AI Drafter 
TaxTMI 
TaxTMI 
2016 (4) TMI 827
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....ue and Shri Ashok Kulkarni, learned Counsel for the respondent. 3. Shri Y.V.Raviraj has presented his case with following submissions: (i) Respondent is a Co-operative Society registered under the provisions of the Karnataka Co-operative Societies Act, 1959. The aims and objects of the Society are mentioned in detail in Chapter IV of the approved Bye-laws of the Society; (ii) The members of the Respondent-Society are 'Maliks' who are owners of land (Agar) on which salt is manufactured. The Society was formed inter alia to acquire from the 'Maliks' the rights and to manufacture salt and its by-products; (iii) In terms of the Bye-laws and other arrangements, the individual pieces of lands belonging to the members vested with the Society. Society purchased and installed necessary plants and machinery to manufacture salt and other by-products; (iv) Society manufacturs and sells salt and other by-products. The sale proceeds were being transferred to an account called 'Distributable Pool Fund Account' for distribution among the members of the Society. After such transfer, the Society would offer remaining income to tax; ....
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....1,889/-; (viii) On appeal by the Assessee, the first Appellate Authority namely, the Commissioner of Income Tax (Appeals), by his common order dated 2.4.2014, placing reliance on the judgment of the Hon'ble Supreme Court in the case of M/s. Radhasoami Satsang, Saomi Bagh, Agra v. Commissioner of Income Tax reported in (1992)1 SCC 659 allowed the appeal in part by holding that the Bye-laws cannot be segregated and read in isolation to hold the income generated was the income of the appellant-Assessee. The said order was challenged before the Income Tax Appellate Tribunal, Panaji Bench ('ITAT' for short) and the same stood dismissed by the impugned order. Hence, this appeal. 4. Assailing the legality and correctness of the orders passed by both the First Appellate Authority and the ITAT, Shri Y.V. Raviraj, vehemently contended that a plain reading of Bye-laws and particularly Bye-laws 4(a), (b), (c), (d) & (k) would make it amply clear that the Assessee-Society had acquired 'Maliks' rights to manufacture salt from the members. Society had also installed suitable plant and machinery to manufacture salt and its by-product. It is not in dispute that the e....
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....selling salt and its by-products after acquiring 'Maliks' rights from its members. 7. In sum and substance, learned Counsel for the Revenue submitted that this is a case in which the Assessee-Society being a juristic person was carrying on the business both 'manufacturing' and 'selling' salt and its' by-products. It was transferring funds to the Distribution Pools Fund and offered only the remaining income to tax. Therefore, the orders passed by the CIT and ITAT are unsustainable in law and deserve to be set aside. Accordingly, he prayed for allowing this appeal. 8. Per contra, Shri Ashok A.Kulkarni, learned Counsel for the Assessee-Society supporting the impugned judgment of the ITAT submitted that the Assessee-Society came into existence, pursuant to the orders passed by the Government of India, on the advise of the Salt Expert Committee. The said Salt Expert Committee having foreseen the difficulties of individual holders of small units had suggested that a merger either under the Government control or preferably under a Co-operative sector appeared to be a sole remedy to save them of their uneconomical size and unfavourable climatic conditions.....
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....e and instal suitable plant or any other machinery required in connection with the manufacture of salt and by-products or any subsidiary works undertaken. (l) to pay on behalf of the members the assessment and mulgeni rent in respect of the individual areas included in the salt works which will be a first charge on a produce of the individual members. (q) to sell the salt and by-products either directly or through agents." 12. Chapter-VI deals with the membership and shares. In terms thereof, no person other than a 'Malik' defined in Bye-law No.3 can be admitted as a member. Chapter-VIII deals with General Body Meeting, Chapter-X with the Supervising Council and Chapter-XI with the Managing Committee. In terms of Chapter XIII, a Chairman, a Vice Chairman and a Manager shall be the officers of the Society. Under Clause-75, these officers are subject to control of the Managing Committee. Chapter- XVII deals with expenses. It is noticed that deduction towards depreciation of machinery, building, etc. as determined in accordance with the expert advise is described under the head 'expenses'. The General Body is authorised to distribute the 'net p....
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....now and then to the disadvantage of the assessee. But in the instant case, it is for the first time that the Revenue has issued a notice under Section 147 of the Act and adjudicated after hearing the Assessee- Society. 16. Learned Counsel for the Assessee-Society has placed reliance on the following judgments in support of his contentions: 1. Commissioner of Agricultural Income Tax v. M.L.Bagla [1971] 80 ITR 173: Placing reliance on the following portion of the above judgment at page 175; ......... "The High Court, agreeing with the view, observed that the association of individuals holding property was liable to tax only if it held the lands as an owner, trustee, receiver, administrator or executor or in many other capacity recognised by law." learned Counsel for the Assessee contended that admittedly, the Society was not holding the land/s in question in its capacity as either an owner or a trustee, receiver, administrator or executor referred to in the above passage. Therefore, the ratio of the said judgment is squarely applicable to the facts of this case. Consequently, the appeal filed by the Revenue deserves to be rejected. The facts in the above case are....
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....avour of the Assessee. In contrast, in the instant case, for the assessment year 2007-08 the Society has transferred a sum of Rs. 1,56,71,462.51 to the Distributable Pool Fund Account and filed a return showing Rs. 1,20,170/- as carried forward loss and computed the income as NIL. There is no material on record placed by the Assessee either before the Assessing Authority, the Appellate Authority or before this Court which would demonstrate that the sum of Rs. 1,56,71,462.51 which was transferred to Distributable Pool Fund Account for distribution among the members of the Society was offered to tax. Therefore, the ratio of the said judgment cannot be made applicable to the facts of this case. 4. Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. Commissioner of Income Tax, reorted in (1997) 227 ITR 172: Learned Counsel for the assessee has relied upon following two sentences in the said judgment to substantiate his argument: "it is difficult to follow this reasoning. If a person borrows money for business purposes but utilises that money to earn interest, however temporarily, the interest so generated will be his income. This income can be utilised by the Assessee i....