TMI Blog1982 (3) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 are in Marathi and an authentic Engli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers -------------------------------------------------------------------------------------------------------------------------------------------------- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------------- Total 4,56,728 2,37,251 ------------------ --------------- Expenses ratio on Gross Profits Total claim under section 80P(2) (a)(iv) made by the assessee in the return of income: Rs. 1. Head Office 2,38,012 55 per cent of the G.P. 2. Petroleum 12,835 58.6 per cent of the G.P. 3. Cloth 602 29 per cent of the G.P. ------------------- 2,51,449 ------------------- Total gross profits out of commodities for agricultural purposes: Rs. 4,04,541 Eligible gross pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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.) Ltd. v. Addl. CIT [1979] 118 ITR 243 was applicable to the present case. He noticed that the Supreme Court did not refer to section 80P(2) in the penultimate paragraph of its judgment at page 260. However, he held that the absence of reference to section 80P could not render the decision inapplicable to the assessee's case, as, many other sub-sections have also not been referred to in that para. The basic question being whether relief should be given on the gross or the net income and the Supreme Court having decided that relief should be given on the gross income, the learned Commissioner (Appeals) held that the assessee was entitled to relief on the gross profit earned by the society in its transactions. 5. We also now refer to the decision of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 to be considered under section 80P(2)(a), there is no scope for giving relief under section 80P(2)(c). Section 80P(2)(c) is thus rendered redundant. The principle of harmonious construction required that income relating to activities under section 80P(2)(a) and activities under section 80P(2)(c) have to be separately determined. Relief under section 80P(2)(c) will have to be restricted to Rs. 20,000. 8. The learned departmental representative then referred to the definition of 'total income' under section 80B(5) of the Act. The gross total income meant the total income computed in accordance with the provisions of this Act. There is thus no scope for giving relief on the gross profit as that would mean computation of the total income contrary to the scheme laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) a cottage industry, or (iii) the marketing of the agricultural produce of its members, or (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) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deduction under sub-section (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income, if any, as referred to in those clauses included in the gross total income as reduced by the deductions under section 80HH, section 80HHA, section 80-I, section 80J, section 80JJ and section 80JJA." We find that a co-operative society can engage itself in various activities. These have been classified under section 80P(2)(a), (b) and (c). In particular we refer to section 80P(2)(c) which refers to activities other than those specified in clause (a) or (b), either independently of, or in addition to, all or any of the activities so specified. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (b) in respect of such income by way of dividends other sixty per cent of than the dividends referred to in clause (a) such income ; (2) Where a company to which this, section applies is entitled also to the deduction under section 80K, the deduction under sub-section (1) shall be allowed in respect of income by way of dividends referred to therein as reduced by the amount of the deduction under section 80K." Here the Supreme Court held that the opening part of the section does not have a limitative effect and they are descriptive of items of income included in the total income and are not indicative of the quantum of amount included under dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 disallowed as relating to agricultural operations. Since there was no finding of fact that the cultivation of sugarcane and the manufacture of sugar constituted different activities, the question of disallowing a part of what was admittedly a business expenditure, as not relating to business, did not arise at all. In the present case, the total income is to be determined in accordance with the provisions of this Act. Then the portion of income which is attributable to certain specified activities of the co-operative society has to be taken out as a deduction from the total income. The section itself imposes a duty on the ITO to determine the pro ..... 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