Himachal Pradesh High Court
Lahaul Potato Growers Co-Operative ... vs Commissioner Of Income-Tax on 14 May, 1997
Equivalent citations: [1998]232ITR718(HP)
Author: M. Srinivasan
Bench: M. Srinivasan
JUDGMENT M. Srinivasan, C.J.
1. The question referred to this court reads as follows :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that deduction under Section 80P(2)(a)(iii) is to be allowed against the net income after setting off proportionate expenses for earning the exempt income where such expenses are mixed up with the remaining expenses ?"
2. The assessee is a co-operative society registered under the Co-operative Societies Act. The assessment year is 1982-83 and the corresponding accounting period was from July 1, 1980, to June 30, 1981. The assessee was mainly engaged in the business of earning commission on the sale of potatoes of its members. Before the Income-tax Officer, a claim was made that the income earned from the commission business amounting to Rs. 3,22,697 was entirely exempt. The officer agreed with the assessee, but observed that the expenses incurred for earning the income had to be set off in order to arrive at the net income from the commission business, which alone according to him was exempt from the tax. The Income-tax Officer took note of the fact that the assessee was engaged in multifarious activities and all the expenses incurred by the assessee against the various activities, including commission receipts, were debited to a single profit and loss account. He was, therefore, of the opinion that the expenses for earning the commission of Rs. 3,22,697 were to be calculated on proportionate basis and to the total receipts under various activities and the expenses by applying the said principle. He worked out the proportionate expenses at Rs. 2,88,607, Thus, he arrived at the net income from the commission business at Rs. 34,090 and held that to be the amount exempt under Section 80P(2)(a)(iii) of the Act. That was upheld on appeal by the Appellate Assistant Commissioner. On further appeal by the assessee, the Tribunal agreed with the Income-tax Officer and the Appellate Assistant Commissioner and rejected the appeal. At the instance of the assessee, the above question has been referred to this court by the Tribunal.
3. It is seen from the order of the Income-tax Officer itself that the assessee has been engaged in activities which cannot be said to be incidental or ancillary to the commission business in potatoes. It is seen that the assessee has been using four trucks as public carrier. Besides the assessee has used certain premises owned by it as godowns and collected the rent from the persons, who had taken such godowns on lease. The various heads of the assessee's income are categorised as follows :
(a) Salaries ;
(b) Interest on securities ;
(c) Income from house property ;
(d) Profits and gains of business or profession ;
(e) Capital gains ; and
(f) Income from other sources.
4. By bringing the income of the assessee under the different heads, it was found by the Income-tax Officer as well as the appellate authority that the incomes were mutually exclusive and it is not a case of one activity depending on another for the purpose of being continued.
5. Learned counsel for the assessee places reliance on the judgment of the Supreme Court in CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 1TR 452. The assessee in that case was carrying on business of manufacture of sugar from sugarcane. It owns extensive lands in which sugarcane was grown. The sugarcane grown in those lands was used by the assessee for manufacture of sugar in its factory. The Tribunal has found as a fact that the cultivation of sugarcane and the manufacture of sugar by the assessee constituted one single and indivisible business. It was on the basis of such finding of fact that the court considered the question as to whether the commission paid to the managing agents was exempt from taxation. The facts of the case are thus different from the present case and the principle laid down in that case will not apply in this case.
6. Learned counsel invites our attention to the judgment of the Punjab and Haryana High Court in Punjab State Co-operative Supply and Marketing Federation Ltd. v. CIT [1981] 128 ITR 189. There again the question was considered on the basis of the categorical finding of fact arrived at by the Tribunal that the entire business of the assessee was indivisible. Hence, that ruling will not help the petitioner herein.
7. Learned counsel for the assessee draws our attention to the judgment of the Supreme Court in Broach Distt. Co-operative Cotton Sales, Ginning and Pressing Society Ltd. v. CIT [1989] 177 ITR 418 and contends that the taxation statute must be given a liberal interpretation. But on the facts of the case, it is found by the court that the entire business of ginning, pressing and marketing was comprised in one activity and, therefore, the profits and gains derived from such activity were exempted under Section 81(i)(c) of the Income-tax Act. The general observations made by the court will not help the assessee in the present case in view of the finding of fact arrived at by the authorities concerned.
8. Our attention is drawn to the judgment of the Supreme Court in Waterfall Estates Ltd. v. CIT [1996] 219 ITR 563. While pointing out that no single test can be devised as universal and conclusive in order to determine whether various activities constitute the same or separate business, the court held that the question has to be decided on a consideration of all the relevant facts and circumstances. The court said that some facts may tend one way and some others the other way and an overall view has to be taken and a conclusion arrived at. It is also observed that even if it is found that one or two circumstances among the several circumstances relied upon are not relevant, the finding of fact recorded by the Tribunal cannot be interfered with if there are other relevant circumstances, which sustain the finding.
9. In this case, we find that the Tribunal as well as the other authorities have concurrently found that there are different activities which do not depend upon one another. Hence, the view taken by the Tribunal that the decisions referred to by the assessee, namely, Maharashtra Sugar Mills' case [1971] 82 ITR 452 (SC), and that of the Punjab and Haryana High Court in Punjab State Co-operative Supply and Marketing Federation's case [1981] 128 ITR 189, are not applicable in this case is correct. Consequently, the Tribunal is right in law in holding that the deduction under Section 80P(2)(a)(iii) is to be allowed against the net income after setting off proportionate expenses for earning the exempt income where such expenses are mixed up with the remaining expenses. There is no dispute as regards the working out of the net income on the basis of the rule of proportion applied by the Income-tax Officer. Hence, we answer the question referred to us in the affirmative and hold that the Tribunal was right in law in taking that view.