeswaran's case [1987] 163 ITR 680, we hold that an appellant before the Tribunal could raise any new or additional point for the first time in appeal before the Tribunal even though it had not been raised in any form either before the assessing authority or before the Commissioner of Income-tax (Appeals). We further hold that when once any such new or additional ground is raised before the Tribunal, they are duty bound to entertain that ground and render a decision thereon either themselves or by remanding the matter if further investigation into the facts is necessitated. The Appellate Tribunal permitted the assessee to ra ..... 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