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TMI Blog2021 (9) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... overed in favour of the assessee by the decision in the case of Jamnagar Jilla Shakari Kharid Vechan Sangh Ltd [ 2005 (12) TMI 65 - GUJARAT HIGH COURT] and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Hon`ble Court (supra). Therefore, respectfully following the binding judgment of the Hon`ble High Court of Gujarat (supra), we allow the appeal of the assessee. - ITA Nos.173/SRT/2017 And 199/SRT/2018, ITA Nos.200/SRT/2018 And 201/SRT/2018 - - - Dated:- 7-9-2021 - Shri Pawan Singh, JM And Dr. A. L. Saini, AM For the Assessee : Shri Parmil Sinh Parmar - AR For the Respondent : Ms. Anupama Singla Sr. DR ORDER PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned four appeals filed by the different assessees, pertaining to Assessment Years (A.Y.) 2013-14 and 2014-15, are directed against the separate orders passed by the Learned Commissioner of Income Tax (Appeals) [ld.CIT(A)], which in turn arise out of separate assessment orders passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 ( herein after referred to as the Act ). 2. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, assessee`s case was selected for scrutiny assessment through CASS. On verification of computation of income, it was observed by the assessing officer that assessee has claimed various deductions u/s 80P(2)(a), 80P(2)(c) and 80P(2)(d) of the Income Tax Act. The assessing officer noticed that assessee had income from various sources such as interest on providing credit facilities to farmer members, commission on marketing agricultural produce grown by members, income from sale of fertilizers and insecticides, income from consumer store and income from rice mill. Further, whatever income earns from these activities, has been claimed as deduction u/s 80P of the Act to the extent of available profit. The assessing officer also noticed that assessee is a multipurpose co. op. society and engaged in various activities which derived profit from non- member also, no separate books of accounts were maintained by the assessee to differentiate profit from member's activities and profit from non-member's activities. Further, the assessee has differentiate gross margin on different activities but not shown net margin after deducting overhead expenses on each activities. 5. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empted activities, there is no problem. If separate books of account have not been maintained and the expenses have been incurred jointly for earning both the incomes, then such expenses have to be estimated by the Assessing Officer which are relatable to earn the income from nonexempted activities in order to arrive at the true and correct income. It cannot be presumed that no expenditure was incurred in earning the exempted income. 6. Therefore, considering the above and as the assessee co. op. society is engaged in multi-purpose activities, it is very much essential to work out net margin of the activities and allowability of deduction u/s 80P(2) on the same. Accordingly, the net margins of the different activities were worked out by assessing officer as per Annexure-A (enclosed as a part of order) on the basis of allocation of overhead expenses in the ratio of turnover and deduct the same from the gross margin of the activities. As per this working, the allowability of deduction u/s 80P(2) was worked out at ₹ 56,28,749/- as against assessee's claim of ₹ 65,37,224/-. On being asked to assessee as to why the excess claim should not be disallowed, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -. The ld Counsel contended that assessing officer has erred in making addition, and for that he relied on the decision of Hon'ble Gujarat High Court in the case of CIT vs. Jamnagar Jilla Sahakari Kharid Vechan Sangh Ltd. 283 ITR 116 and prayed the Bench that addition so made may be deleted. 9. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 10. We have given our thoughtful consideration to rival contention. We have perused case file as well as paper books furnished by assessee with the able assistance of Shri Parmil Sinh Parmar, ( advocate), representing the assessee and Ms. Anupama Singla, Learned Sr. DR, representing the Revenue. We find that one key issue arises for our apt adjudication in the instant lis, which is, whether the income from the specified activities is required to be deducted in toto or whether the common overhead expenses are required to be allocated on a proportionate basis, to arrive at the net income from the specified activities on a notional basis. We note that issue under cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to mean the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. As to what is the nature of the income to be included in the gross total income is laid down vide section 80AB of the Act. The said section provides that where any deduction is required to be made or allowed under any section included in Chapter VI-A under the heading C-Deductions in respect of certain incomes in respect of any income of the nature specified in any of the sections falling under the heading C, then for the purposes of inclusion in the gross total income, notwithstanding anything contained in any of the said sections, the amount of income of that nature as computed in accordance with the provisions of the Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of the nature which is amenable to deduction and which is included in the gross total income. On a conjoint reading of sections 80B(5) and 80AB of the Act, it is apparent that for seeking deduction in respect of incomes falling in any of the sections specified under heading C of Chapter VI-A such income has to be computed in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner prescribed by the Act. Therefore, in case of an assessee, like the present assessee, all interest income, actually received or accrued has to be computed in the manner provided in the Act so as to form the total income which is subjected to charge under section 4 of the Act. That once again gives an indication that all such income has to be computed as provided on a conjoint reading of sections 28 and 29 of the Act and only thereafter the net figure is required to be taken up for consideration for the purpose of ascertaining deductibility or otherwise under section 80P of the Act which falls under the heading C of Chapter VI-A of the Act. ****** Sub-section (1) of section 80P stipulates that in case of an assessee who is a co-operative society, the sums specified in sub-section (2) shall be deducted while computing total income of the assessee, provided the gross total income includes any income referred to in sub-section (2). Sub-section (2) specifies the sums which are deductible by way of specifying activities in clauses (a) to (f). In clause ( a) again, the activities which are of the prescribed nature, are specified vide sub-clauses (i) to (vii). In the ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to in sub-section (1) shall be the following, namely:- (a )in the case of a co-operative society engaged in- (i)to (iii) ****** (iv)the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v)to (vii) ****** the whole of the amount of profits and gains of business attributable to any one or more of such activities. 37. What section 80P(1) contemplates is that where any income referred to under sub-section (2) forms a component of the gross total income of a cooperative society, the society would be entitled to deduction of the sums specified in sub-section (2) in respect of the amount of profits and gains attributable to the activities specified in sub-section (2). 38. In the present case the specified activity, namely, sale of articles intended for agriculture to the members of the assessee-society, falls under sub-clause (iv) of section 80P(2)(a) of the Act, and accordingly, the whole of the profits and gains attributable to the said activity is deductible while computing the total income of the assessee. 39. Section 80A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n computing the income changeable under the head Profits and gains of business or profession . 42. The Apex Court in the cases of Indian Bank Ltd. and Maharashtra Sugar Mills Ltd. (supra) lays down in the context of section 10(2) and 10(2)(xv ) of the Act of 1922 which is pari materia to section 37 of the Act of 1961, that what is required to be ascertained is as to whether the expenditure is laid out wholly and exclusively for the purpose of business. The said section does not envisage any further inquiry as to whether the expenditure has produced or will produce taxable income. The fact that the income arising from a part of that business is not exigible to tax under the Act is not a relevant circumstance. Applying the aforesaid principles, to the facts of the present case, while computing the gross total income in terms of section 80B(5), at the first stage, all that is required to be seen is whether the expenditure is laid out wholly and exclusively for the purpose of business as envisaged under section 37 of the Act. Hence, in the first instance, the expenditure incurred wholly and exclusively for the purposes of the business including the expenditure incurred in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances, it is not possible to carve out (compute) the expenditure attributable to the specified activities out of the common overhead expenses, to arrive at the net income from such activities. If the method adopted by the Assessing Officer is followed and the expenditure is apportioned on pro rata basis, the same would be on a notional basis and it cannot be said that the said expenditure is relatable solely to the specified activity. Hence, the net income of the specified activity so arrived at would be a notional figure and not an actual figure. 47. Considering the decisions cited above, the main decision relied upon on behalf of the revenue is the decision of the Apex Court in the case of Sabarkantha Zilla Kharid Vechan Sangh Ltd. ( supra) whereas the main decision relied upon on behalf of the assessee is the decision of the Apex Court in the case of Rajasthan State Warehousing Corpn. ( supra). In the case of Sabarkantha Zilla Kharid Vechan Sangh Ltd. ( supra), there was no dispute about the method adopted by the ITO for arriving at the figure of proportionate net income of taxable activities and proportionate net figure of non-taxable activities, namely, of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80P in Chapter VI-A of the Act. Therefore, there is a change in the very scheme of the Act, in relation to income of co-operative societies. However, the Apex Court has taken support from interpretation as to the scope of section 80P of the Act to express its view on interpretation of section 81 of the Act (as it then stood) as stated at p. 1035 of the reports. 49. In the case of Rajasthan State Warehousing Corpn. (supra), the question before the Apex Court was as to whether in the facts and circumstances of the case and the business of the assessee being one and indivisible, the Tribunal was right in law in holding that the expenses have to be allocated in the same percentage as the different sources of income and not to be allowed in entirety. In the facts of the said case the ITO had allowed only so much of the expenditure as could be allocated to the taxable income and disallowed the rest of it which was referable to the non-taxable income, being exempt under section 10(29) of the Act. The Apex Court after considering its decisions in the cases of Indian Bank Ltd. (supra), Maharashtra Sugar Mills Ltd. ( supra), Waterfall Estates Ltd. v. CIT [1996] 219 ITR 563 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities has to be apportioned on a proportionate basis, though under a different scheme of the Act, whereas in the case of Rajasthan State Warehousing Corporation ( supra) it has been laid down that where the expenditure (sic-business) is one and indivisible, the entire expenditure will be a permissible deduction. 51. Section 80P has been introduced in Chapter VI-A of the Act with a view to encourage and promote the growth of the co-operative sector in the economic life of the country and in pursuance of the declared policy of the Government. While interpreting section 80P of the Act, the object of the provision must be borne in mind and a liberal construction should be made so as to achieve the object of the provision. It is settled legal position that when two views are possible, the one which favours the assessee must be adopted. 52. In the circumstances, the view taken by the Apex Court in the case of Rajasthan State Warehousing Corpn. (supra) that in case where the ventures carried on by the assessee constitute one indivisible business the entire expenditure will be permissible deduction requires to be applied as the same is in consonance with the scheme of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the activities was not liable to tax, was allowable in entirety and could not be apportioned and attributed towards the claim under section 80P(2) of the Act. As we have noted that the issue is squarely covered in favour of the assessee by the decision of the Hon`ble High Court of Gujarat in the case of Jamnagar Jilla Shakari Kharid Vechan Sangh Ltd (supra), and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Hon`ble Court (supra). Therefore, respectfully following the binding judgment of the Hon`ble High Court of Gujarat (supra), we allow the appeal of the assessee. 12. We have adjudicated the issue, taking the lead case in ITA No.173/SRT/2017 for assessment year 2013-14 in case of M/s Maroli Bazar V.V.S Mandli Ltd, however, the same issues have been raised by other assessees in other captioned appeals namely, ITA No.199/SRT/2018 (AY 2014- 15), and ITA No.200/SRT/2018 (AY 2013-14) and ITA No. 201/SRT/2018 ( AY 2014-15). The facts and issues involved in all these appeals are analogous to ITA No.173/SRT/2017 for assessment year 2013-14. Accordingly, our observations made in ITA No.173/SRT/2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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