TMI Blog2016 (12) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the ‘Agar’ and ‘Salt produced’. Income of the Society cannot be anything beyond the scope of Chapter XVI of the Bye – laws. Therefore, logically the amount transferred to the ‘Distribution Pool Fund Account’ cannot be brought within the umbrella of Chapter XVI. Hence, it is not taxable in the hands of the Society. In the premise, the substantial question of law deserves to be answered against the appellant – Revenue. - I.T.A.No. 100067/2015 - - - Dated:- 19-11-2016 - MR. ASHOK B. HINCHIGERI AND MR. P.S. DINESH KUMAR JJ. APPELANTS: (BY SRI Y V RAVIRAJ, ADVOCATE) RESPONDENT: (BY SRI ASHOK KULKARNI SRI H R KAMBIYAVAR, ADVOCATES) JUDGMENT Revenue, aggrieved by the order passed by the Income Tax Appellate Tribunal, Panaji Bench, Panaji ( ITAT for short) in ITA No.252/PNJ/2014 dated 23.1.2015 for the assessment year 2006-07 has presented this appeal raising certain questions of law. This Court after hearing the learned Standing Counsel for the Income Tax Department and Counsel for the respondent assessee vide order dated 2.11.2016 framed following question of law: Whether the respondent Society assessed to tax on its income as person as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re filed. However, Chartered Accountant s certificate certifying the audit under Section 44AB of the Act was not filed. Therefore, Chartered Accountant was summoned and his statement was recorded. He was specifically called upon to answer a question as to whether transfer to Distribution Pool Fund Account is an expenditure. The Chartered Accountant refused to answer the said question and sought time to furnish an explanation. Subsequently, he sent an explanation by email, which was not in consonance with the provisions of Section 44AB of the Act. The assessing authority held that the Chartered Accountant had hesitated to comment on the deduction and transferred to the Distribution Pool Fund Account ; viii) After hearing the assessee, an Assessment Order was passed on 30.12.2013 under Section 143(3) read with Section 147 of the Act holding the total income of ₹ 1,23,17,800/-, which would entail Income Tax of ₹ 36,92,340/-. After adding surcharge, cess, interest etc., the Assessing Authority held that the assessee was liable to pay a total sum of ₹ 72,69,991/-; and ix) Feeling aggrieved, respondent - Society challenged the assessment order before the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible because the Society had taken over the right to manufacture Salt from the Maliks of the land. Therefore, the amount paid to the members of the Society cannot be treated as an expenditure. Hence, the orders passed both by the CIT (Appeals) and ITAT are unsustainable in law. 8. Submissions on behalf of Respondent/Assessee: i) Assessee-Society came into existence pursuant to an advice tendered by Salt Expert Committee appointed by the Government of India. The said 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 the sole remedy to save them from extinction. Accordingly, Assessee - Society was formed; ii) Objects defined in the bye-laws give a clear indication that the Society was formed only to manufacture salt on co- operative basis. Clause 4(l) makes it clear that the Society was required to pay the assessment and mulgeni rents in respect of individual areas on behalf of its members. Clause (m) indicates that it was expected of the Society to help the members in getting a fair price to their share of Salt manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng small units. It was also suggested that if such remedial measures were not taken, small units would run the risk of extinction because of their uneconomical size and unfavourable climatic condition. The salt owners in an Extra-ordinary General Meeting of their Association held on 17.2.1952, resolved to form a Co-operative Society of Salt Owners for the manufacture of Salt on co-operative basis. Accordingly, assessee - Society was formed and registered on 17.9.1952. The bye-laws were adopted on 2.10.1952. 12. Preamble to the approved Bye - laws of the Society reads as follows:- I PREAMBLE 1. Whereas the Government of India having been advised by the Salt Expert Committee in 1950, and other Committees appointed from time to time to investigate the question of salt manufacture in different parts of the country, have issued orders to the Salt Department that the recommendations made by the committee should be given effect to and whereas these recommendations interalia refer to the raising of the standard purity of salt by certain methods most important of which is the remodelling of salt works so as to adopt an optimum ratio between the crystallisers and the condens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to manufacture salt and other byproducts in these areas on Co-operative basis. c) to consolidate and remodel the salt works so as to manufacture salt and byproducts economically and on a scientific basis, and to manufacture table salt and high purity salt. k) to purchase and instal suitable plant or any other machinery required in connection with the manufacture of salt and byproducts or any subsidiary works undertaken. 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. m) to help members in getting a fair price for the salt and byproducts produced by the Society on their behalf. q) to sell the salt and by-products either directly or through agents. u) to recover all the manufacturing expenses of the Society and any other dues from the individual members from time to time. (emphasis supplied) 15. The Society functions in consonance with the Bye-laws. Clause (a) of the objects extracted above shows that the principal aim of the Society was to acquire right of manufacturing salt and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diverted as expenses before offering to tax. In support of this contention, Revenue has placed reliance on the following rulings: i) Judgment of Hon ble Supreme Court in the case of TUTICORIN ALKALI CHEMICALS FERTILIZERS Ltd v. CIT reported in 227 ITR 172 (SC) to contend that an issue will have to be decided on the principle of law and not in accordance with the accounting practice; ii) Income Tax Officer v. C H Atchaiah reported in 218 ITR 239 (SC) t o contend that if the income is of an association of persons , then, in law, it is the association alone which has to be taxed. iii) Commissioner of Income Tax v. Indira Balakrishna reported in 39 ITR 546 (SC) to contend that the word associate means to join in common purpose and in the instant case assessee is an association of person and it is the association alone which has to be taxed. iv) Commissioner of income Tax v. Chandmal Rajgarhia reported in 213 ITR 789 (Pat) to point out that the essential requirement to attract the label of association of purpose is the unity of income. 19. On the other hand, placing reliance on a ruling of Hon ble Calcutta High Court in the case of Narayan Prasad V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive basis . The cumulative income of the Society as enumerated in Chapter XVI cannot be anything more than commission earned on manufacture and sale of salt, interest on loans advanced to members and deposits with the Bank and collection of rents and service charges. 21. The next authority relied upon by the learned Counsel for the assessee is a judgment of the Hon ble Supreme Court in the case of Commissioner of Income Tax, Bombay City II v. Sitaldas Tirathdas reported in 41 ITR 367 (SC), wherein, it is held as follows:- These are the cases which have considered the problem from various angles. Some of them appear to have applied the principle correctly and some, not. But we do not propose to examine the correctness of the decisions in the light of the facts in them. In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erves to be answered against the appellant Revenue. Consequently, this appeal must fail. 27. Before parting with this case, we deem it necessary to place on record that by an earlier order dated 26.2.2016, this appeal was allowed in favour of the Revenue after hearing Counsel on both sides whilst the appeal was listed for admission. Later a Review Petition was filed on the ground that a substantial question of law was not framed prior to hearing. The said Review Petition was allowed by order dated 06.09.2016. Subsequently, the question of law was framed on 2.11.2016 and learned Counsel for the parties were called upon to address their arguments on the said question in this second round. During the course of hearing, learned counsel for the assessee has brought to our notice the judgment of the Hon ble Supreme Court in the case of Sitaldas Tirathdas, a judgment of Calcutta High Court in the case of Narayan Prasad Vijaivargiya and a judgment of this Court in the case of Pompei Tile Works, the benefit of which was not available to this Court when the appeal was heard in the first round. Therefore, the earlier view taken is per incuriam. Now following the ratio laid down in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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