Commissioner of Income Tax vs Vidarbha Co-operative Marketing Society Ltd.

V.A. Mohta, J.—The Commissioner of Income Tax had applied to the Tribunal u/s 256(1) of the Income Tax Act for making a reference to the High Court on the following six questions :

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in upholding the order of the Commissioner of Income Tax (Appeals), Nagpur, allowing the deduction of Rs. 39,09,850 u/s 80P(2)(a)(iv) of the Income Tax Act, 1961 ?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the assessee was entitled to deduction u/s 80P(2)(a)(iv) in respect of the sale of commodities to non-members ?

(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in placing the onus on the Department of indicating the basis for ascertainment of the intention of the assessee under the provisions of section 80P(2)(a)(iv) of the Act at the time of the purchase of eligible commodities ?

(4) Whether the Tribunal was correct in rejecting the contention of the Department that the intention of the assessee under the provisions of section 80P(2)(a)(iv) at the time of purchase of eligible commodities should be, in the absence of any other evidence, inferred with reference to their ultimate sale either to members or non-members ?

(5) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in granting deduction of the entire gross profit arising from the business attributable to the activities specified in section 80P(2)(a)(iv) instead of confining such relief to the net profit arrived at by deducting the proportionate expenditure from such gross profit ?

(6) Whether the assessee was entitled to deduction u/s 80P(2)(a)(iv) of the Income Tax Act, 1961 ?"

The Tribunal allowed the application, but partially and referred the following two questions :

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the assessee was entitled to deduction u/s 80P(2)(a)(iv) in respect of the sales of commodities to non-members ?

(2) Whether the Tribunal was correct in rejecting the contention of the Department that the intention of the assessee under the provisions of section 80P(2)(a)(iv) at the time of purchase of eligible commodities should be, in the absence of any other evidence, inferred with reference to their ultimate sale either to members or non-members ?"

The Revenue has taken out a notice of motion as far back as in December, 1981, for a direction to the Tribunal to refer certain questions of law arising out of the very order. Before us, a notice of motion is pressed only with relation to question No. 5 in the original application, viz. :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in granting deduction of the entire gross profit arising from the business attributable to the activities specified in section 80P(2)(a)(iv) instead of confining such relief to the net profit arrived at by deducting the proportionate expenditure from such gross profit ?"

By consent of parties, the notice of motion is also heard along with this reference.

The basic facts are :

The assessee, Vidarbha Co-operative Marketing Society Ltd., Nagpur, is a co-operative society duly registered under the Maharashtra Co-operative Societies Act. It carried on the business of purchase of agricultural implements, seeds, livestock and other articles intended for agricultural purposes, for the purposes of supplying them to its members. It also supplied such articles to non-members. For the assessment year 1976-77, it claimed deduction u/s 80P(2)(a)(iv) of the Income Tax Act of the entire profit attributable to the dealings in such commodities. The Tribunal held that law granted exemption to its income in respect of commodities purchased for the purposes of supplying them to its members and, hence, what was material in the matter was the original intention of the assessee at the time of making the purchases and not how the commodities were ultimately disposed of. Upon that view, the Tribunal upheld the claim of the assessee in respect of gross income (without deducting proportionate expenditure) arising out of sales of commodities the bulk of which were sold to members. The original intention was ascertained on the basis of the proportion of sales to members and vice versa.

In the identical case of COMMISSIONER OF Income Tax Vs. NAGPUR ZILLA KRISHI AUDYOGIK SAHAKARI SANGH LTD., (income tax Reference No. 96 of 1982, decided on September 11, 1992) we have held that :

(i) profits and gains of business attributable to actual sales to members belonged to the exempted category of income u/s 80P(2)(a)(iv) - irrespective of the original intention at the time of purchase which is impossible to find out in case of societies which carry on even other business.

(ii) "profits and gains" contemplated under the provisions means income as computed u/s 29 of the Act and hence the whole profit without computation is not entitled to be deducted.

In view of the said decision, the two referred questions are answered as under :

(i) Question No. 1 - In the negative and in favour of the Revenue.

(ii) Question No. 2 - Not necessary.

This takes us to the consideration of the notice of motion. As indicated earlier, even the question sought to be referred as a question of law is answered by us in favour of the Revenue in the said decision. Therefore, the normal course to follow was to make the notice of motion absolute and direct the Tribunal to state the case and refer the said question. However, Shri Chandurkar, learned counsel for the Revenue, submitted that taking into consideration the fact that the said question arising against an identical background has already been answered and no further statement of case from the Tribunal is necessary to be called for, the empty formality of calling for a reference from the Tribunal need not be performed, and the answer to the question be straightaway recorded and the chapter be closed.

The course suggested, though non-conventional, deserves acceptance for the reasons that follow :

The point stands concluded in favour of the Revenue. The matter pertains to the assessment year 1976-77. The date of application for reference is October 24, 1981. We are hearing this reference after a long period of 11 years. No one knows as to when the reference will be made by the Tribunal, when the next Tax Bench will be constituted at Nagpur and when the mere formality of recording the answer to the question will be performed. Calling for a further statement of case is not at all necessary. Hence, there is no point in subjecting the parties to a second round of avoidable litigation only for the sake of procedure. In view of the changed conditions arising out of the ever increasing and unbearable burden of cases upon the courts and Tribunals, our notions and attitudes towards procedural provisions must be, to borrow the words of Justice Holmes, "washed with cynical acid". Indeed, the existing procedural system of reference u/s 256 of the Income Tax Act is completely outdated and counter-productive. Time has come to streamline the procedure, but that is a different part of the story. Suffice it to say that in this matter this drudgery be not gone into. We, therefore, proceed to record the answer to the question without calling for the statement from the Tribunal.

We may notice at this stage that in the case of State of Orissa v. Mahabir Prasad Agrawalla [1990] 79 STC 163, the High Court of Orissa had also adopted a similar course though in the context of the provisions for reference under the Orissa Sales Tax Act, 1947.

Shri Dewani, learned counsel for the assessee, has submitted that in view of the following decisions, such a course, though desirable, may not be permissible :

(i) Commissioner of Income Tax, Punjab Vs. Jai Parkash Om Parkash Company Ltd., , (ii) Commissioner of Income Tax, Ernakulam Vs. Managing Trustee, Jalakhabai Trust, and (iii) ROSHAN DI HATTI Vs. COMMISSIONR OF Income Tax, NEW DELHI., .

None of these cases pertained to a notice of motion taken out in a pending reference for calling upon the Tribunal to refer a question of law which stood concluded against an identical factual background by a decision of the jurisdictional High Court and calling for an additional statement of case was not at all necessary.

We must notice that at one stage, it was in passing submitted by Shri Dewani that in view of the decision of the Supreme Court in Commissioner of Income Tax, Bombay Vs. Maharashtra Sugar Mills Ltd., Bombay, an additional statement of case by the Tribunal may be necessary. We do not think that this submission was seriously made. Perhaps it was made only to dissuade us from adopting this unusual course.

The original question No. 5 in the application is answered in the negative and in favour of the Revenue.

No order as to costs.