Karnataka High Court
Karnataka State Co-Operative ... vs Commissioner Of Income-Tax on 6 December, 2000
Equivalent citations: (2001)166CTR(KAR)53, [2001]251ITR736(KAR), [2001]251ITR736(KARN), [2001]116TAXMAN411(KAR), 2001 AIR - KANT. H. C. R. 757, 2001 TAX. L. R. 502, (2001) 251 ITR 736, (2001) 162 TAXATION 130, (2001) 116 TAXMAN 411, (2002) 1 KANTLJ(TRIB) 55, (2001) 166 CURTAXREP 53
Author: Ashok Bhan
Bench: Ashok Bhan, A.V. Srinivasa Reddy
JUDGMENT Ashok Bhan, J.
1. The assessee herein is a co-operative society. The assessment year involved is 1984-85 which ended with June 30, 1983. The asses-see filed its return of income disclosing nil income after claiming relief under Sections 80P(2)(a) and 80P(2)(d) of the Income-tax Act, 1961 (for short, "the Act"). The assessing authority completed the assessment under Section 143(3) of the Act holding that the assessee was eligible for deduction under Section 80P. The assessee's income was computed under three heads, income from house property, business income and income from other sources. Income from these three sources was calculated as :
Rs.
I. Income from house property 4,69,532 II. Business income : (a) From fertiliser section as returned by the assessee (eligible for deduction under Section 80P) 16,06,690 (b) From pesticide formulation section (not eligi ble for Section 80P deduction) 7,07,800 (c) Loss from pesticide, trading section (-) Rs. 6,95,808 Less : Provision for time barred pesticides since this is only a provision (+) Rs. 16,36,846 9,40,038 -------------- 32,54,528 (d) Loss from general section 17,91,393 ------------- Net income from business 14,63,135 ------------- Income from other sources was summarised as : Rs. Income from other sources: 1. Income from member co-operative societies 93,283 2. Interest income from co-operative apex banks 4,23,045 3. Interest from DOC bank 6,501 4. Interest from M. C. F. (17,25,500) 3,45,000 5. Interest from stock 96 6. Interest from Arcanut Co-operative Society 5,000 7. Miscellaneous receipts 9,971 ---------- 8,82,896 ------------ 2.Total income of the assesses from the three sources was computed as : Rs. Business income 14,63,135 Income from other sources 8,82,896 Income from house property 4,69,532 ------------ Total 28,15,563 -------------
3. The assessee being a co-operative society, was held entitled to the deductions under Section 80P(2)(a)(iv) and 80P(2)(d). The same was computed as under :
Rs Less: Deduction under Section 80P(2)(a)(iv) :
(i) on fertiliser section 16,06,690 (ii) on pesticide trading section 9,40,038 Deduction under Section 80P(2)(d) 5,27,829 ------------- 30,74,557 --------------
4. As the permissible deductions were found to be more than the total income of the assessee, the deductions were restricted to the extent of the gross total income of the assessee in terms, of Section 80A,
5. The Commissioner of Income-tax, Karnataka (for short, "the revisional authority"), being of the opinion that the order of the assessing authority was erroneous and prejudicial to the interests of the Revenue issued notice under Section 263 of the Act. The assessee was afforded an opportunity of hearing. The revisional authority came to the conclusion that the relief given under Section 80P was excessive. In paragraph 2 of its order the revisional authority worked out the eligible deductions. From the aggregate of the income from the fertiliser division, pesticide division and income from other sources which were eligible for relief under Section 80P, he deducted the loss from general section, depreciation debited from pesticide trading account and provision for time barred pesticides disallowed. On that working he fixed the income eligible for deduction under Section 80P(2)(a) at Rs. 3,34,871. He added the sum of Rs. 5,27,829 pertaining to income from other sources eligible for deduction under Section 80P(2)(d) and arrived at the figure of Rs. 8,62,700 as the allowable deduction under Section 80P. He directed the Assessing Officer to recompute the taxable income accordingly.
6. The assessee being aggrieved filed an appeal before the Income-tax Appellate Tribunal, Bangalore (for short, "the Tribunal"). The Tribunal came to the conclusion that neither the working adopted by the Income-tax Officer nor the working given by the Commissioner of Income-tax in his order was correct. The Tribunal found that there was a loss in the general section. According to it the loss from the general section had to be deducted from the aggregate of the income from the business. Besides this the income from pesticide formulation was also not admissible. After deducting the loss from the general section whatever remains would be entitled to the exemption under Section 80P(2)(a)(iv). The net income from the business was determined at Rs. 14,63,135. The assessee was found eligible for deduction under Section 80P(2)(d) of Rs. 5,27,829. On this working the Tribunal determined the allowable deduction under Section 80P at Rs. 19,91,961 out of the gross total income. The Assessing Officer was accordingly directed to compute the taxable income.
76. The assessee filed an application under Section 256(1) before the Tribunal requesting it to refer the following two questions of law to this court for its opinion along with the statement of case :
"1. Whether, on the facts, the Tribunal was right in holding that the relief under Section 80P(2) of the Act was to be quantified only after the loss out of other business units was set off ?
2. Whether, on the facts, the Tribunal was justified in not holding that the quantification of the relief under Section 80P(2) of the Act was with reference to the profit of each of the units belonging to the applicant to which the provisions of Section 80P attracted ?"
8. The Tribunal on being satisfied that the two questions claimed by the assessee did arise from the order of the Tribunal referred the aforesaid two questions of law to this court for its opinion along with the statement of case. The questions referred have not been properly formulated. With the consent of counsel for the parties we have refrained the question. The precise question of law that arises for consideration is reformulated as under :
"Whether, on the facts and in the circumstances of the case, the revi-sional authority and the Tribunal were right in holding that the deduction allowed under Section 80P(2) of the Act were excessive keeping in view the gross total income of the assessee and, therefore, the assessment framed by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue requiring interference under Section 263 of the Act ?"
9. Chapter VI-A of the Act provides for deductions to be made in computing the total income. Section 80A provides that in computing the total income of the assessee, he shall be allowed deduction from his gross total income in accordance with and subject to the provisions of this Chapter, the deductions specified in the respective sections of Chapter VI-A. The aggregate amount of the deduction under this Chapter cannot exceed the gross total income of the assessee.
"Gross total income" was defined under Section 80B(5) at the relevant time as :
"80B. In this Chapter-. . .
(5) 'gross total income' means the total income computed in accordance with the provisions of this Act. before making any deduction under this Chapter or under Section 280-O".
10. Section 80AB was introduced in Chapter VI-A by the Finance (No. 2) Act, 1980, with effect from April 1, 1981. The same reads as under :
"Where any deduction is required to be made or allowed under any section (except Section 80M) included in this Chapter under the heading 'C.--Deductions in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross total income of the assesses, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income".
11. The effect of Section 80AB is that, for the purpose of computing the deductions, the amount of income of that nature as computed in accordance with the provisions of the Act alone would be deemed to be the income of that nature.
12. Section 80P has been introduced in Chapter VI-A with a view to encourage and promote the growth of the co-operative sector in the economic life of the country and in pursuance of the declared policy of the Government. The assessee had claimed exemption under Sections 80P(2)(a) and 80P(2)(d). An extract of the relevant provisions of Section 80P is reproduced as below:
"80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred 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-- . . .
(iv) the purchase of agricultural implements, seeds, livestock, or other articles intended for agriculture for the purpose of supplying them to its members, or ...
(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income ; . . ."
13. If a co-operative society carries on certain activities the income from which is exempted and also certain activities income from which is not exempted, the profits and gains attributable to exempted activities shall enjoy the exemption and those attributable to the non-exempted activities shall be taxed. The society apart from business income had income from house property and other sources which did not qualify for the exemption, under Section 80P. Losses in the general section have to be deducted from the aggregate of income falling under the head "Business income". After deducting the loss of Rs. 17,91,393 of the general section from the business income, the net income from business would come to Rs. 14,62,132, The net income from business would alone be entitled to exemption under Section 80P(2)(a)(iv). After adding the income from other sources to the extent of Rs. 5,27,829 allowable, for relief under Section 80P(2)(d), the asses-see has rightly been found entitled to exemption under Section 80P to the extent of Rs. 19,91,961. Income from house property and other sources which are not relatable to either of the provisions of Section 80P are not eligible for deduction under Section 80P. The error committed by the Income-tax Officer was that He calculated the deductions under Section 80P(2)(a)(iv) without accounting for the losses suffered in the general sections from the business income. In our view, the Tribunal has rightly restricted the claim of the assessee under Section 80P to the extent of Rs. 19,91,961. The order of the Tribunal is in accordance with the provisions of the Act. There is no error in it.
14. For the reasons stated above, we answer the question referred to us in the affirmative, i.e., in favour of the Revenue and against the assessee.