TaxTMI 
TaxTMI 
2001 (7) TMI 71
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....expenses incurred on dissemination of information or demonstration of modem techniques and the methods of agricultural, animal husbandry or dairy or poultry farming or advice on such techniques or methods, is eligible for weighted deduction under section 35C of the Act?" The assessee-applicant is the Union of Co-operative Societies engaged in marketing of milk and milk products. For the assessment years 1977-78 and 1978-79, the relevant previous years are years ended on March 31, 1977, and March 31, 1978, respectively. For the aforesaid two assessment years, the assessee claimed deduction under section 35C of the Act in relation to the following expenses: -------------------------------------------------------------------------- Asst yr. 1977-78 Asst yr. 1978-79 -------------------------------------------------------------------------- Salary of Veterinary Doctors 11,62,120 &nbs....
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....isions of section 35C of the Act and would be eligible for deduction has to be considered. It is pertinent to note that the Tribunal has held, in relation to all these items, that 10 per cent. of the total expenses claimed would be eligible for weighted deduction under section 35C of the Act. According to the Tribunal on an analytical summary of the activities carried out by the assessee, it was found that the assessee was engaged in providing technical services. It further held that the assessee was engaged in supplying material and conducting various operations through its own staff in the designated villages. Thus, according to the Tribunal, the activities carried on by the assessee could not be said to be governed by the provisions of section 35C(1)(b)(ii) of the Act. The Tribunal further observed that 'it may be true that the cattle owners would learn from the operations carried out but that is only incidental." Assailing the aforesaid findings of the Tribunal, Mr. J.P. Shah, the learned advocate for the assessee, submitted that the provision does not envisage any concept of "incidental benefit" and the Tribunal was in error in importing the said concept in its reasoning....
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....ble to state that the same amounted to either dissemination of information on modern techniques, or that they were demonstration of modem methods or that any advice as such was rendered to the cultivators; to the contrary, it was an activity by which the assessee provided certain services which could not be availed of by the cultivator when an establishment like the one the assessee was maintaining was not available. It was, therefore, contended that the Tribunal had rightly stated that the benefit, if any, derived by the cultivator, grower or producer was incidental, inasmuch as as he may learn something by observing the method adopted by the agency of the assessee but would not be in a position to undertake such activity on his own, and therefore, the assessee was not entitled to deduction claimed as it did not fulfil the qualifying criteria. The provisions of section 35C of the Act were introduced by the Finance Act, 1968, with effect from April 1, 1968, and were made applicable only in the case of companies. The provisions were extended to co-operative societies by the Taxation Laws (Amendment) Act, 1975, for and from the assessment year 1976-77. The provisions as they exist....
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....ovided in clause (a) of sub-section (1) of section 35C of the Act, while clause (b) only specifies the goods, services or facilities which have been referred to in clause (a) for ascertaining qualifying expenditure. The requisite conditions are: (1) the assessee should use in manufacture or processing of any article or thing as raw material any product of agriculture, animal husbandry or dairy or poultry farming, (2) the assessee should have incurred expenditure for providing goods, services or facilities after the 29th day of February, 1968, and such goods, services or facilities should be those as specified in clause (b), (3) such goods, services or facilities have to be provided to cultivators, growers or producers of such product in India, (4) the words "such; product" have direct reference to raw material, viz., any product of agriculture, animal husbandry, etc., and such raw material has to be used by the assessee in its manufacturing or processing activities. The section further provides by way of Explanation that in case where a deduction under the section is to be allowed the qualifying expenditure shall be computed after reducing the same by consideration o....
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.... given to seed growers for the purposes of storage, transport and insurance of seeds." The assessee in the present case is a co-operative society engaged in the manufacture or processing of milk and milk products which are made from milk as raw material. Such milk as raw material is derived by it from the person possessing cattle, through the society of which such a cattle owner is a member; the said society in turn is a member of the assessee which is a union of such co-operative societies. The assessee has incurred certain expenditure in the provision of certain goods, services or facilities and it is the assessee's case that the same have been provided to persons who are supplying raw material to the assessee. In so far as these facts are concerned both parties are at ad idem, the only dispute being as to whether the services or facilities provided by the assessee could be said to fall within sub-clause (ii) of clause (b) of sub-section (1) of section 35C of the Act. The provision of goods, services or facilities referred to in sub-clauses (i) and (ii) of clause (b) though apparently seem to fall in entirely different fields, yet are of such nature that there is every likelih....
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.... activi ties on their own and not, otherwise is not borne out from the plain reading of the provision. The Explanation which lays down the mode of computing the eligible amount of expenditure is an inherent indicator to show that it is not necessary that the recipient of services or facilities must himself imbibe the mode or the technique to the extent that the said recipient can himself undertake such activity. If that was the legislative intent it would not have been necessary to provide that the services or facilities should be compensated for and the eligible expenditure should be reduced to the extent of the consideration or compensation received. In the case of the present assessee, it undertakes activities of artificial insemination, cross breeding, etc., which would result ultimately in improving the breed of the milch cattle and as a consequence improve yield both in quantity and quality resulting in better supply of raw material to the assessee. In this situation, it cannot be stated that the purpose for which the section is enacted does not stand fulfilled, because, as stated, once the breed of milch cattle is improved there is development all around in relation to th....