TaxTMI 
TaxTMI 
2006 (4) TMI 188
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....)4,47,67,417 Income from other sources Intt. from commercial banks 53,28,465 Intt. from co-operatives 7,95,37,491 Income from sale of seeds 13,07,161 Capital grant written off 84,58,496 9,46,31,613 Gross total income 4,98,64,196 Less deduction under section 80P(2)(d) 4,98,64,196 Balance taxable income Nil" As per the note given on the computation of income chart, it was claimed by the assessee that the interest income earned from cooperative societies amounting to Rs. 7,95,37,490 was eligible for deduction Under Section 80P(2)(d) but the claim was restricted to the net income determined above at Rs. 4,98,64,196. On scrutiny of accounts, the AO was of the view that interest earned by the assessee from the cooperative societies was not on account of investment by way of debentures/securities or shares in another cooperative society but was business receipt arising out of business transactions of advancing funds for day-to-day running of the business activities of the District Milk Unions. The Assessing Officer acc....
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....o the Counsel, in the present case, the assessee is not claiming exemption in respect of any income. Deduction Under Section 80P(2)(d) is claimed by the assessee out of the income included in the gross total income. Reliance was placed on the decision of Supreme Court in the case of Rajasthan State Warehousing Corporation v. CIT 242 ITR 450(SC), in which their Lordships have held that where a part of income is exempt and if the business of the assessee is one and indivisible expenditure cannot be apportioned and the part relating to income which is exempt cannot be disallowed. It was accordingly pleaded that deduction may be allowed Under Section 80P(2)(d) to the assessee in respect of the gross receipts of interest. 7. The ld. D.R., on the other hand, contended that assessee is not entitled to deduction Under Section 80P(2)(d) insofar as deduction is permissible under the said section in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other cooperative society. According to the Id. D.R., the assessee had provided advances to the cooperative societies in the normal course of business and no investment was mad....
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....rest Plantations Corporation. Ltd. v. CIT 156 ITR 275(Kar.). iv) Saharanpur Light Railway Co. Ltd. v. CIT 208 ITR 882 (Cal.). v) Rajasthan State Warehousing Corporation v. CIT 242 ITR 450 (SC). 8. In counter reply, the Id. Counsel for the assessee relied upon the following decisions in support of the contention that proportionate expenses are not to be deducted in computing the deduction permissible under Chapter VIA- i) ITA No. 17/Chandi/03, A.Y. 92-93 ITO Wd. 4(1), Chandigarh v. Punjab State Federation of Coop. Sugar Mills Chandigarh & ITA No. 307Chandi/03, A.Y. 92-93 Punjab State Federation of Coop. Sugar Mills, Chandigarh v. ITO Wd.4(1), Chandigarh. ii) ITA No. 79/Chandi/04, A.Y. 2000-01, Punjab State Co-operative Supply & Marketing Federation Ltd., chandigarh. v. ACIT Cir.4(1), Chandigarh. It was accordingly pleaded that appeal of the assessee may be dismissed. 9. We have given our careful consideration to the rival contentions. There are two issues involved in this appeal - first issue is as to whether the assessee is entitled to deduction Under Section 80P(2)(d) in respect of interest on advances to the cooperative societies in th....
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....ederation Ltd. (supra), in our view, is applicable to Section 80P(2)(d) on all-fours. In the said decision, their Lordships of the Supreme Court explaining the meaning of the word "investments" A.P.r Section 14(3)(iii), held as under "Investment" has not been defined in the Act. P. Ramanatha Aiyar's Law Lexicon (Reprint Edition 1987) states: The term 'invest' is used in a sense broad enough to cover the loaning of the money but is not restricted to that mode of 'investment' or loans made on commercial paper. The word 'invest' has been judicially defined a follows: To place property in business; to place so that it will be Safe and yield a profit. It is also commonly understood as giving money for some other property (as) investing funds on lands and houses. Investment" means, in common parlance, putting out money on interest, either by way of loan, or by purchase of income producing property.... It is thus evident that on the basis of the decision of the Hon'ble Supreme Court, the advances made by the assessee to the member cooperative societies for the purpose of procurement of milk etc. in the course of its bu....
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....anta Cooperative Sugar Mills Ltd., Bhopur, (supra) was whether on the facts and in the circumstances of the case, the ITAT is right in law in upholding the CIT(A)'s order allowing deduction Under Section 80P(2)(d) of the Income-tax Act, 1961 in respect of interest of Rs. 1,40,203 from Jalandhar Central Co-operative Bank without setting off interest of Rs. 6,72,776/- paid to the same bank. 13. The issue involved in the present appeal is as to whether deduction Under Section 80P(2)(d) of the Income-tax Act, 1961 is permissible to the assessee in respect of the gross interest received from member cooperative societies or net interest computed in accordance with the provisions of the Act This issue was neither raised nor decided by the Hon'ble High Court. We will therefore consider this issue in the light of the provisions of the Act. 14. It will be pertinent to mention that the deduction claimed by the assessee Under Section 80P(2)(d) falls under Chapter VIA of the Income-tax Act, 1961 dealing with deductions to be made in computing the total income. Section 80P(2)(d) reads as under: 80P.(1) Where, in the case of an assessee being a cooperative society, the gros....
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....VIA: The opening words of Section 80M, viz., "Where the gross total income of an assessee ...includes any income by way of dividends from a domestic company" describe the condition which must be fulfilled in order to attract the applicability of the provision contained in Section 80M. The condition is that the gross total income of the assessee must include income by way of dividends from a domestic company. "Gross total income" is defined in Section 80B, Clause (v), to mean "total income computed in accordance with the provisions of the Act before making any deduction under Chapter Vl-A or Section 280-O". Income by way of dividends from a domestic company included in the gross total income would, therefore, obviously be income computed in accordance with the provisions of the Act, that is, after deducing interest on monies borrowed for earning such income. If income by way of dividends from a domestic company computed in accordance with the provisions of the Act is included in the gross total income, or in other words, forms part of the gross total income, the condition specified in the opening part of Sub-section (1) of Section 80M would be fulfilled and the provision en....
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.... Supreme Court in the case of Sabarkantha Zilla Kharid Vechan v. CIT 203 ITR 1027 . In the said case, the assessee, a cooperative society, engaged in the business of purchase of agricultural implements, seeds, livestock and other articles, intended for supply to members as well as to non-members. For assessment year 64-65, 65-66 and 66-67, the assessee Claimed exemption from income tax Under Section 80(i)(d) of the Income-tax Act, 1961 on the gross profits and gains of business with its members. But the ITO granted relief only on the net amount as was includible in the computation of total income Under Section 110, since the income exempted Under Section 81(i)(d) was to be included in its total income as required by Section 66. For the first two years, the Appellate Tribunal accepted the claim of the assessee but for the third year the Tribunal rejected the claim and upheld the ITO' order. On reference, the High Court held, rejecting the claim of the assessee, that the only way of working out the scheme of provisions of Section 81(i)(d) in the light of Sections 66 and 110 was first to calculate the total income and the income tax thereon and secondly to ascertain the net profit....
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....nd gains of the cooperative society's business, as contended on behalf of the assessee or with reference to the net amount of profits and gains of the co-operative society's business, as otherwise computable under the provisions of the Income-tax Act for the purpose of charging income-tax thereon, as contended on behalf of the Revenue. If the relevant provisions of the Income-tax act providing for charging a person including a co-operative society with income-tax on "profit and gains" of such person's business show that it is the net profits and gains, i.e., income of such business computed in accordance with the provisions of the Income-tax Act, it must flow therefrom, as a necessary corollary thereof, that the "profits and gains" for which exemption from income-tax is envisaged under Section 81(i)(d) of the Income-tax Act, ought to be net profits an gains, i.e. income of business computed in accordance with the provisions of the Income-tax act which is includible in such person's total income for charging income-tax thereon. This situation requires us to advert to such of the relevant provisions of the Income-tax Act, which could be of assistance to us in resolvin....
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....introduced in the Income-tax Act by the Finance (No. 2) Act, 1980, with effect from April 1, 1981, was adverted to by his Lordship to buttress the view so taken, in that it read (at page 588 of 175 ITR): X X X Hence, the view taken by the Andhra Pradesh High Court on the scope of Section 80P: of the Income-tax Act which had replaced Section 81 of the Income-tax Act, fully supports the view we have already expressed on the "income exemption" of profits and gains of a business of a co-operative society as envisaged under Section 81 of the Income-tax Act read in conjunction with Sections 66 and 110 thereof. It is, therefore, evident that the issue relating to deduction Under Section 80P is also covered by the aforementioned decision of the Hon'ble Supreme Court. We respectfully applying the above principle of law hold that deduction Under Section 80P(2)(d) is permissible to the assessee on the net component of interest computed in accordance with the provisions of the Act. 16. It is also pertinent to mention that Section 14A has been incorporated in the Income-tax Act, 1961 by the Finance Act, 2001 with retrospective effect from 1.4.72. The said section rea....
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....usly used the words total income' in contrast to 'gross total income' in Section 14A. Therefore, for the purpose of attracting provisions of Section 14A, one will naive to consider as to whether the income specified Under Section 80P2(d) is included in the "total income" or not. Admittedly, the income referred to in Section 80P(2)(d) is included in the gross total income but once the said income is excluded by virtue of Section 80p(2)(d) it no longer can be said to be included in the total income. Since deduction Under Section 80P(2)(d) is allowed to the assessee out of the gross total income, the income described in Section 80P(2)(d) no longer is included in the total income notwithstanding the fact that the said income is included in the gross total income. We accordingly hold that Section 14A is applicable even in respect of the incomes which are excluded from the total income by virtue of deductions under Chapter VIA. This view gets further support from the prescribed form of return of income. Sl. No. 18 provides for the gross total income, Sl. No. 19 provides for deductions under Chapter VIA and Sl. No. 20 provides for the total income. It is therefore, evident tha....