1982 (3) TMI 186 - AT - Income Tax

Tribunal: Deduction under Section 80P(2)(a)(iv) limited to net profit from member transactions

The Tribunal ruled against the assessee, stating that deduction under Section 80P(2)(a)(iv) is not available for transactions with non-members and should ... Deductions, Income Of Co-operative Societies Issues Involved:1. Whether the deduction under section 80P(2)(a)(iv) is available to the assessee in respect of trading with non-members.2. Whether the deduction has to be granted with reference to the net profit and not the gross profit.Detailed Analysis:Issue 1: Deduction under Section 80P(2)(a)(iv) for Trading with Non-MembersThe revenue contended that the decision of the Tribunal in IT Appeal No. 73 (Nag.) of 1980 was incorrect and required revision. The Commissioner (Appeals) had upheld the assessee's claim that relief under section 80P(2)(a)(iv) was available for all transactions, including those with non-members. The Tribunal had previously concurred with this view.The facts reveal that the assessee, a co-operative society, engaged in various activities, including selling goods to non-members. The assessee claimed deductions under section 80P(2)(a)(iv) for transactions with both members and non-members. The ITO restricted the relief to transactions with members only, but the Commissioner (Appeals) and the Tribunal had allowed relief for all transactions.The Tribunal, in its analysis, noted that section 80P(2)(a) specifies activities eligible for deduction, including the purchase of agricultural implements, seeds, livestock, or other articles intended for agriculture for supplying to members. However, the Tribunal concluded that activities involving non-members should fall under section 80P(2)(c), which refers to activities other than those specified in clause (a) or (b). Therefore, profits from transactions with non-members should be separately determined and not included under section 80P(2)(a)(iv).The Tribunal held that the purpose of the section would be frustrated if profits and gains from all activities were determined under section 80P(2)(a) alone, ignoring other sub-sections. The Tribunal concluded that relief is available only in respect of net income attributable to dealings with members.Issue 2: Deduction with Reference to Net ProfitThe Commissioner (Appeals) had allowed the deduction based on the gross profit, relying on the Supreme Court decision in Cloth Traders (P.) Ltd. v. Addl. CIT, which held that relief should be given on the gross income. The Tribunal, however, noted the difference in wording between section 80M and section 80P. Section 80M refers to the gross total income including income by way of dividends, whereas section 80P(2) refers to the amounts of profits and gains attributable to specific activities.The Tribunal emphasized that 'gross total income' as defined in section 80B(5) means the total income computed in accordance with the provisions of the Act, before making any deduction under this Chapter. Therefore, the total income requires deduction of overhead expenditure from the gross profit before arriving at the total income. The Tribunal concluded that relief is available only on the net income attributable to dealings with members.Additional Considerations:The Tribunal also addressed the manner in which the assessee claimed relief, noting that the criteria of allowing relief based on whether sales to members exceeded 50% was not scientific. The Tribunal directed the ITO to re-work the relief due to the assessee under section 80P(2)(a)(iv) and also give relief under section 80P(2)(c).Conclusion:The Tribunal answered the questions as follows:- Question No. 1: In the negative.- Question No. 2: Deduction has to be granted with reference to the net profit.The departmental appeal was allowed, and the ITO was directed to re-work the relief correctly.