TaxTMI 
TaxTMI 
2016 (12) TMI 237
X X X X Extracts X X X X
X X X X Extracts X X X X
....nue and Shri Ashok Kulkarni, learned Counsel for the respondent. 3. Submissions on behalf of appellant/Revenue: i) Respondent is a Co-operative Society registered under the provisions of the Karnataka Co-operative Societies Act, 1959. Its objects are enumerated in Chapter IV of the Bye-laws of the Society; ii) All members of the Society shall be owners of land (Agar) upon which salt is manufactured. They are called as 'Maliks'. The principal aim and object of the Society was inter alia to acquire Maliks' rights over their lands and to manufacture salt and its by-products; iii) Pursuant to its objects, Society took over manufacturing rights of members over their individual pieces of lands (Agar); iv) Society acquired and installed necessary plants and machinery to manufacture salt and its by-products; v) Salt is manufactured and sold by the Society itself. A large portion of sale proceeds are transferred to an account called 'Distribution Pool Fund Account' and paid to its members commensurate with their land holding. The remaining income is offered to tax; vi) On 25.10.2006, Society filed return of income for the assessment year 2006-07 by returning a sum of Rs. 1,19,2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed and read in isolation to hold that the income generated was the income of the appellant-assessee. The said order was unsuccessfully challenged before the ITAT. Feeling further aggrieved, Revenue has preferred this appeal. 4. Assailing the orders passed by both the CIT (Appeals) and the ITAT, learned Standing Counsel for the Revenue contended that a combined reading of Society's Bye-laws 4(a), (b), (c), (d) & (k) clearly indicates that the Assessee-Society had indeed acquired salt manufacturing rights from Maliks, who are the members of the Society. Plant and machinery have been installed by the Society. The final product namely, the Salt and the by-product are admittedly sold by the Society. Therefore, it is clear that entire activity of manufacture and sale is undertaken by the Society. Hence, Society was not justified in deducting fund transferred to 'Distribution Pool Fund Account' as expenditure. 5. He further contended that assessee was required to file an audit report under Section 44AB of the Act. But, the Chartered Accountant refused to answer the questions posed by the assessing authority. He also hesitated to submit a categorical reply with regard to the transfer of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l Body Meeting as prescribed in clause 35(c) of the Bye- Laws; v) A combined reading of clauses 58(g), (j) & (l) clearly suggests that the purpose of forming the co-operative Society was only to manufacture Salt collectively. The ownership of the Salt to the extent of individual member's share remained with the respective member alone as members were permitted to raise loan proportional to their interest in the 'Agar' as per clause 80 of the Bye - laws; and vi) Therefore, the Society was justified in transferring the funds to the Pool for further distribution among the members. This practice was in vogue for several years and to be precise, even prior to the Karnataka Co-operative Societies Act coming into force. Therefore, the notice under Section 148 of the Act and all further proceedings thereon by the Assessing Authority are not only misconceived but also hit by doctrine of res judicata; 9. Thus, supporting the impugned order, Shri Kulkarni argued that, what is taxable is the income of the Society and the same is defined in Chapter-XVI of the Bye-laws. Society earns its income from levy of commission, collection of interest on loans, collection of rents, and collection of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lt owners holding small units, have suggested that a merger of the salt works either under Government control or preferably under a Co-operative Society appears to be the only remedy for saving these works as otherwise they are bound to be extiniquished because of their uneconomic size, unfavourable climatic conditions etc. and whereas, the salt owners at the Extra-Ordinary General Meeting of their Association held on the 17th February 1952 having resolved to form a Co-operative Society of the salt owners' for the manufacture of salt on a co-operative basis, the following Byelaws have been framed and adopted by the Salt Owners' at the meeting of their Association held on 8th May 1952 for the formation of such a co- operative Society. This Society was registered on 17-9-1952 and the byelaws adopted subject to certain amendments on 2nd October 1952. These byelaws were further amended in view of the Karnataka Co-operative Societies Act 1959 in the Special General Meeting held on 19-9-1979." (emphasis supplied) 13. The words 'Malik' and 'Agar' are defined in Chapter-III of the Bye-laws and they read as follows: ""Malik" - means a person owning jointly or severally jointly or havin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....u) spells out the 'precise understanding' or the contract between the Society and its members, whereunder the Society is entitled to recover all manufacturing expenses. 16. Thus, a combined reading of the preamble to the Bye - laws and salient objects noted supra, lead to an irresistible inference that the Society was formed to save individual salt manufacturers from extinction as per the advise tendered by the Salt Expert Committee. The very fact that the Bye-laws permit the Society to recover the 'manufacturing expenses' and 'other dues' from its members is a sufficient and a robust indication that the ownership of the Salt to the extent of their respective share of each individual member continues to remain with the respective member himself. This inference is fortified by Clause 80 of the Bye - laws, which permits the members to raise loan on the 'security' of their proportional interest in the 'Agar' and 'Salt produced'. 17. Income of the Society is defined in Chapter-XVI of the Bye-law, which reads as follows:- "The income of the Society shall be : (a) by levy of commission on manufacture on sale of salt and byproducts on behalf of members. (b) by collection of intere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Society. We have perused the said Judgment. The relevant portion reads as follows:- "................ In our view a deed is to be read and construed as a whole and, if possible, effect should be given to all parts thereof. In other words, the general intention is to be collected from the instrument as a whole and that intention should be inferred from the general form of the deed. See Odger's Construction of Deeds and Statutes, fifth edition, page 55. This would be more so when a deed is to be construed reasonably. The way in which the learned counsel for the revenue wants us to read the deed would amount to deletion or not giving effect to a part of the deed which represents the intention of the parties to the deed. Unless a part of a deed is so inconsistent with the rest of it that no effect can be given to it, that part should be read and given effect to while construing a deed. Further, while construing a deed, one should bear in mind the principle of construction as stated in Odger's Construction of Deeds and Statutes, fifth edition, at page 54. It is stated thus: "The law is anxious to save a deed if possible. This is sometimes expressed in the maxim utnes magi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable." (emphasis supplied) 22. Learned Counsel has also placed reliance on the Division Bench Judgment of our High Court in the case of Commissioner of Income - Tax v. Pompei Tile Works reported in 175 ITR 1(Kar) which has also followed the judgment of the Hon'ble Supreme Court in Sitaldas's case. 23. He has also relied upon Tuticorin Alkali Chemicals & Fertilizers Ltd v. CIT, to advance an argument that the accounting practices cannot over-ride the true intent and a case has to be decided on principle of law. 24. The next ruling cited is Commissioner of Income- Tax and another v. Ramakrishna Nursing Home reported in (2009) 313 ITR 290 (Karn). Learned Counsel for the assessee submitted that in the said case the panel of visiting Doctors collected their fee directly though they were practising in the same Nursing Home. The Division Bench of this Court dismissed the appeal filed by the Rev....