Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME TAXTAMIL NADU-V, MADRAS
Vs.
RESPONDENT:
KOTAGIRI INDUSTRIAL CO-OPERATIVETEA FACTORY LTD., KOTAGIRI
DATE OF JUDGMENT: 05/03/1997
BENCH:
S.C. AGRAWAL, G.B. PATTANAIK
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
This appeal, by certificate, is directed against the
judgment of the Madras High Court dated January 22, 1982 in
Tax Case No. 407 of 1977. The Kotagiri Industrial
Cooperative Tea Factory Ltd., respondent (hereinafter
referred to as ’the assessee’) is a co-operative society. It
carries on business in manufacture and sale of tea from
bought tea leaves and the purchase and supply of
agricultural manure to members. It is also deriving income
from dividend from investment with other co-operative
societies. In the previous year relevant to the assessment
year 1972-73 the assessee earned a total income of Rs.
85,150/-. The losses of the earlier year which has been
carried forward to the said assessment year were Rs.
1,82,744/-. The assessee claimed a deduction of Rs. 53,386/-
under Section 80-P(2) from the income of Rs. 85,150/-. The
Income Tax Officer first set off the losses of previous
years that had been carried forward against the income and
since the losses were in excess of the income, he held that
no deduction was permissible under Section 80-P of the
Income Tax Act, 1961 (hereinafter referred to as ’the Act’).
The said view of the Income Tax Officer was not accepted by
the Appellate Assistant Commissioner who held that deduction
under Section 80-P should first be made out of the income
and thereafter the losses of the previous year were to be
set off. The said decision of the Appellate Assistant
Commissioner was affirmed in appeal by the Income-Tax
Appellate Tribunal (hereinafter referred to as ’the
Tribunal’). The Tribunal referred the following question for
the opinion of the High Court :-
"Whether, on the facts and in the
circumstances of the case, the
Appellate Tribunal was wright in
law in holding that the deduction
under Section 80-P of the Income
Tax Act should be allowed before
set off of unabsorbed losses of
earlier year ?"
The said question has been answered by the High Court
against the Revenue. IN the impugned judgment the High Court
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has followed its earlier decision in Commissioner of Income
Tax v. Katpadi Co-operative Timber Works Ltd. (1982) 185 ITR
287, wherein the High Court had held that so long as the
gross total income of a co-operative society includes income
referable to the activities mentioned in Section 80-P(2) the
assessee would be eligible for the deduction and it is only
if there is any amount left thereafter that could be the
subject of consideration of set off of carried forward
losses. The High Court followed the decision of this Court
in Cloth Traders (P) Ltd. v. Additional Commissioner of
Income tax, (1979) 118 ITR 243, as well as its won decision
in Commissioner of Income tax v. Venkatachalam, (1971) 120
ITR 688.
Dr. V. Gaurishankar, the learned senior counsel
appearing for the Revenue, has submitted that the High Court
was in error in proceeding on the basis that the deduction
under Section 80-P must be made before the adjustment of the
losses of the previous year under Section 72 of the Act. The
learned counsel has placed reliance on definition of the
expression "gross total income" contained in Section 80-B(5)
and has contended that the decision in Cloth Traders (P)
Ltd. (supra) has since been reversed by a Constitution Bench
of this Court in Distributors (Baroda) Pvt. Ltd. v. Union of
India & Ors. 155 ITR 120. Dr. Gaurishankar has also invited
our attention to the recent decision in H.H. Sir Rama Varma
v. Commissioner of Income Tax. (1994) 205 ITR 433.
Ms. Janaki Ramachandran, the learned counsel appearing
for the assessee, has also placed reliance on certain
observations in Distributors (Baroda) Pvt. Ltd. (supra) and
has submitted that since the matter relates to a co-
operative society and it is the policy of the Legislature to
encourage the co-operative movement the provisions of
Section 80-P, which have been enacted in furtherance of this
policy to encourage and promote the growth of co-operative
societies, must be liberally construed in favour of the
assessee. The learned counsel has placed reliance on the
Sales Ginning and Pressing Society Ltd. v. Commissioner of
Income Tax, Ahmedabad, (1989) 177 ITR 418.
Reference may be made at this stage to the provisions
of Section 80-P which falls in Chapter VI-A of the Act. Sub-
Section (1) of Section 80-P, which is relevant for the
purpose of the case, provides as follows:-
"80-P(1). Where in the case of an
assessee being a co-operative
society, the gross total income
includes any income referred to in
sub-section (2) there shall be
deducted in accordance with the
subject to the provisions of this
section, the same specified in sub-
section (2), in computing the total
income of the assessee."
For the purpose of Chapter VI-A the expression "gross
total income" is defined in clause (5) of Section 80-B in
the following terms :-
"Gross total income" means the
total income computed in accordance
with the provisions of this Act,
before making any deduction under
this Chapter."
If Section 80-P(1) is read with definition of the
expression "gross total income" contained in Section 80-
B(5), it has to be held that for the purpose of making
deduction under Section 80-P it is necessary to first
determine the gross total income in accordance with the
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other provisions of the Act. This means that for the
purposes of the present case the gross total income must be
determined by setting off against the income the business
losses of the earlier years as required under Section 72 of
the Act.
In Distributors (Baroda) Pvt. Ltd. (supra) this Court
has dealt with the question whether deduction of income by
way of dividends under Section 80-M has to be made from the
income computed in accordance with the provisions of the
Act, i.e., after deducting interest on monies borrowed for
earning such income or from total income of dividends
without so deducting the interest amount. In the earlier
decision in Cloth traders Pvt. Ltd. (supra) a three Judge
Bench of this Court had held that the deduction required to
be allowed under Section 80-M must be calculated with
reference to the full amount of dividends received from a
domestic company and not with reference to the dividend
income as computed in accordance with the provisions of the
Act. In the said decision in Cloth Traders Pvt. Ltd. (supra)
the Court did not notice the earlier decision of a two judge
Bench of the Court in Cambay Electric Supply Industrial Co.
Ltd. v. Commissioner of Income Tax, (1978) 113 ITR 84,
wherein, in the context of Section 80-E, it was held that
for the purpose of allowing deduction under the said
provision it was necessary to first compute the total income
of the assessee in accordance with the other provisions of
the Act, i.e., in accordance with all the provisions except
Section 80-E. The decision in Cloth Traders Pvt. Ltd.
(supra) has been overruled by the Constitution Bench in
Distributors (Baroda) Pvt. Ltd. (supra) wherein it has been
observed :-
"The opening words describe the
condition which must be fulfilled
in order to attract the
applicability of the provision
contained in sub-section (1) of
Section 80-M. The condition is that
the gross total income of the
assessee must include income by way
of dividends from a domestic
company. "Gross total income" is
defined in Section 80-B, clause
(5), to mean the ’total income
computed in accordance with the
provisions of the Act before making
any deduction under Chapter VI-A or
under Section 280-O’. Income by way
of dividends from a domestic
company included in the gross total
income would therefore obviously be
income computed in accordance with
the provisions of the Act, that is,
after deducting interest on money
borrowed for earning such income.
If income by way of dividends from
a domestic company computed in
accordance with the provisions of
the Act is included in the gross
total income, or in other words
form part of the gross total
income, the condition specified in
the opening part of sub-section (1)
Section 80-M would sub-section
would be attracted."
[p.135]
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We are unable to hold that the observation made in the
judgment while construing the words "such income by way of
dividends" in any way detract from the above quoted
observation inasmuch as this Court has clearly said :-
"It is obvious as a matter of plain
grammar, that the words "such
income by way of dividends" must
have reference to the income by way
of dividends mentioned earlier and
that would be income by way of
dividends from a domestic company
which is included in the gross
total income. Consequently, in
order to determine which is "such
income by way of dividends", we
have to ask the question : what is
the income by way of dividends from
a domestic company included in the
gross total income and that would
obviously be the income by way of
dividends computed in accordance
with the provisions of the Act.
[p.136]
It may also be pointed out that while considering the
provisions of Section 80-T of the Act this Court has
followed the decision in Distributors (Baroda) Pvt. Ltd.
(supra) in H.H. Sir Rama Varma v. Commissioner of Income Tax
(supra). In that case it has been held that a long term
capital loss brought forward from earlier assessment years
had to be first set off against the long term capital gains
of the current assessment year before deduction contemplated
by Section 80-T is to be given only for the amount of long
term capital gains of the current assessment year after the
long term capital loss of the earlier years brought forward
is set off.
It is no doubt true that the decision of the Madras
High Court in Commissioner of Income Tax v.
Venkatachalam,(supra) has been affirmed in appeal by this
Court in Commissioner of Income Tax v. venkatachalam. (1993)
201 ITR 737. That decision was also given n the context of
Section 80-T of the Act. It has been taken not of by this
court in H.H. Sir Ram Varma v. Commissioner of Income Tax
(supra). B.P. Jeevan Reddy J. was a party in both these
decisions. In Venkatachalam (supra) this Court has
emphasised that the deduction under Section 80-T had to be
made from out of capital gains and no question would arise
of the business loss being set off against the amount of
capital gains.
Having regard to the law as laid down by this Court in
Distributors (Baroda) Pvt. Ltd. (supra) and H.H. Sir Rama
Varma (supra), it must be held that before considering the
matter of deduction under Section 80-P(2) the Income Tax
Officer had rightly set off the carried forward losses of
the earlier years in accordance with Section 72 of the Act
and on finding that the said losses exceeded the income, he
rightly did not allow any deduction under Section 80-P(2)
and the Appellate Assistant Commissioner as well as the
Tribunal and the High Court were in error in taking a
contrary view.
The principle of statutory construction invoked by Ms.
Ramachandran has no application in construing the expression
"gross total income" in sub-section (1) of Section 80-P. In
view of the express provisions defining the said expression
in Section 80-B(5) for the purpose of Chapter VI-A, there is
no scope for construing the said expression differently in
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Section 80-P.
The appeal is, therefore, allowed, the impugned
judgment of the High Court is set aside and the question
referred for the opinion is answered in the negative, i.e.,
in favour of the Revenue and against the assessee. In the
circumstances, there will be no order as to cost.