TMI Blog2001 (7) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... methods of agricultural, animal husbandry or dairy or poultry farming or advice on such techniques or methods, is eligible for weighted deduction under section 35C of the Act?" The assessee-applicant is the Union of Co-operative Societies engaged in marketing of milk and milk products. For the assessment years 1977-78 and 1978-79, the relevant previous years are years ended on March 31, 1977, and March 31, 1978, respectively. For the aforesaid two assessment years, the assessee claimed deduction under section 35C of the Act in relation to the following expenses: -------------------------------------------------------------------------- Asst yr. 1977-78 Asst yr. 1978-79 -------------------------------------------------------------------------- Salary of Veterinary Doctors 11,62,120 12,25,772 Veterinary medicines 11,70,717 14,80,924 Veterinary transport 16,29,596 13,66,040 Artificial insemination expenses 2,61,808 3,81,720 Development and research expenses 2,56,700 1,08,400 Fodder growing expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in importing the said concept in its reasoning. It was further submitted that for the purpose of deciding the issue a liberal construction of the provision should he adopted bearing in mind the object for which the provision was enacted. In support of this reliance was placed on the Supreme Court decision in the case of CIT v. Cynamid India Ltd. [1999] 237 ITR 585. Mr. Shah also relied upon the decisions in the case of Indian Leaf Tobacco Development Co. Ltd. v. CIT [1982] 137 ITR 827 (Cal) and in the case of CIT v. Navabharat Enterprises P. Ltd. [1987] 165 ITR 603 (AP) in support of his submissions. Mr. Akil Qureshi, learned counsel appearing on behalf of the Revenue, while supporting the order of the Tribunal submitted that the purpose of the provision will have to be taken into consideration while answering the query as to whether the assessee-society is imparting information to the cultivators or is it carrying on the activity itself. Elaborating on the said submission it was contended that in the case of the assessee dissemination of information or demonstration of modem technique was absent and in fact the work was carried out by the assessee itself through its own agency, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 1976-77. The provisions as they existed from April 1, 1968 up to March 31, 1984, provided for a weighted deduction being one and one-fifth times in case the expenditure was incurred for the purpose which was provided in the section. The relevant provisions are reproduced hereunder: "35C. Agricultural development allowance. -(1) (a) Where any company or a co-operative society is engaged in the manufacture or processing of any article or thing which is made from, or uses in such manufacture or processing as raw materials, any product of agriculture, animal husbandry, or dairy or poultry farming and has incurred, after the 29th day of February, 1968, whether directly or through an association or body which has been approved for the purposes of this section by the prescribed authority, any expenditure in the provision of any goods, services or facilities specified in clause (b) to a person [not being a person referred to in clause (b) of sub-section (2) of section 40A] who is a cultivator, grower or producer of such product in India, the company or co-operative society shall, subject to the provisions of this section, be allowed a deduction of a sum equal to one and one-fift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educing the same by consideration or compensation received by the assessee for supply of such goods, services or facilities. Subsection (2) of section 35C of the Act stipulates that where the deduction under this section is claimed and allowed no deduction shall be allowed in respect of such expenditure under any other provision of the Act for the same or in other assessment year. When the provision was introduced in 1968, the Central Board of Direct Taxes issued Circular No. (LXXVI-66) of 1968, dated July 6, 1968. Para. 56 of the said circular is reproduced hereunder as it draws distinction between agro-based industries and agro-industries: "The weighted deduction has been provided only in the case of companies engaged in agro-based industries, i.e., those which use as raw material, or process, the products of agriculture, animal husbandry, dairy or poultry farming. Accordingly, companies which are engaged in agro-industries (as distinct from those engaged in agro-based industries) such as those manufacturing, fertilizers, seeds, pesticides, tractors, implements, etc., are not eligible for the weighted deduction even though they may incur expenditure on supply of fertilizers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture that there is every likelihood of overlapping and it cannot be stated that there is any area which could not be governed by one or the other. Mr. Qureshi, learned counsel for the Revenue, accepted this position but hastened to add that in the present case the assessee's claim was under sub-clause (ii) of clause (b) and the activities were of such nature that they did not fulfil the requirements laid down by the statute. Clause (a) of sub-section (1) of section 35C provides for deduction and it is in this clause that the nexus between the supplier of raw material to the assessee and the providing of service by the assessee has been stipulated. Though the nexus may not be direct yet the requirement is to the effect that the assessee to qualify for deduction shall incur expenditure of the specified nature to provide the goods, services or facilities to a person who would in turn be the supplier of raw material. The underlying idea in the provision as can be culled out is that the assessee should incur expenditure for the purpose of obtaining raw material while at the same time incur such expenditure in a manner so as to undertake development of the recipient and the area in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent all around in relation to the recipient and the area in which such recipient is situated. At the cost of repetition we may state that it is not possible to read in sub-dause (ii) of clause (b) of subsection (1) of section 35C of the Act, that the activities specified therein have to be restricted only for the limited purpose of educating the agriculturist, grower or producer and if over and above the process of educating such recipient some more services or facilities are rendered the assessee should be denied the benefit of weighted deduction under section 35C of the Act. In so far as the item of fodder growing expenditure is concerned the said activity would fall within sub-clause (i) of clause (b) in view of the fact that the assessee is actually distributing seeds, fertilizers etc., and further providing proper irrigation facilities. The assessee is also undertaking levelling and developing the land which would also be an activity which would fall within the provision of services. Therefore, in relation to this item, the assessee's claim would fall both within the provisions of sub-clauses (i) and (ii). The Tribunal has held that the recipient of the service or facili ..... X X X X Extracts X X X X X X X X Extracts X X X X
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