Can the set off of Loss incurred by Co-operative Society in an activity be allowed against the profit earned from another activity?
The expression “whole of the amount of profit and gains of business attributable to anyone or more of any of such activities” as employed in section 80P sub-section (2) clause (a) indicates that the deduction under Section 80P(2)(a) is to be given to the extent of whole of the profit attributable to it without deducting there from any loss arising in any other activity referred to in any of the subclass (i) to (vii) of Section 80P(2)(a).This is so because it would not be proper to deduct the loss incurred in any such activities from the net profit of another activity as the word used in section 80P(2)(a) is “OR”
(CIT versus Agency Marketing Cooperative Society Limited)
Section 80(P)(2)(a) reads as under:
(2) The sums referred to in sub-section (1) shall be the following, namely :—
(a) in the case of a co-operative society engaged in—
(i) carrying on the business of banking or providing credit facilities to its members, or
(ii) a cottage industry, or
(iii) the marketing of agricultural produce grown by its members, or
(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or
(v) the processing, without the aid of power, of the agricultural produce of its members, or
(vi) the collective disposal of the labour of its members, or
(vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members,
the whole of the amount of profits and gains of business attributable to any one or more of such activities :
Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:—
(1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities;
(2) the co-operative credit societies which provide financial assistance to the society;
(3) the State Government;
Order
COMMISSIONER OF INCOME TAX Vs. AGENCY MARKETING CO OPERATIVE SOCIETY LIMITED
HIGH COURT OF ORISSA
Decided on October 23,1992
COMMISSIONER OF INCOME-TAXAppellant
VERSUS
AGENCY MARKETING CO-OPERATIVE SOCIETY LTD.Respondents
JUDGEMENT
- Pasayat, J.–
(1.) AT the instance of the Revenue, the following questions have been referred to this court under Section 256(1) of the Income-tax Act, 1961 (in short, ” the Act” ), by the Income-tax Appellate Tribunal, Cutlack Bench, Cuttack (in short, ” the Tribunal”) : ” (i) Whether, on the facts and in the circumstances of the case, the assessee is entitled to deduction of Rs. 11,59,027 under Section 80P(2)(a) of the Income-tax Act, 1961 ? (ii) On the facts and in the circumstances of the case and on a correct interpretation of Section 80P(2)(a), whether the Tribunal was justified in holding that the profits and gains from each activity specified in Sub-section (2) of Section 80P should be separately considered for deduction from gross total’income ? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right In holding that deduction under Section 80P(2)(a) should not be calculated on the adjusted total income from all activities men tioned in the aforesaid sub-section of Section SOP ? (iv) On the facts and in the circumstances of the case and on a correct interpretation of Section 80P(2)(a) of the IT. Act, whether the Income-tax Appellate Tribunal is justified in holding that the assessee is entitled to deduction of Rs. 11,59,027 being the income from business in minor forest produce without making any adjustment for the loss of Rs. 45,625 incurred on business in marketing of agricultural produce of its members ?”
(2.) FOR the assessment year 1983-84, the assessee, a co-operative society, claimed exemption in terms of Section 80P(2)(a)(ii) and (iii) on the ground that it derived income from business in minor forest produces and grocery items. The agricultural commodities dealt in by the assessee were agricultural produce of its members which are marketed by the society. The Assessing Officer was of the view that the profits and gains attributable to one or more activities which are eligible for deduction under Section 80P(2)(a) were not to be taxed. Therefore, the loss sustained on account of grocery business was not to be given effect to. Accordingly, instead of allowing Rs. 11,04,699 which was claimed as deduction, Rs. 10,59,027 was allowed as deduction. The matter was carried in appeal before the Appellate Assistant Commissioner of Income-tax, Berhampur (in short,” AAC “). The first appellate authority was of the view that the entire deduction was allowable. In appeal, this view was endorsed by the Tribunal. Thereafter a reference was sought for to this court under Section 256(1) of the Act which was acceded to by the Tribunal. The assessee admittedly was engaged in two activities of cottage industries and marketing of agricultural produce of its members which are eligible for deduction under Section 80P(2)(a). Income from both the activities are exempted under Section 80P(2)(a) of the Act. Both the activities come under the same heading and the same Chapter VI-A of the Act. At this juncture, it is relevant to refer to Section 80AB. Deduction is allowed under the said section under any of the provisions of Chapter VI-A except Section 80M and deduction is to be allowed on the income computed in accordance with the other provisions of the Act. Computation is to be made only in respect of a particular nature of income which qualifies for deduction. Profits from priority industry is one such nature of income which qualifies for deduction under Section 80P(2)(a)(ii). The income under this source was computed under other provisions of the Act at Rs. 11,04,699. The restriction imposed in Section 80AB aims at ensuring that the deduction does not exceed the net income under a particular source and it does not appear to be the legislative intent that the deduction is to be brought down to net income in a particular head of income. The language of Section 80P(2) makes it clear that profit attributable to cottage industry is to be deducted from the total gross income. The total deduction under Chapter VI-A is limited to the extent of gross total income. The object for which Section 80P appears to have been enacted is to encourage and promote the growth of the co-operative sector in the economic life of the country. The legislative intent is to give whole-hearted relief to the co-operative sector by an amount comprised of profit from the activities specified in Section 80P(2)(a) from the gross total income. The expression ” whole of the amount of profits and gains of business attributable to any one or more of such activities ” indicates that the deduction under Section 80P(2)(a) is to be given to the extent of the whole of the profit attributable to the cottage industry without deducting therefrom any loss arising in any other activity referred to above. It would not be proper to deduct loss incurred in any such activity from the net profit of another activity as the word used in Section 80P(2) is “or”. Therefore, the analysis made by the first appellate authority and affirmed by the Tribunal appears to be in order.
Our answer in respect of all the four questions is in the affirmative, in favour of the assessee and against the Revenue.
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