TMI Blog1998 (3) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... the members of the society. It also earns interest and other miscellaneous income. At the end of the year after ascertaining the profits, the society declared rebate to the members. For the assessment year 1980-81, the Income-tax Officer allowed the rebate distributed to the members as a deduction in computing the assessee's total income. Subsequently, he found that the assessment for the assessment year 1981-82 had been revised by the Commissioner of Income-tax. He accordingly treated that as an information and reopened the assessment to disallow the rebate. This was carried on appeal and the Appellate Tribunal following its own orders for the assessment year 1981-82 held that there is no rule or provision not to allow rebate as a deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat these provisions specifically referred to the payment of rebate out of the net profits and submitted that this was only an appropriation of income and could not be allowed as a deduction. He also submitted that where the amount is paid after receiving the income it must be taken as an appropriation of income, unless there is some material to indicate that there was a diversion of that profit to some other person by overriding title before the profit accrues. He tried to distinguish the decision reported in Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC), relied on by the Appellate Tribunal, by pointing out that in that case there was a statutory reserve created with reference to a reasonable price fixed in the statute, whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits may be utilised for payment of rebate to members on the amount of volume of business done by them with the society, to the extent and in the manner specified in the bye-laws. Paragraph 40(4) of the bye-laws of the assessee-society reads as follows : "A rebate on purchases at a rate to be fixed by the general body on the recommendation of the board of directors shall be divided among the members according to the amount of purchases made by them during the year ; subject to the restrictions imposed in rule 36(c) (sic) of the Andhra Pradesh Co-operative Societies Rules." The Government issued a Government order in the following terms: "Now, therefore, in exercise of the powers conferred by rule 67 of the Andhra Pradesh Co-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntive for increasing the society's business. The point taken by the Revenue is that since section 45 of the Co-operative Societies Act as well as rule 36 of the Rules talk of payment out of the net profits, it is only an appropriation of the profit and cannot be allowed as a business expenditure. It is true that where an amount is paid out of the net profit, it cannot be allowed as a business expenditure, because business expenditure is to be allowed for ascertaining the net profit and not to be paid out of the net profits. But the fact is that net profit is ascertained only after allowing rebate, which goes to reduce the price at which members purchased the goods from the society. The Tribunal has pointed out that the scheme of rebate is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying charges to the customers. The Supreme Court pointed out that if the rebate is given, it goes to reduce the price and, therefore, it is a case of the assessee receiving less amount as a profit. Learned standing counsel sought to distinguish that case by stating that in the present case there is no such statutory direction to grant rebate, but we are of the opinion that there is a clear decision to give rebate to those members of the society who have done large business as an incentive for the purpose of encouraging the co-operative movement and that the rebate is not to be given if there is a loss. Even in the recent decision in Associated Power Company Ltd. v. CIT [1996] 218 ITR 195, the Supreme Court has reiterated the view after qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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