Commissioner of Income Tax vs Surat Dist. Co-operative Milk Producers'' Union Ltd.

M.B. Shah, J.—The Income Tax Appellate Tribunal, Ahmedabad Bench, has referred the following question u/s 256(1) of the Income Tax Act, 1961 ("the Act", for short), for our opinion :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that the assessee is eligible for relief, u/s 80P(2)(d), of Rs. 93,846 ?"

The assessee is the Surat District Co-operative Milk Producers'' Union Limited. For the assessment year 1976-77, it claimed that interest amount of Rs. 93,846 received from other co-operative societies should be deducted as provided u/s 80P(2)(d) of the Act. The Income Tax Officer rejected the said claim by holding that the ultimate result of the interest amount was a loss and, hence, the gross total income of the assessee did not include any interest income from co-operative societies and, therefore, the assessee did not qualify for relief u/s 80P(2)(d) of the Act. The Commissioner of Income Tax (Appeals) also confirmed the said order. In appeal, the Tribunal referred to and relied upon the decision of the Supreme Court in the case of Cloth Traders (P) Ltd. Vs. Additional Commissioner of Income Tax , Gujarat-I, and held that the deduction was admissible in respect of the whole of the income received by the assessee and not in respect of the income computed after making the deductions as provided under the Act. The Tribunal further held that, considering the ratio laid down by the Supreme Court in Cloth Traders (P) Ltd. Vs. Additional Commissioner of Income Tax , Gujarat-I, what is includible in gross total income is the interest received by the assessee from various co-operative societies and not only the deficit in interest account.

At the time of hearing of this reference, learned counsel for the Revenue pointed out that in the case of Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, the larger Bench of the Supreme Court held that the ratio laid down in the case of Cloth Traders (P) Ltd. Vs. Additional Commissioner of Income Tax , Gujarat-I, was erroneous and wrongly decided. The court referred to and relied upon its earlier decision in the case of Cambay Electric Supply Industrial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad, and observed (at page 140) :

"We find ourselves wholly in agreement with the view taken by this court in Cambay Electric Supply Industrial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad, and we must, therefore, dissent from the interpretation placed on sub-section (1) of section 80M by the decision in Cloth Traders'' case."

For this purpose, the Supreme Court has referred to the following observations from the decision in the case of Cambay Electric Supply Industrial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad, (see also Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, :

"On reading sub-section (1), it will become clear that three important steps are required to be taken before the special deduction permissible thereunder is allowed and the net total income exigible to tax is determined. First, compute the total income of the concerned assessee in accordance with the other provisions of the Act, i.e., in accordance with all the provisions except section 80E; secondly, ascertain what part of the total income so computed represents the profits and gains attributable to the business of the specified industry (here generation and distribution of electricity); and, thirdly, if there be profits and gains so attributable, deduct eight per cent. thereof from such profits and gains and then arrive at the net total income exigible to tax.

As indicated earlier, sub-section (1) contemplates three steps being taken for computing the special deduction permissible thereunder and arriving at the net income exigible to tax and the first two steps read together contain the legislative mandate as to how the total income - of which the profits and gains attributable to the business of the specified industry form a part - of the concerned assessee is to be computed and according to the parenthetical clause, which contains the key words, the same is to be computed in accordance with the provisions of the Act except section 80E and since in this case it is income from business, the same will have to be computed in accordance with sections 30 to 43A which would include section 32(2) (which provides for carry forward of depreciation) and section 33(2) (which provides for carry-forward of development rebate for eight years). In other words, in computing the total income of the concerned assessee, items of unabsorbed depreciation and unabsorbed development rebate will have to be deducted before arriving at the figure that will become exigible to the deduction of eight per cent. contemplated by section 80E(1)."

The court thereafter held (at page 140 of 155 ITR) :

"If this decision lays down the correct interpretation of sub-section (1) of section 80E, the same interpretation must also govern the language of sub-section (1) of section 80M. Structurally, there is hardly any difference between section 80E, sub-section (1), and section 80M, sub-section (1), and the reasoning which appealed to the court in the interpretation of sub-section (1) of section 80E must apply equally in the interpretation of sub-section (1) of section 80M."

With regard to interpretation of section 80P, the decision in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, is followed by the Supreme Court in the case of Sabarkantha Zilla Kharid V. Sangh Ltd. Vs. Commissioner of Income Tax, . Hence, the aforesaid principles would apply in the interpretation of section 80P.

At this stage, learned counsel for the assessee vehemently pointed out that the Tribunal has not applied its mind to the facts of the present case. It is wholly erroneous to state that the amount of Rs. 12,88,360 is referable to interest income of the assessee. For this purpose, he has referred to and relied upon the balance-sheet of the assessee to indicate that the said amount is not referable to interest account but it is interest and bank commission. With regard to interest also, he pointed out that some interest payment would be referable to its business expenditure. He, therefore, submitted that the Tribunal may be directed to work out the exact amount which is referable to section 80P(d) after applying the ratio laid down by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad, and giving an opportunity of hearing to the parties and, if necessary, by giving an opportunity to lead additional evidence on the point in question.

Considering the aforesaid facts pointed out and the law laid down by the Supreme Court in the case of Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, the submissions of learned counsel for the assessee are required to be accepted. Hence, the Tribunal is required to decide the said question on facts after referring to the test and the steps indicated by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad, .

In the result, the question is left unanswered. The Tribunal is directed to decide the question on merits after considering the relevant facts and the law laid down by the Supreme Court. Reference stands disposed of accordingly with no order as to costs.