Andhra HC (Pre-Telangana)
Commissioner Of Income-Tax vs Anakapalli Co-Operative Marketing ... on 22 June, 1988
Equivalent citations: [1989]175ITR584(AP)
Author: B.P. Jeevan Reddy
Bench: B.P. Jeevan Reddy
JUDGMENT
B.P. Jeevan Reddy J.
1. Only one question has been referred by the Income-tax Appellate Tribunal, Hyderabad, under section 256(1) of the Income-tax Act, 1961, though the Revenue had asked for referring as many as four questions. The question referred runs as follows :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the entire amount of Rs. 3,72,038 relating to marketing of agricultural produce of its members and interest on loans given to its members should be allowed as deduction under section 80P(2)(a) of the Income-tax Act, and not Rs. 73,720 with reference to the proportionate net profit referable to those activities only ?"
2. The facts relevant to the above question are : The Anakapalli Co-operative Marketing Society is engaged in, inter alia, (1) providing credit facilities to its members; and (2) marketing of agricultural produce of its members. For the assessment year 1979-80, the assessee claimed that two amounts, viz., Rs. 2,84,438 and Rs. 87,600 (the total comes to Rs. 3,72,038), should be deducted under section 80P out of its gross total income. The said two amounts represented the gross commission income relating to marketing of agricultural produce of its members and the gross interest income received on loans given to its members. The Income-tax Officer, however, did not accede to the assessee's claim. He granted deduction only for the proportionate net profit referable to the said two activities. On appeal, the Commissioner of Income-tax (Appeals) held, agreeing with the Income-tax officer, that it is illogical to allow a deduction from the total income of the amounts which represent the gross receipts from activity when only the net income from that activity is included in the total income. He expressed the view that the deductions under Chapter VI-A of the Act are to be allowed from the total income computed in accordance with the provisions of the Act except Chapter VI-A and that the income from the profits and gains of a business has to be computed under section 29 of the Act after allowing for the deductions provided for in sections 30 to 43A. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the assessee preferred a further appeal to the Income-tax Appellate Tribunal. The Tribunal allowed the appeal filed by the assessee, drawing inspiration from the decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT . The Tribunal held that the gross income of Rs. 3,72,038 should be deducted while computing taxable income under section 80P of the Act. Thereupon, the Revenue applied for and obtained this reference.
3. Sub-sections (1) and (2) of section 80P, in so far as they are relevant, read as follows :
"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 -
(i) carrying on the business of banking or providing credit facilities to its members, or
(ii) a cottage industry, or
(iii) the marketing of the agricultural produce of its members, or
(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or
(v) the processing, without the aid of power, of the agricultural produce of its members, or
(vi) the collective disposal of the labour of its members, or
(vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities."
4. Section 80A(1), which is the first section occurring in Chapter VI-A, says that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in section 80C to 80VV.
5. The expression "gross total income" is defined in clause (5) of section 80B and reads thus :
"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."
6. Sub-section (1) of section 80P provides that where the gross total income of a co-operative society includes any income referable to the activities mentioned in sub-section (2), the whole of the amount of profits and gains of business attributable to such activities shall be deducted.
7. There can be little doubt about the proposition that the words "gross total income" referred to in sub-section (1) of section 80P must be understood as defined in section 80B(5), which means that it is the total income computed in accordance with the provisions of the Act, but before making any deductions under Chapter VI-A or section 280-O. Now, it would be consistent and reasonable to say that the words "whole of the amount of profits and against of business attributable to any one or more of such activities" used in the sub-section (2) must also be understood in the same sense, i.e., as the total income computed in accordance with the provisions of the Act, but before making any deductions under Chapter VI-A or section 280-O. In other words, what is deductible under section 80P is the gross total income attributable to activities of the nature mentioned in sub-section (2) of section 80P, gross total income as defined in section 80B(5). Indeed, this aspect is made clear by Parliament by enacting section 80AB introduced by the Finance (No. 2) Act, 1980, with effect from April 1, 1981. Section 80AB reads as follows :
"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 assessee, 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."
8. And the Supreme Court has explained that section 80AB is merely clarificatory - Distributors (Baroda) P. Ltd. v. Union of India - and that even before its enactment, the position was the same. The Tribunal was, therefore, in error in observing that inasmuch as section 80AB was introduced with effect from April 1, 1981, and because the assessment year concerned herein is anterior to the said date, the definition has no application. Indeed, as explained by us hereinbefore, even without the said definition, that is the reasonable meaning to be placed upon the relevant words. We, therefore, hold that the Tribunal was in error in holding that the entire amount of Rs. 3,72,038 was deductible under sub-section (1) of section 80P. What is deductible is only that portion of the said amount as can be called total income attributable to the said activities as defined in clause (5) of section 80B.
9. We may also point out that the decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT has since been overruled by the Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India .
10. For the above reasons, we answer the question referred to above in the negative, that is, in favour of the Revenue and against the assessee. No costs.