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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 ..... the respondent. 3. Shri Y.V.Raviraj has presented his case with following submissions: (i) Respondent is a Co-operative Society registered under the provisions of the Karnataka Co-operative Societies Act, 1959. The aims and objects of the Society are mentioned in detail in Chapter IV of the approved Bye-laws of the Society; (ii) The members of the Respondent-Society are 'Maliks' who are owners of land (Agar) on which salt is manufactured. The Society was formed inter alia to acquire from the 'Maliks' the rights and to manufacture salt and its by-products; (iii) In terms of the Bye-laws and other arrangements, the individual pieces of lands belonging to the members vested with the Society. Society purchased and installed necessary plants and machinery to manufacture salt and other by-products; (iv) Society manufacturs and sells salt and other by-products. The sale proceeds were being transferred to an account called 'Distributable Pool Fund Account' 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Income Tax (Appeals), by his common order dated 2.4.2014, placing reliance on the judgment of the Hon'ble Supreme Court in the case of M/s. Radhasoami Satsang, Saomi Bagh, Agra v. Commissioner of Income Tax reported in (1992)1 SCC 659 allowed the appeal in part by holding that the Bye-laws cannot be segregated and read in isolation to hold the income generated was the income of the appellant-Assessee. The said order was challenged before the Income Tax Appellate Tribunal, Panaji Bench ('ITAT' for short) and the same stood dismissed by the impugned order. Hence, this appeal. 4. Assailing the legality and correctness of the orders passed by both the First Appellate Authority and the ITAT, Shri Y.V. Raviraj, vehemently contended that a plain reading of Bye-laws and particularly Bye-laws 4(a), (b), (c), (d) & (k) would make it amply clear that the Assessee-Society had acquired 'Maliks' rights to manufacture salt from the members. 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 'M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance, learned Counsel for the Revenue submitted that this is a case in which the Assessee-Society being a juristic person was carrying on the business both 'manufacturing' and 'selling' salt and its' by-products. It was transferring funds to the Distribution Pools Fund and offered only the remaining income to tax. Therefore, the orders passed by the CIT and ITAT are unsustainable in law and deserve to be set aside. Accordingly, he prayed for allowing this appeal. 8. Per contra, Shri Ashok A.Kulkarni, learned Counsel for the Assessee-Society supporting the impugned judgment of the ITAT submitted that the Assessee-Society came into existence, pursuant to the orders passed by the Government of India, on the advise of the Salt Expert Committee. The said Salt Expert Committee having foreseen the difficulties of individual holders of small units had suggested that a merger either under the Government control or preferably under 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 object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (l) to pay on behalf of the members the assessment and mulgeni rent in respect of the individual areas included in the salt works which will be a first charge on a produce of the individual members. (q) to sell the salt and by-products either directly or through agents." 12. Chapter-VI deals with the membership and shares. In terms thereof, no person other than a 'Malik' defined in Bye-law No.3 can be admitted as a member. Chapter-VIII deals with General Body Meeting, Chapter-X with the Supervising Council and Chapter-XI with the Managing Committee. In terms of Chapter XIII, a Chairman, a Vice Chairman and a Manager shall be the officers of the Society. Under Clause-75, these officers are subject to control of the Managing Committee. Chapter- XVII deals with expenses. It is noticed that deduction towards depreciation of machinery, building, etc. as determined in accordance with the expert advise is 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 jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hearing the Assessee- Society. 16. Learned Counsel for the Assessee-Society has placed reliance on the following judgments in support of his contentions: 1. Commissioner of Agricultural Income Tax v. M.L.Bagla [1971] 80 ITR 173: Placing reliance on the following portion of the above judgment at page 175; ......... "The High Court, agreeing with the view, observed that the association of individuals holding property was liable to tax only if it held the lands as an owner, trustee, receiver, administrator or executor or in many other capacity recognised by law." learned Counsel for the Assessee contended that admittedly, the Society was not holding the land/s in question in its capacity as either an owner or a trustee, receiver, administrator or executor referred to in the above passage. Therefore, the ratio of the said judgment is squarely applicable to the facts of this case. Consequently, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s carried forward loss and computed the income as NIL. There is no material on record placed by the Assessee either before the Assessing Authority, the Appellate Authority or before this Court which would demonstrate that the sum of Rs. 1,56,71,462.51 which was transferred to Distributable Pool Fund Account for distribution among the members of the Society was offered to tax. Therefore, the ratio of the said judgment cannot be made applicable to the facts of this case. 4. Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. Commissioner of Income Tax, reorted in (1997) 227 ITR 172: Learned Counsel for the assessee has relied upon following two sentences in the said judgment to substantiate his argument: "it is difficult to follow this reasoning. If a person borrows money for business purposes but utilises that money to earn interest, however temporarily, the interest 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 obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, we are of the view it is imperative for the Courts to opt strict interpretation while dealing with fiscal laws. 20. 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. 21. There can be perhaps no disagreement with the proposition that Co-operative movement is benevolent to its members. Nonetheless, an ideology however lofty does not ipso facto exempt such entity from the solemn duty and sacrosanct obligation of obeying the law of the land nor does it insulate the entity from the vigour of penal actions in case of default. Thus, assessee a co-operative entity which runs a business enterprise is duty bound to offer its profits to tax before diverting any funds to the Distributable Pool Fund Account. 22. In the result, this appeal merits con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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