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TMI Blog2002 (12) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... 1981-82, 1982-83, 1983-84, 1984-85 and 1987-88, respectively. The relevant assessment year in respect of T.C. No. 413 of 1999 is 1985-86. Though in T.C. No. 413 of 1999, the respondent is shown as the Inspecting Assistant Commissioner of Income-tax (Asstt.), Range IV, Madras, only the Commissioner of Income-tax, Tamil Nadu-III, Chennai, should be the party/respondent. Accordingly, the cause title in T.C. No. 413 of 1999 is amended showing the Commissioner of Income-tax, Tamil Nadu-III, Chennai, as the respondent instead of the Inspecting Assistant Commissioner of Income-tax (Asstt.) Range IV, Madras. The facts are identical in respect of all the assessment years. The assessee being a co-operative society supplied coal and diesel to its members, who are manufacturers of bricks and tiles. In respect of the relevant assessment years, the assessee claimed deduction in various amounts as "purchase bonus" payable to its members. It was contended before the assessing authority that as per the provisions of the Tamil Nadu Co-operative Societies Act, 1961 (Tamil Nadu Act No. 53 of 1961), and the Tamil Nadu Co-operative Societies Act, as amended by Act 30 of 1983, the purchase bonus is pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certaining the net result of the profit or loss of the trading transaction. In substance, he contended that the purchase bonus paid to the members with reference to the business done is to be considered as a deferred discount. In order to sustain his contention that the "purchase bonus" payable to the members is an allowable deduction, he relied on the decision of the Andhra Pradesh High Court in the case of CIT v. T.T.D. Co-operative Stores Ltd. [1998] 232 ITR 109 and the decision of the Supreme Court in the case of Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521. Learned counsel has also relied on Circular No. 117, of the Central Board of Direct Taxes and contended that the Board in consultation with the Department of Community Development and Co-operation has decided that the "rebate" or "bonus", which is in the nature of deferred discount passed on by the consumer co-operative stores to their members on the value of the purchases made by them during a year should be allowed as a deduction in computing the business income of such society and in the light of the circular issued, the purchase "bonus payable" to the members with regard to their purchases they had with the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t profits to the research and development fund; and (ii) two per cent. of the net profits to the education fund, within such time and in such manner as may be prescribed. (b) The research and development fund and the education fund shall be maintained by the Tamil Nadu Co-operative Union Limited and administered by committees constituted in accordance with the rules. Such committees shall consist of nominees of the Government (who shall be specialists or technical experts in agriculture or animal husbandry or sugar technology or textile technology or in such other matters as may be prescribed or officers of the Government) and also of nominees of the prescribed apex societies. (2) The balance of the net profits as so declared shall be appropriated,- firstly, for being credited to a reserve fund, the amount to credited being not less than twenty per cent. of the net profits; secondly, towards contribution to an agricultural credit stabilization fund at fifteen per cent. of the net profits in the case of every agricultural service society including the State and primary agriculture and rural development banks and other financing banks: Provided that the State Agriculture and ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us to members with reference to business done with or services rendered to the registered society, at such rate and subject to such conditions as may be specified in the rules. The corresponding rule, viz., rule 96 of the Tamil Nadu Societies Rules, 1988, provides that any society other than a credit society may, in accordance with its by-laws, pay bonus to its members based on the extent of Business done by the members with it or the value of the services rendered by such members to the society subject to a maximum of fifty per cent. of its net profits. The rule also provides that the society shall not utilize any portion of the bonus accruing on the business done by non-members for payment of bonus to members but shall carry the entire amount so accrued to the reserve fund or business loss reserve as may be decided by the general body. A careful reading of section 72 of the Co-operative Societies Act and rule 96 of the Tamil Nadu Co-operative Societies Rules shows that the disbursement out of net profit as declared by the Registrar of Co-operative Societies is not logical and probably, the arrangement of various sub-sections as to the disbursement of net profit of a co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt also held that there was no diversion by overriding title by the creation of the education fund. This court further found that the payment was conditional on profits being earned and that was the reason for this court to hold that the amount paid to the education fund was not liable to be excluded from the taxable profits of the co-operative society. It is also relevant to mention here that in South Arcot District Co-operative Societies' case [1981] 127 ITR 467 the argument that was advanced was on the question whether there was any diversion by overriding title. Further, the following observation of this court made in South Arcot District Co-operative Societies' case [1981] 127 ITR 467 is relevant for the purpose of this case: "The payment is conditional on profits being earned. Though that part of the profits which may have to be paid for earning the income can be allowed as deduction, this is not such a case. The nature of the liability is such that the amount is only a distribution out of the profits, and is not related to the earning of profits." In our view, the test laid down by this court in South Arcot District Cooperative Societies' case [1981] 127 ITR 467 really he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and if the rebate is not given, the loser would be the co-operative society. Therefore the payment of purchase bonus to its members, we hold, is an expenditure incurred wholly and exclusively for the purpose of business of the co-operative society. The Supreme Court in Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 laid down the law as under: "Under section 10(1) of the Income-tax Act, tax shall be payable by an assessee under the head 'Profits and gains of business' in respect of profits and gains of any business carried on by him. The said profits and gains are not profits regulated by any statute, but profits in a business computed on business principles. They are business profits and not statutory profits. They are real profits and not notional profits. The real profit of a businessman under section 10(1) of the Income-tax Act cannot obviously include the amounts returned by him by way of rebate to the consumers under statutory compulsion. It is as if he received only from the consumers the original amount minus the amount he returned to them. In substance there cannot be any difference between a businessman collecting from his constituents a sum of Rs. Y in addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form the court as to the reasons why the Commissioner accepted the order of the Appellate Tribunal rendered in the assessee's own case for the assessment year 1990-91 and in spite of opportunities granted to the Commissioner, the Commissioner of Income-tax, Tamil Nadu-III, Chennai, has not furnished any information regarding the reasons for accepting the order for the subsequent assessment year. The Supreme Court in Union of India v. Salish Pallalal Shah [2001] 249 ITR 221 has held that where the decision of the High Court in the case of the assessee against the Department is accepted in the subsequent decision of the High Court in the cases of other assessees, the Department is not entitled to challenge the correctness without just cause in the cases of other assessees. The ratio laid down by the Supreme Court is apposite here as the Commissioner of Income-tax, Tamil Nadu-III, Chennai, has accepted the decision of the Appellate Tribunal in the assessee's own case for a subsequent assessment year, but has not given any reason at all for not accepting the order of the Appellate Tribunal for the earlier years, though it was decided in favour of the Commissioner in the earlier years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he society did not consume the articles supplied by the society, but they used it for the manufacture of bricks and tiles. Explanation (i) to rule 14 of the Co-operative Societies Rules defines "industrial society" to mean a society which has as its principal object the production of articles or finished goods through or with the help of its members or the provision of service facilities to its members who are artisans, technicians or small producers who are its members and includes any society which has as its principal object the provision of facilities for the operation of an industrial society. The industrial society so defined has been classified under serial No. 10, the categories of artisans, technicians, producers and industrial service society. The petitioner-society, in our view, would come within the second limb of Explanation (i) to rule 14. As stated already, the claim has been made on the ground that the assessee is a consumer co-operative society. Hence, as per the provisions of the Act, the deduction granted in a sum of Rs. 20,000 is very much in accordance with law. Hence, the second question of law referred in T.C. No. 413 of 1999 is answered in the affirmative, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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