Income Tax Appellate Tribunal - Ahmedabad
Kishan Co.Op.Cotton Sale Gng. & Psg. ... vs Department Of Income Tax on 10 July, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH - AHMEDABAD
(BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL, AM)
ITA No. 3184/Ahd/2008
A. Y.: 2005-06
The Income Tax Officer, Vs Kishan Co-op. Cotton Sales,
Ward- 6(3), Ginning & Presing Society Ltd.,
C.U. Shah Building, Ranpur Road, At Dhandhuka,
Ashram Road, Ahmedabad District, Ahmedabad
PA No AAAAK 0507B
(Appellant) (Respondent)
Appellant by Shri Samir Vakil, DR
Respondent by None
ORDER
PER BHAVNESH SAINI: This appeal by the revenue is directed against the order of the learned CIT(A)-XI, Ahmedabad dated 10-07-2008 for assessment year 2005-06 on the following grounds .
"1. The Ld. Commissioner of Income tax (A) - XI, Ahmedabad has erred in law and on facts in allowing the claim of deduction u/s 80P and thereby deleting the additions of Rs.27,49,001/- towards the income derived specifically from ginning and pressing activities and Rs.29,035/- towards income from weighbridge charges treating the same are taxable and no eligible for the claim of deduction u/s 80 P.
2. The Ld. Commissioner of Income tax (A)-XI, Ahmedabad has erred in not considering the fact that the assessee was conducting its activity of ginning and processing with the aid of power which is in contravention of the provision of the section 80 P of the I. T. Act."
2. We have heard the learned DR and perused the findings of the authorities below. None appeared on behalf of the assessee despite service of notice through registered post. A/D card duly served upon the assessee is available on record. Since none appeared on behalf of the ITA No.3184/Ahd/2008 2 ITO, W 3(3) Ahmedabad Vs Kishan Co-op. Cotton Sales, Ginning & Pressing Society Ltd. assessee at the time of hearing, therefore, the assessee is proceeded ex- parte.
3. Briefly, the facts of the case are that the AO rejected the claim of the assessee of deduction u/s 80 P (2) (iii) of the IT Act. According to the AO during the year under consideration the assessee society has earned income from various sources including charges received for ginning and pressing of raw cotton from the members of the society. The AO has observed that there is no basis of claiming deduction of income from weighbridge charges and the income from ginning and pressing of cotton. Therefore, after discussing the issue in the assessment order, the AO rejected the claim of the assessee of deduction u/s 80 P of the IT Act and added the sum of Rs.27,49,001/- and Rs.29,035/- to the income declared by the assessee. The assessee challenged the order of the AO before the learned CIT(A). It was explained before the learned CIT(A) that the assessee society is marketing raw cotton of the members after processing of ginning and pressing of raw materials which is integral process of marketing and is ancillary to the marketing of the produce of its members. The AO has, therefore, erred in making the disallowance as the assessee is created for sole aim of welfare of raw cotton growers and all members are raw cotton growers and the society is solely working for marketing of cotton/cotton seeds of their members after ginning and pressing the agricultural produce of raw cotton as the raw cotton is not consumable item and for the purpose of making it marketable item ginning and pressing process is the primary process of raw cotton as the raw cotton purchasers are always gainers and they do not give fair and proper price to raw cotton growers and after ginning and pressing of raw cotton, separated cotton and cotton seeds are consumable items which are purchased by textile mills and oil mills at fair market rate. Thus, ginning and pressing of raw cotton is integral process of marketing and is ancillary to the marketing of the produce of their members at fair and ITA No.3184/Ahd/2008 3 ITO, W 3(3) Ahmedabad Vs Kishan Co-op. Cotton Sales, Ginning & Pressing Society Ltd. market rate which helps to aim of welfare of the members of the assessee co-operative society. The assessee relied upon the decision of the Hon'ble Supreme Court in the case of Broach District Co-operative Coon Sale Ginning & Pressing Society Ltd. Vs CIT 77 CTR 70 ( 177 ITR 418). It was, therefore, prayed that the assessee may be granted deduction u/s 80 P of the IT Act. The learned CIT (A) considering the submission of the assessee and material on record allowed the claim of the assessee. His findings in Para 2.2 to 2.2.3 are reproduced as under:
"2.2. The submissions of the A. R. of the appellant have been perused. The decision, referred as above, which is relied upon by the A. R. of the appellant and the observations of the assessing officer in the assessment order have also been examined.
2.2.1 In this context the gist of the decision in case of Broach District Co.op. Cotton Sales, Ginning & Pressing Society Ltd. Vs CIT, referred as above is reproduced hereunder for convenience sake:-
"Deduction under s. 80P (old 81(1) - Marketing of members' agricultural produce - Activities incidental or ancillary to marketing have to be regarded as the activity of marketing itself - Proviso to S. 81 (i) operates to exclude from the exemption those activities which can be regarded as separate and distinct from the activities enumerated in cls (a) to (f) of S. 81 (i) - In the present case, the members delivered the raw cotton the society for marketing and, therefore, ginning and pressing was regarded as part of that process - Members did not take back the cotton after it was ginned and pressed - Ginning and pressing was integral process of marketing - Income of assessee co-operative society from the entire activity of ginning and pressing of cotton and marketing it was entitled to deduction."ITA No.3184/Ahd/2008 4
ITO, W 3(3) Ahmedabad Vs Kishan Co-op. Cotton Sales, Ginning & Pressing Society Ltd.
Held It is apparent that the ginning and pressing was part of the integral process of marketing. It was an activity incidental or ancillary to the marketing of the produce of its members. The ginning and pressing of the raw cotton was never regarded as a distinct process. When they delivered the raw cotton to the assessee for marketing, ginning and pressing was regarded as part of that process. The members did not take back the cotton after it was ginned and pressed. They paid only the cost of ginning and pressing. All the raw cotton so treated by the assessee was received from its members, and it was only such cotton of its members which was marketed by the assessee. The sale of the cotton was effected by the assessee to the outside world and not to its members. The object of section 81 (i) was to encourage and promote the growth of co-operative societies, and consequently a liberal construction must be given to the operation of that provision. The provisos to section 81 (i) operates to exclude from the exemption those activities which can be regarded as separate and distinct from the activities enumerated in clauses (a) to (f) of S. 81
(i). If the activity in question is incidental or ancillary to one of the activities mentioned in those clauses, the proviso will not apply. The assessee is, therefore, entitled to the exemption of the profits and gains derived from the activity of the entire business of ginning and pressing of coon and marketing it by virtue of cl. ( c ) of s. 81
(i) - CIT vs. Broach District Co.op. Cotton Sales, Ginning & Pressing Society Ltd. (1974) 97 ITR 575 (Guj)' TC 262, 660 reversed; Addl CIT Vs. Ryots Agricultural Produce Co.op. Marketing Society Ltd. [1978] 115 ITR 709 (Kar); TC 26R 778 and CIT vs Kajan Co op. Cotton Sales, Ginning and Pressing Society Ltd. [1981] 129 ITR 821 (Guj): TC 26 R.765 approved."
2.2.2 It may be seen that the appellant is a cooperative society and appellant has worked for its members and collects ITA No.3184/Ahd/2008 5 ITO, W 3(3) Ahmedabad Vs Kishan Co-op. Cotton Sales, Ginning & Pressing Society Ltd.
charges for ginning and pressing of cotton from the members and not from outsiders.
2.2.3 Therefore, as it could be seen that the appellant is a Cooperative society primarily engaged in the marketing of raw cotton after ginning and pressing of coon produced by its members who are farmers and these facts are not denied by the assessing officer. Therefore, it can be said that the facts of the present case are very much applicable to the case, referred as above, which is relied upon by the A. R. of the appellant. Therefore, having considered the facts and circumstances of the case and following the above decision, I am of the opinion that the assessing officer is not justified in rejecting the appellant's claim of deduction u/s. 80P and there by making the addition of Rs.27,78,036/-. Hence, th8e addition made by the A.O. as above is hereby deleted."
4. The learned DR relied upon the order of the AO.
5. On consideration of the above facts in the light of the findings of the learned CIT(A), we do not find it to be a fit case for interference. Section 80 P of the IT Act provides for deduction in respect of income of co-operative societies. Sub-section (2) to section 80 P of the IT Act provides the items where income would be allowable deduction. Section 80 P (2) (a) (iii) of the IT Act provides that the sum referred under Sub- section (1) shall be the following, namely "marketing of agricultural produce grown by its members".
6. The assessee explained before the authorities below that the assessee co-operative society is marketing raw cotton of their members after processing of ginning and pressing of raw cotton which is integral process of marketing and is ancillary to the marketing of the produce of its members. The assessee also explained that the raw cotton was processed because it would help ultimately its members being the growers of the raw cotton. It was, therefore, apparent that ginning and pressing of the products is an integral part of marketing. It cannot be, ITA No.3184/Ahd/2008 6 ITO, W 3(3) Ahmedabad Vs Kishan Co-op. Cotton Sales, Ginning & Pressing Society Ltd. therefore, treated as distinct process. The issue is, therefore, squarely covered by the judgment of the Hon'ble Supreme Court in the case of Broach District Co.op. Cotton Sales, Ginning & Pressing Society Ltd. (supra). It is not in dispute that the assessee is a co-operative society and has worked for its members and collected charges for ginning and pressing of raw cotton of its members. The assessee is, therefore, primarily engaged in the marketing of raw cotton after ginning and pressing of raw cotton produced by its members who are farmers and is not disputed by the AO. The AO disputed the claim of the assessee because processing is done with the aid of power and referred to sub- clause (v) to section 80 P (2) (a) of the IT Act However, the above provision provides that whole of the amount of the profit and gains of business attributable to any one or more activities mentioned at sub-clauses (i) to
(vii) of Section 80 P (2) (a) would provide for deduction, meaning thereafter, if one or more activity of the assessee satisfy the requirements of the law, the assessee would be entitled for deduction. Moreover, the AO has nowhere noted or brought on record any evidence that the assessee was using power for the purpose of processing. The weighbridge charges are collected and meant for using machine for weighing laden cart and is also connected with marketing of agricultural produce. Since, the claim of the assessee specifically falls under the provision of section 80 P (2) (a) (iii) of the IT Act, therefore, the learned CIT(A) on proper appreciation of the facts and material on record rightly deleted the addition. We, therefore, do not find any justification to interfere with the order of the learned CIT(A). We confirm his findings and dismiss the appeal of the revenue.
ITA No.3184/Ahd/2008 7ITO, W 3(3) Ahmedabad Vs Kishan Co-op. Cotton Sales, Ginning & Pressing Society Ltd.
7. In the result, the appeal of the revenue is dismissed.
Order pronounced on12-11-2010.
Sd/- Sd/-
(D. C. AGRAWAL) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date : 12-11-2010
Lakshmikant/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad