M/s Bangalore Rural Dist. Industrial Supply & Marketing Co-Op Society Ltd.,, Bangalore v. ITO, Bangalore

PAGE 1 OF 10 ITA NOS.726 727 & 744/BANG/2010 & C.O.NOS.45 TO 47/BANG/2010 1 THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K J.M. AND SHRI A MOHAN ALANKAMONY A.M. ITA NOS.726 727 & 744/BANG/2010 (ASST. YEARS 1997-98 1998-99 & 1999-2000) THE INCOME TAX OFFICER WARD-9(1) BANGALORE. - APPELLANT VS M/S BANGALORE RURAL INDUSTRIAL SUPPLY & MARKETING COOPERATIVE SOCIETY LTD. VTC BUILDING KASTURBA ROAD BANGALORE-1. - RESPONDENT C.O.NOS.45 46 & 47/BANG/2010 (ASST. YEARS 1997-98 1998-99 & 1999-2000) (BY ASSESSEE) REVENUE BY : SMT. JACINTA ZIMIK VASHAI ASSESSEE BY : SHRI S R KIRON C.A. O R D E R PER BENCH : THESE APPEALS PREFERRED BY THE REVENUE AND THE CRO SS OBJECTIONS FILED BY THE ASSESSEE ARISE OUT OF COMMON ORDER OF THE CIT(A)-II DATED 18/1/2010. THE RELEVANT ASST. YEARS ARE 1997-98 TO 1999-2000. PAGE 2 OF 10 ITA NOS.726 727 & 744/BANG/2010 & C.O.NOS.45 TO 47/BANG/2010 2 2. SINCE THE APPEALS AND THE CROSS OBJECTIONS RELA TE TO IDENTICAL ISSUE THEY ARE HEARD TOGETHER AND DISPOS ED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. IN THESE APPEALS THE ASSESSEE HAD RAISED IDENT ICAL GROUNDS; HENCE GROUNDS RAISED IN ITA NO.726/BANG/2 010 ARE REPRODUCED BELOW:- I) THE CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U/S 80P(2)(VI) OF THE ACT. II) THE CIT(A) WOULD HAVE APPRECIATED THE FACT THAT THE ENTIRE PROFIT SHOWN IS ATTRIBUTABLE TO THE SERVICE CHARGES ONLY AND THE PROFIT ATTRIBUTABLE TO THE SERVICE CHARGES CANNOT BE CONSIDERED TO BE ON ACCOUNT OF THE COLLECTIVE DISPOSAL OF THE LABOUR OF ITS MEMBERS. III) THE CIT(A) OUGHT TO HAVE BEEN APPRECIATED THE FACT THAT THE PROFIT IF ANY FROM THE SALE OF GOODS ALONE FALLS UNDER THE SCOPE OF COLLECTIVE DISPOSAL OF THE LABOUR OF ITS MEMBERS. IV) THE CIT(A) WOULD HAVE APPRECIATED THE FACT THAT THE SERVICE CHARGES ARE FEES FOR SERVICES RENDERED. THE SERVICE CHARGES REALIZED BY THE SOCIETY ARE IN THE NATURE OF COMMISSION ON THE PRODUCT PURCHASED FROM THE SOCIETY. V) THE CIT(A) WOULD HAVE APPRECIATED THE FACT THAT THE SERVICE CHARGES REALIZED IS NOT A PROFIT OR GAI N ATTRIBUTABLE TO THE COLLECTIVE DISPOSAL OF ITS MEMBERS. VI) THE CIT(A) WOULD HAVE APPRECIATED THE FACT THAT THE PROFIT ATTRIBUTABLE TO THE SERVICE CHARGES REALIZED UNDER BYE LAW 7(6) IS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(VI). VII) THE CIT(A) WOULD HAVE APPRECIATED THE FACT THAT THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF UDAIPUR SAHAKARI UPHOKTA THOK BHANDAR V PAGE 3 OF 10 ITA NOS.726 727 & 744/BANG/2010 & C.O.NOS.45 TO 47/BANG/2010 3 CIT 224 ITR (SC) 538 (2009) 315 ITR 21 (SC) WHEREIN IT HAS HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S 80P IN RESPECT OF COMMISSION RECEIVED. VIII) THE CIT(A)S ORDER IS A COMPOSITE ORDER WHICH INVOLVES 3 ASST. YEARS I.E 1997-98 1998-99 AND 1999-2000 THE TAX EFFECT INVOLVED FOR ASST. YEAR 1999-2000 IS MORE THAN THE PRESCRIBED MONETARY LIMIT AS PER INSTRUCTION NO.5/2008 FOR FILING OF DEPARTMENTAL APPEALS SINCE THE APPEAL IS RECOMMENDED FOR ASST. YEAR 1999-2000 THE APPEAL FOR ASST. YEARS 1997-98 AND 1998-99 IS ALSO FILED. 4. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A COOPERATIVE SOCIETY. IT IS ENGA GED IN PROVIDING MARKETING ASSISTANCE TO ITS MEMBERS WHO A RE CARRYING ON ARTISAN WORKS. IT ASSISTS THE MEMBERS BY MARKETING THE PRODUCTS MANUFACTURED BY THEM TO VARIOUS GOVERNMENT DEPARTMEN TS AND IN EXHIBITIONS. FOR THE ASST. YEARS 1997-98 1998-99 AND 1999-2000 THE ASSESSEE SOCIETY FILED NIL RETURN OF INCOME AFTE R CLAIMING DEDUCTION U/S 80P AMOUNTING TO RS.5 79 628/- RS.3 84 985/- AND RS.11 84 703/- RESPECTIVELY. 4.1 THE CASE WAS REOPENED U/S 147 OF THE ACT BY ISS UANCE OF NOTICE U/S 148 FOR THE ABOVE THREE YEARS IN QUESTION . ASSESSMENTS U/S 143 RWS 147 OF THE ACT FOR THE THREE ASST. YEARS UNDER CONSIDERATION WERE COMPLETED ON 27.3.2002 DETERMIN ING THE TOTAL INCOME AT RS.3 92 711/- RS.3 64 900/- AND RS.11 34 700/- PAGE 4 OF 10 ITA NOS.726 727 & 744/BANG/2010 & C.O.NOS.45 TO 47/BANG/2010 4 RESPECTIVELY. IN THE ASSESSMENTS COMPLETED THE AO RESTRICTED THE DEDUCTION TO RS.20 000/- U/S 80P(2)(C) OF THE ACT D ENYING THE DEDUCTION CLAIMED U/S80P(2)(A)(VI) OF THE ACT. THE ABOVE ASSESSMENTS FOR THE THREE YEARS WERE SUBJECT MATTER OF APPEAL UP TO THE LEVEL OF THE INCOME TAX APPELLATE TRIBUNAL AND THE TRIBUNAL VIDE ITS ORDER DATED 30/5/2003 IN ITA NO.1276 TO 1278/BANG/2002 RE MANDED THE MATTER BACK TO THE FILE OF THE AO FOR MAKING FRESH ASSESSMENTS. 4.2 PURSUANT TO THE REMAND MADE BY THE TRIBUNAL ASSESSMENTS WERE RE-DONE DETERMINING THE INCOME FOR THE THREE ASST. YEARS AS UNDER:- 1997-98.1 RS. 5 59 630 1998-99.1 RS. 3 64 990 1999-2000 RS.11 74 300 THE AO NOTED FROM THE INCOME & EXPENDITURE ACCOUNT THAT THE ENTIRE PROFIT SHOWN IS ATTRIBUTABLE TO THE SERVICE CHARGES AND ONLY; THAT THE PROFIT ATTRIBUTABLE TO SERVICE CHARGES CAN NOT BE CONSIDERED TO BE ON ACCOUNT OF THE COLLECTIVE DISPOSAL OF THE MEMBERS; THAT ONLY THE PROFIT IF ANY FROM SALE OF GOODS COMES WITHIN THE PURVIEW OF COLLECTIVE DISPOSAL OF THE LABOUR OF ITS MEMBERS; T HAT THE SERVICE CHARGES EARNED BY THE SOCIETY ARE IN THE NATURE OF C OMMISSION ON THE PRODUCTS PURCHASED FROM THE ASSESSEE AND IS NOT A P ROFIT OR GAIN ATTRIBUTABLE TO THE COLLECTIVE DISPOSAL OF ITS MEMB ERS. OBSERVING THUS THE AO HELD THAT THE ASSESSEE SOCIETY WAS NOT ENTITLED TO DEDUCTION U/S 80P(2)(A)(VI) OF THE ACT BUT ELIGIBLE FOR DEDUCTION OF RS.20 000/- U/S 80P(2)(C) OF THE ACT. PAGE 5 OF 10 ITA NOS.726 727 & 744/BANG/2010 & C.O.NOS.45 TO 47/BANG/2010 5 5. AGGRIEVED BY THE ASSESSMENTS COMPLETED PURSUANT TO THE DIRECTION OF THE HONBLE TRIBUNAL THE ASSESSEE CAR RIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY FOR SOLA CE. THE CIT(A) AFTER CONSIDERING THE OBJECTS ACTIVITIES TRADING AND PROFIT AND LOSS ACCOUNT WAS OF THE VIEW THAT THE MAJOR ACTIVITY OF THE ASSESSEE SOCIETY WAS ENTITLED TO DEDUCTION U/S 80P(2)(A)(VI) WHEREAS CERTAIN OTHER ACTIVITIES ARE ONLY ENTITLED TO DEDUCTION U/S 80P(2)(C) OF THE ACT. THE CIT(A) ALLOWED THE APPEALS OF THE ASSESSE E SUBJECT TO HIS OBSERVATION IN PARA 3.5 OF HIS IMPUGNED ORDER. THE RELEVANT FINDING OF THE CIT(A) READS AS FOLLOWS:- IN THE INSTANT CASE THE APPELLANT IS GIVING ASSISTANCE TO SSI UNITS AND IT CARRIES ON ARTISAN WORK WITH GOVERNMENT AID AND SELLS THEM IN THE EXHIBITIONS AND ALSO SUPPLIES THE SAME TO GOVERNMENT OFFICES. BESIDES THE ORDER OF THE COMMERCIAL TAX OFFICER STATES THAT THE SOCIETY IS ACTING AS AN AGENT BETWEEN THE SUPPLIER AND THE GOVERNMENT. THUS IT IS CLEAR THAT THE INCOME (SERVICE CHARGES) DERIVED BY THE APPELLANT-SOCIETY INVOLVES MARKETING OF THE GOODS MANUFACTURED BY ITS MEMBERS. IN OTHER WORDS THE GOODS MARKETED BY THE SOCIETY WOULD BELONG AT ALL POINTS OF TIME TO THE MEMBERS ONLY. 3.4 LOOKING TO THE BYE LAWS OF THE APPELLANT SOCIETY AND APPLYING THE RATIO OF THE DECISION OF THE HONBLE HIGH COURT OF ANDHRA PRADESH REFERRED TO ABOVE IT IS HELD THAT THE APPELLANT IS ELIGIBLE FOR DEDUCTION U/S 80P(2)(VI) OF THE ACT. THE AO IS THEREFORE DIRECTED TO ALLOW THE DEDUCTION ACCORDINGLY. PAGE 6 OF 10 ITA NOS.726 727 & 744/BANG/2010 & C.O.NOS.45 TO 47/BANG/2010 6 3.5 FROM A PERUSAL OF THE TRADING PROFIT AND LOSS ACCOUNT IT IS SEEN THAT THE APPELLANT SOCIETY WAS DEALING IN CERTAIN ITEMS WHICH ARE DEFINITELY COVERED UNDER CLAUSES (A) AND (B) AND APPLICABLE U/S 80P(2)(C) OF THE ACT. HOWEVER THE PURCHASE AND SALES WERE IN SMALL SCALE AND THE PROFIT AFTER CONSIDERING THE PROPORTIONAL EXPENSES. THE AO IS THEREFORE DIRECTED TO EXAMINE AND WORK OUT THE PROFIT FROM TRADING ACTIVITIES AND I F THERE IS ANY EXCESS BRING THE SAME TO TAX AFTER ALLOWING EXEMPTION U/S 80P(2)(C) OF THE ACT. 4. IN THE RESULT THE APPEALS ARE TREATED AS ALLOWED SUBJECT TO THE OBSERVATION AT PARA 3.5. 6. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENU E FILED APPEALS BEFORE US AND CROSS OBJECTIONS ARE FILED BY THE ASSESSEE SOCIETY SUPPORTING THE IMPUGNED ORDER OF THE CIT(A). 7. THE LEARNED DR SUBMITTED THAT THE ENTIRE PROFIT SHOWN IS ATTRIBUTABLE TO SERVICE CHARGES ONLY AND THE PROFITS ATTRIBUTABLE TO SERVICE CHARGES CANNOT BE CONSIDERED TO BE ON ACCOU NT OF COLLECTIVE DISPOSAL OF ITS LABOUR. IT WAS FURTHER ARGUED THAT THE SERVICE CHARGES REALIZED BY THE SOCIETY ARE IN THE NATURE OF COMMISSI ON AND HENCE NOT ENTITLED TO DEDUCTION U/S 80P(2)(A)(VI). 8. THE LEARNED AR ON THE OTHER HAND SUBMITTED TH AT PURSUANT TO THE DIRECTION OF THE CIT(A) IN THE IMPU GNED ORDER THE AO HAD EXAMINED THE ACTIVITIES OF THE ASSESSEE SOCI ETY AND THE GROSS INCOME DERIVED THERE FROM AND HAD GIVEN EFFECT TO T HE CIT(A)S ORDER. IN THE ORDER GIVING EFFECT TO THE CIT(A) I T IS ADMITTED BY THE PAGE 7 OF 10 ITA NOS.726 727 & 744/BANG/2010 & C.O.NOS.45 TO 47/BANG/2010 7 AO THAT THE MAJOR GROSS INCOME OF THE ASSESSEE SOCI ETY IS ENTITLED TO DEDUCTION U/S 80P(2)(A)(VI). THE ORDER OF THE AO G IVING EFFECT TO THE APPELLATE ORDER OF THE CIT(A) IS PLACED ON RECORD. (AO ORDER DATED 30/6/2007) 9. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE OBJECTIVES OF THE SOCIETY A S PER BYE-LAW ARE AS FOLLOWS:- A) SUPPLY TO THE MEMBER COTTAGE INDUSTRIES ARTISANS SMALL SCALE INDUSTRIES IN THE DISTRICT THE NECESSAR Y RAW MATERIALS BY PURCHASING THE SAME FORM WHOLESALERS OR MANUFACTURERS IN BULK. B) SELLING ITS MEMBERS THE REQUISITE TOOLS MACHINERY WHICH WILL BE PURCHASED FROM THE WHOLESALERS OR MANUFACTURERS. C) THE PRODUCTS MANUFACTURED BY THE ARTISANS COTTAGE INDUSTRIES SMALL SCALE INDUSTRIES AND VILLAGE ARTI SANS WHO ARE MEMBERS OF THE SOCIETY WOULD BE PURCHASED AND SOLD BY THE SOCIETY. 9.1 THE TRIBUNAL IN ITS EARLIER ORDER DATED 30/5/ 2003 IN ITA NOS.1276 TO 1278/BANG/2002 HAD GIVEN A CATEGORICAL FINDING THAT THE ACTIVITIES MENTIONED IN CLAUSE (C) OF THE BYE-LAWS MENTIONED ABOVE ARE ENTITLED TO DEDUCTION U/S 80P(2)(A)(VI) OF THE ACT. THIS ORDER OF THE TRIBUNAL HAS ATTAINED FINALITY SINCE NO APPEAL HAS B EEN PREFERRED BY THE REVENUE AS AGAINST THE FINDING ENTERED THEREIN. THE RELEVANT FINDING OF THE ORDER OF THE TRIBUNAL IN PARA 7 READ S AS FOLLOWS:- 7. THE FACTS RELATING TO THE OBJECTIVES AND CARRYING OUT THE SAME BY THE ASSESSEE SOCIETY ARE NOT IN DISPUTE. WHEN THIS BEING THE FACTUAL PAGE 8 OF 10 ITA NOS.726 727 & 744/BANG/2010 & C.O.NOS.45 TO 47/BANG/2010 8 POSITION IN OUR VIEW SECTION 80P(2)(E)(F) IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. FROM THE OBJECTS IT IS SEEN THAT APART FROM CARRYING OUT THE OBJECTS MENTIONED WHICH RELATES TO PURCHASE AND SALE OF THE PRODUCTS MANUFACTURED BY THE MEMBERS THE ASSESSEE ALSO SELLS NECESSARY RAW MATERIALS TO THE MEMBERS BY PURCHASING THE SAME FROM WHOLESALERS OR MANUFACTURERS IN BULK. BESIDES THAT THE ASSESSEE ALSO SELLS REQUIRED TOOL S AND MACHINERIES TO THE MEMBERS AFTER THEY ARE PURCHASED FROM THE WHOLESALERS AND MANUFACTURERS. IN OUR VIEW THE ACTIVITY MENTIONED UNDER CLAUSE-C AS ABOVE FALLS UNDER THE PROVISIONS OF SECTION 80P(2)(VI). BUT IN SO FAR AS THE OTHER TWO ACTIVITIES (A) AND (B) THEY FALL UNDER SECTION 80P(2)(C). THE ASSESSING OFFICER DID NOT GO IN THIS LINE. IT HAS TO BE NECESSARILY FOUND WHAT IS THE INCOME EARNED IN EACH AND EVERY ONE OF THE SAID ACTIVITY AND THEN APPLY THE RELEVANT PROVISIONS U/S 80P AS THE SAID SECTION CONTAINS PROVISIONS FOR VARIOUS CATEGORIES OF ACTIVITIES. THIS HAS NOT BEE N DONE BY THE AO. THEREFORE IN OUR VIEW THE ISSUE HAS TO BE REMANDED BACK TO THE AO WHO WILL RECONSIDER THE WHOLE MATTER AFRESH AFTER GIVING OPPORTUNITY TO THE ASSESSEE AS INDICATED ABOVE. IT IS ORDERED ACCORDINGLY. (EMPHASIS SUPPLIED). 9.2 THE CIT(A) IN HIS IMPUGNED ORDER HAS ONLY DIREC TED THE AO TO EXAMINE THE GROSS PROFIT THAT IS DERIVED FROM VARIOUS ACTIVITIES OF THE ASSESSEE SOCIETY AND UNDER WHICH SUB-CLAUSE D OES THIS GROSS PROFIT IS ENTITLED TO DEDUCTION U/S 80P. THE DIREC TION OF THE CIT(A) AT PARA 3.5 IS AGAIN REPRODUCED BELOW AT THE COST O F REPETITION:- 3.5 FROM A PERUSAL OF THE TRADING PROFIT AND LOSS ACCOUNT IT IS SEEN THAT THE APPELLANT SOCIETY WAS DEALING IN CERTAIN ITEMS WHICH ARE DEFINITELY COVERED UNDER CLAUSES (A) AND (B) AND PAGE 9 OF 10 ITA NOS.726 727 & 744/BANG/2010 & C.O.NOS.45 TO 47/BANG/2010 9 APPLICABLE U/S 80P(2)(C) OF THE ACT. HOWEVER THE PURCHASE AND SALES WERE IN SMALL SCALE AND THE PROFIT AFTER CONSIDERING THE PROPORTIONAL EXPENSES. THE AO IS THEREFORE DIRECTED TO EXAMINE AND WORK OUT THE PROFIT FROM TRADING ACTIVITIES AND I F THERE IS ANY EXCESS BRING THE SAME TO TAX AFTER ALLOWING EXEMPTION U/S 80P(2)(C) OF THE ACT. 9.3 AS SAID EARLIER WHEN THE TRIBUNAL ORDER DATED 30.5.2003 HAS CATEGORICALLY HELD THAT ACTIVITIES MENTIONED IN CLAUSE (C) OF THE BYE-LAWS OF THE ASSESSEE SOCIETY ARE ENTITLED TO DEDU CTION U/S 80P(2)(A)(VI) OF THE ACT AND THE ORDER OF TRIBUNAL HAVING ATTAINED FINALITY WE ARE OF THE VIEW THAT THE DIRECTION/OBSE RVATION OF THE CIT(A) IS PERFECTLY IN ORDER AND NO INTERFERENCE IS CALLED FOR. THEREFORE WE HOLD THAT THE IMPUGNED ORDER OF THE C IT(A) IS CORRECT AND IN ACCORDANCE WITH LAW. 9.4 IN THE RESULT THE APPEALS FILED BY THE REVENUE ARE DISMISSED. 10. THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE ONLY SUPPORTING THE ORDER OF THE CIT(A). SINCE WE HAVE DISMISSED THE APPEALS FILED BY THE REVENUE THE CROSS OBJECTIONS B ECOME INFRUCTUOUS. 10.1 IN THE RESULT THE CROSS OBJECTIONS FILED BY T HE ASSESSEE ARE DISMISSED. PAGE 10 OF 10 ITA NOS.726 727 & 744/BANG/2010 & C.O.NOS.45 TO 47/BANG/2010 10 THE ORDER PRONOUNCED ON MONDAY THE 28 TH DAY OF FEBRUARY 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMB ER COPY TO :- 1.THE ASSESSEE 2. THE REVENUE 3. THE CIT (A) CONCERNED. 4. THE CIT CONCERNED. 5. THE DR 6. GF BY ORDER MSP/25.2. ASSISTANT REGISTRAR ITAT BANGALORE.