SONEPAT CO-OPERATIVE MARKETING SOCIETY LTD. vs INCOME TAX APPELLATE TRIBUNAL and Others

ASHOK BHAN, J. :

Assessee-petitioner (hereinafter referred to as the assessee) has filed this petition under s. 256(2) of the IT Act, 1961 (hereinafter referred to as the Act) for a direction to the Income Tax Appellate Tribunal, Delhi Bench, New Delhi, (here in after referred to as the Tribunal) to refer the following question of law to this Court stated to be arising from the order of the Tribunal dt. 25th May, 1990 (Annexure P4) :

"Whether, on the facts and in the circumstances of the case, the amount to be deducted under s. 80P(2)(a)(iv) of the Act, is the gross income from sale of fertilisers to its members or whether proportionate expenses are to be reduced from such income before allowing the said deduction ?"

Assessee is a Co-operative Marketing Society engaged in the sale of agricultural produce to its members and is providing agricultural inputs to its members and also to others. It also procures foodgrains on behalf of Governmental agencies. For the asst. yr. 1982-83, assessee filed its return of Income Tax of Rs. 31,200 after claiming exemption under s. 80P(2)(a)(iv) on the gross income of Rs. 2,00,900 on account of sale of fertilisers to its members. As the assessee was not maintaining separate account of expenses incurred for sale of fertilisers to its members, the ITO asked the assessee to work out proportionate expenses for such sales. Proportionate expenses came to Rs. 77,400 and the ITO after reducing the gross income of Rs. 2,00,900 by the proportionate expenses of Rs. 77,400 allowed a deduction of Rs. 11,30,500 under s. 80P(2)(a)(iv).

Before the ITO assessee had claimed exemption in respect of full income for sale of fertilisers to its members. ITO was, however, of the view that though under the provisions of s. 80P(2)(a)(iv) the income on account of sale and purchase of articles intended for agricultural use of the members is exempted but the word income meant the income incurred (earned) by the assessee after deducting the expenses incurred for earning the said income. Thus, according to the ITO, the gross income was not exempted under s. 80P(2)(a)(iv).

CIT(A) confirmed the order of the ITO on this point against which assessee filed an appeal before the Tribunal. Contention raised before the Tribunal by the assessee was that while computing deduction under s. 80P(2)(a)(iv) no proportionate deduction from the gross profit earned from the sale of fertilisers to the members of the assessee-society should have been made and that exemption under s. 80P(2)(a)(iv) was allowable on gross profit earned from sale of fertilisers to its members. In support of this contention reliance was placed on a decision of this Court in Punjab State Co-operative Supply and Marketing Federation Ltd. Vs. Commissioner of Income Tax, .

On behalf of the Department, it was submitted before the Tribunal that while computing the deduction under s. 80P(2)(a)(iv) its net profit from sale of fertilises to the members has to be taken into consideration and not the gross profit. In support of this contention attention was invited to the provisions of s. 80AB which came into force w.e.f. 1st April, 1981, and was applicable to the assessment order under consideration. Reliance was also placed on the decision of the Supreme Court in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, .

Tribunal held that s. 80AB lays down that where any deduction is required to be made under any section in Chapter VI-A 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, 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 the Act (before making any deduction under Chapter VI-A) shall alone be deemed to be the income of that nature which is derived or received by the assessee and which is included in its gross total income. It was held that provisions of s. 80AB made it abundantly clear that exemption or deduction under s. 80P(2)(a)(iv) is to be made in respect of net income falling under that section and not of gross income as was the assessees case. For this, reliance was placed upon a decision of the Supreme Court in Distributors (Baroda) P. Ltd.s case (supra). Tribunal further held that decision of the Punjab & Haryana High Court in Punjab State Co-operatives case (supra) does not support the assessees case that deduction under s. 80P(2)(a)(iv) is allowable on gross profit and not on net profit. Tribunal, therefore, held that in the instant case the expenditure attributable to the earning of profit from fertilisers to the members amounted to Rs. 70,400. Proportionate expenditure was deducted from gross profit for the purpose of allowing deduction under s. 80P(2)(a)(iv).

Tribunal declined to refer the question claimed by the assessee to this Court for its opinion on the premise that controversy in question stands concluded in favour of the Revenue by the decision of the Supreme Court in Distributors (Baroda) P. Ltd.s case (supra) and, therefore, no referable question of law arose from the order of the Tribunal.

Counsel for the parties have been heard.

Point in issue is squarely covered in favour of the assessee by the judgment of this Court in Punjab State Co-operatives case (supra) which fully covers the controversy in question. Against this decision Department had filed SLP (Civil) Nos. 10321 and 10322 of 1980 which were dismissed by the Supreme Court on 8th June, 1983. It was held that where the assessee incurred expenses in the course of business and some of its income was not liable to Income Tax but the business was individual, the whole of expenses had to be allowed. In Distributors (Baroda) P. Ltd.s case (supra) interpretation of s. 80M(1) of the Act which deals with deductions in respect of certain inter-corporate dividends which is not under consideration in the present case. The two subsequent judgments of Rajasthan High Court in Kota Co-operative Marketing Society Ltd. Vs. Commissioner of Income Tax, and COMMISSIONER OF Income Tax Vs. RAJASTHAN RAJYA SAHKARI UPBHOKTA SANGH LTD., do support the contention raised by the counsel for the Revenue. Rajasthan High Court has placed reliance upon the judgment of the Supreme Court in Distributors (Baroda) P. Ltd.s case (supra). There is no subsequent judgment of this Court after the decision of the Supreme Court in Distributors (Baroda) (P) Ltd.s case (supra). Final opinion is not to be given at this stage and the only point to be considered is as to whether a question of law arises from the order of the Tribunal or not. In view of the decision of this Court in Punjab State Co-operatives case (supra) in our opinion a question of law does arise from the order of the Tribunal.

Accordingly we direct the Tribunal to refer the following question of law along with the statement of the case for the opinion of this Court :

"Whether, on the facts and circumstances of the case, the amount to be deducted under s. 80P(2)(a)(iv) of the Act, is the gross income from the sale of fertilisers to its members or whether proportionate expenses are to be reduced from such income before allowing the said deduction ?"