TaxTMI 
TaxTMI 
2021 (9) TMI 624
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....isposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in ITA No.173/SRT/2017, for assessment Year 2013-14, have been taken into consideration for deciding the above appeals en masse. 3. Grounds of appeal raised by the assessee in lead case in ITA no.173/SRT/2017, for the A.Y. 2013-14, are as follows: "1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in re-writing the books of accounts without rejecting the same for the purposes of recalculating the claim of deduction u/s 80P of the Act. 2. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in artificially determining the profits eligible for each department and thus restricting the claim of deduction u/s 80P of the Act. 3. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in disallowing deduction to the extent of Rs. 9,08,475/- under Section 80P of the Act. 4. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ign....
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....ax Act in respect of income of the nature specified in Sub-sections (2) (a) to (f) of the said section. The quantum of deduction for income specified in clauses (a), (b) and (d) to (f) is 100%, while the quantum under clause (c) is restricted to one lakh rupees in case of consumers' cooperative society and fifty thousand rupees in any other case. The said clause (c) grants the deduction in respect of profits and gains attributable to activities other than those specified in clauses (a) and (b). Income of the nature specified in clauses (d) to (f) is deductible under the respective clauses. Clause (c) accordingly contains a residual provision, which grants deduction in respect of an income, which is not otherwise specified in any of the other clauses and at times is referred to as a standard deduction. The said clause reads as under: "(c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified) , so much of its profits and gains attributable to such activities as does not exceed : (i) where such co-operative society i....
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....TR 243(Guj)] in which the Hon'ble High Court has held that: "Business of the assessee-society being an indivisible business, common expenditure which has no direct nexus with the activities specified in S. 80P(2)(a)(iv) cannot be apportioned for deducting the same from the income from such specified activities, and, therefore, deduction u/s.80P(2)(a)(iv) is to be allowed on the gross income." However, the assessing officer has rejected the contention of the assessee stating that in the case of CIT v. Jamnagar Jilla Sahakari Kharid Vechan Sangh Limited, the Hon'ble High Court concentrated on the indivisible business of the assessee but in the instant case, the assessee has shown separate turnover and gross margin of each activities i.e. members fertilizers and polling activities, consumer activities, rice mill etc, therefore, it cannot be said that assessee co. op. society is engaged in the indivisible business. Based on these facts, assessing officer restricted deduction u/s 80P(2) of the I.T. Act to Rs. 56,28,749/-, as against assessee's claim of Rs. 65,37,224/-, thus, the balance amount of Rs. 9,08,475/- (Rs. 65,37,224 -Rs. 56,28,749) was disallowed by the....
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....attributable to the activities specified under section 80P(2) of the Act, when the business of the assessee qua specified activities and activities other than specified activities is one and indivisible and there are common overhead expenses, has been adjudicated by the Hon`ble High Court of Gujarat in the case of Jamnagar Jilla Shakari Kharid Vechan Sangh Ltd, [2006] 153 TAXMAN 363 (GUJ.). In this case the Hon`ble Court held that when business of assessee qua specified activities and activities other than specified activities is one and indivisible and there are common overhead expenses, income from specified activities is required to be deducted in toto and common overhead expenses are not required to be allocated on a proportionate basis, to arrive at net income from specified activities on a notional basis. The findings of the Hon`ble Court is reproduced below: "35. To properly appreciate the controversy in question it would be necessary to advert to the scheme of the Act. This Court in its decision rendered in the case of CIT v. Baroda Peoples Co-op. Bank Ltd. [2005] 149 Taxman 509 (Guj.) and allied matters has exhaustively delineated the scheme of the Act, which is r....
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....both the stages while computing total income, deductions under Chapter VI-A are not to be taken into consideration. Therefore, income under a particular head comprising of a specific item has to be in the first instance computed in accordance with the provisions of the Act, that is, all the permissible deductions/allowances have to be first taken into consideration (excluding deductions under Chapter VI-A) and the figure of net income arrived at after such computation has to form part of the total income. In other words, the net income relatable to a particular head or item has to go in as a component of the gross total income before any deduction under Chapter VI-A is to be allowed. Once this is the scheme laid down by the statute, all such allowable expenditure, in the form of various allowances and deductions, are already taken care of from the income earned by an assessee under a particular head. In case of income falling under the head 'Profits and gains of business or profession' section 29 of the Act stipulates that the income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D of the Act. Therefore, in case ....
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....e amount of profits and gains of business attributable to any one or more activities shall be deducted. Thus, the provision itself gives an inherent indication that for the purpose of constituting the sum deductible while computing the total income of the assessee, the sum has to be the amount of profits and gains of business. It is necessary to take note of the fact that in sub-section (2) of section 80P of the Act word 'income' is not used but the word used is 'sum' which is the 'whole of the amount of profits and gains of business'. Therefore, under sub-section (1) the gross total income has to include income from any of the specified activities and for the purpose of deduction the sums specified in sub-section (2) shall be deducted in computing the total income of an assessee, namely, a co-operative society. Before analyzing sub-clause (i) of clause (a) of sub-section (2) of section 80P of the Act, it is necessary to take note that under sub-section (3) of section 80P the deduction available under sub-section (1) of section 80P shall be allowed after reducing from the qualifying income, the income, if any, as referred to in sections specified therein viz., section 80HH, etc. Th....
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....essee. "Gross total income" for the purpose of Chapter VI-A is defined under section 80B(5) to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the said Chapter or under section 280-O. Section 80AB provides that for the purpose of computing deduction under any of the sections included under heading "C-Deductions in respect of certain incomes" of Chapter VI-A the amount of income of the nature specified in that section as computed in accordance with the provisions of the Act (before making deduction under Chapter VI-A) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. 40. Applying the principles laid down by this Court in the case of Baroda Peoples Co-operative Bank Ltd. (supra) to the facts of the present case, in the first instance, income under the particular head, namely, 'Profits and gains of business or profession' comprising of the specific item, namely, profits and gains from activities specified under sub-clause (iv) of clause (a) of sub-section (2) of section 80P is required to be computed in acco....
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....ducted in entirety at the first stage under section 37 of the Act. 43. Apart from deductions under section 37, all permissible deductions/allowances have to be taken into consideration to arrive at the "gross total income" as defined under section 80B(5). It is from this gross total income that amount of profits and gains of business attributable to the specified activity, namely, sale of articles intended for agriculture to members of the assessee-society is to be deducted to compute the total income of the assessee. 44. In view of the provisions of section 80AB of the Act, the amount of income from the specified activity computed in accordance with the provisions of the Act (before making deduction under Chapter VI-A) shall be the income derived by the assessee from the specified activity and which forms part of the gross total income. In relation to the applicability of section 80AB of the Act, the Tribunal has held that the same does not salvage the case of the revenue because the said section deals with determination of income on the basis of the provisions of the Act. That the expenditure sought to be apportioned being common expenditure, there is no questio....
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....e, as there was no such dispute, all that the Court was concerned with was whether the provisions of section 81(i)( d) and the proviso to section 81(1) read in the light of the provisions of sections 66 and 110 of the Act, permitted any such apportionment. Which is not so in the present case; in that the advisability of the rule of three in finding the proportionate net income is not only disputed but forms part of the main controversy. There is no quarrel with the proposition as regards apportionment of expenditure to arrive at the net income in respect to taxable activities and exempt activities. The crux of the matter lies in the fact that the activities being one and indivisible it is not possible to apportion the expenditure on an actual basis. The question therefore, is whether apportionment is permissible on a national basis. 48. In the case of Sabarkantha Zilla Kharid Vechan Sangh Ltd. ( supra), the Apex Court has held that when the assessee-co-operative society's income is included in its total income, it becomes entitled to a deduction from the amount of income-tax chargeable on its total income. That means, the co-operative society concerned becomes entitled to ....
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....tion Ltd. (supra) laid down the following principles: (i)if income of an assessee is derived from various heads of income he is entitled to claim deduction permissible under the respective head whether or not computation under each head results in taxable income; (ii)if income of an assessee arises under any of the heads of income but from different items, e.g., different house properties or different securities, etc., and income from one or more items alone is taxable whereas income from the other item is exempt under the Act, the entire permissible expenditure in earning the income from the head is deductible; and (iii)in computing "profits and gains of business or profession" when an assessee is carrying on business in various ventures and some among them yield taxable income and others do not, the question of allowability of the expenditure under section 37 will depend on: (a)fulfillment of requirements of that provision noted above; and (b)on the fact whether all the ventures carried on by him constituted one indivisible business or not; if they do, the entire expenditure will be a permissible deduction but if they do not, the princ....
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.... is required to be adopted. Even the decision in Sabarkantha Zilla Kharid Vechan Sangh Ltd. (supra) cannot strictly speaking, be said to be taking a contrary view, considering the fact that in the said case there was no dispute as regards the applicability of the rule of three in finding out the proportionate net income out of the total net income of the assessee, whereas that is the central dispute in the present case. 53. The view taken by the Tribunal that common expenditure cannot be apportioned for deducting the same from the tax-free activities because such expenditure has no direct nexus with the tax-free activities nor could it be said that the said expenditure was not relatable to the taxable activities is in consonance with the principles laid down by the Apex Court in the case of Rajasthan State Warehousing Corpn. ( supra). In the circumstances the Tribunal was justified in directing the ITO to allow deduction under section 80P(2)(a)( iv) as claimed by the assessee on the gross income and not on the net income worked out by the ITO. 54. The question referred is accordingly answered in the affirmative, that is, in favour of the assessee and agai....