The Ludhiana District Co-operative Milk Producers Union Limited, Ludhiana V. Addl. CIT, Ludhiana

ITA 1467/CHANDI/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3808 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 30-12-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Retrospective amendment
• Section: 14A; 80P; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A , CHANDIGARH , ! ' # $ %! , BEFORE: SHRI SANJAY GARG, JM & SMT.ANNAPURNA GUPTA, AM ./ ITA NO.1467/CHD/2016 / ASSESSMENT YEAR : 2009-10 THE LUDHIANA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LIMITED, MILK PLANT, JAGRAON ROAD, LUDHIANA. THE ADDL. CI T., RANGE-VI, LUDHIANA. ./ PAN NO.AABAT1196N /APPELLANT /RESPONDENT /ASSESSEE BY : SHRI PARVEEN JINDAL, CA ! / REVENUE BY : SMT.CHANDERKANTA, SR.DR ' # $ /DATE OF HEARING : 18.10.2018/16/01/2019 %&'( $ /DATE OF PRONOUNCEMENT: 31.01.2019 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-4, LUDHIANA (IN SHORT CIT(A) DATED 7.10 .2016 PASSED U/S 250(6) OF THE INCOME TAX AT, 1961 (HEREI NAFTER REFERRED TO AS ACT). 2. THE SOLE ISSUE IN THE PRESENT APPEAL RELATES TO DENIAL OF CLAIM OF DEDUCTION OF INTEREST INCOME EARNED BY THE ASSESSEE COOPERATIVE SOCIETY FROM ANOTHER COOPERATIVE SOCIET Y AMOUNTING TO RS.49,90,022/- AS PER THE PROVISIONS O F SECTION 80P(2)(D) OF THE ACT. ITA NO.1467/CHD/2016 A.Y.2009-10 2 3. BRIEFLY STATED, THE ASSESSEE IS A COOPERATIVE SO CIETY RUNNING MILK PLANT AT JAGRAON ROAD, LUDHIANA. DURI NG THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAD EARNED I NTEREST INCOME AMOUNTING TO RS.49,90,022/- FROM THE PUNJAB STATE COOPERATIVE MILK PRODUCERS FEDERATION LTD. (MILKFED ) AND HAD CLAIMED DEDUCTION OF THE SAME U/S 80P(2)(D) OF THE ACT. THE A.O. DENIED THE SAME STATING THAT THE ASSESSEE HAD NOT EXPLAINED THE MECHANISM OF TRANSFER OF FUNDS TO MIL KFED SO AS TO AUTHENTICATE ITS CLAIM THAT IT HAD MADE INVES TMENT IN MILKFED FROM WHICH INTEREST INCOME HAD BEEN EARNED. THE A.O. THEREFORE, HELD THAT THE TRANSFER OF FUNDS TO MILKFED DID NOT QUALIFY AS INVESTMENT AND, FOR THE SAID REASON THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEDUCTION OF INT EREST EARNED THEREFROM, SINCE AS PER SECTION 80P(2)(D) TH E INTEREST DERIVED FROM INVESTMENTS ONLY QUALIFIED FOR DEDUCT ION. THE A.O. FURTHER HELD THAT EVEN OTHERWISE THE EARNING O F INCOME COULD NOT BE ATTRIBUTED TO THE ACTIVITIES OF THE SO CIETY AND WAS NOT IN THE NATURE OF INCOME DERIVED FROM BUSINE SS AND, THEREFORE, ALSO DID NOT QUALIFY FOR DEDUCTION U/S 8 0P(2)(D) OF THE ACT. HE, THEREFORE, DISALLOWED THE ASSESSEES CLAIM OF DEDUCTION U/S 80P(2)(D) OF THE ACT AMOUNTING TO RS.49,90,022 ADDING THE SAME TO THE INCOME OF THE A SSESSEE. 4. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD.C IT(A) WHO UPHELD THE ORDER OF THE A.O. STATING THAT THE A SSESSEE HAD PAID MORE INTEREST TO MILKFED THAN EARNED INTER EST THEREFROM AND IN NUTSHELL THEREFORE, HAD NOT EARNED ANY INTEREST INCOME TO QUALIFY FOR DEDUCTION U/S 80P(2) (D) OF THE ITA NO.1467/CHD/2016 A.Y.2009-10 3 ACT. THE LD.CIT(A) FURTHER REITERATED THE FINDINGS OF THE A.O. THAT IN THE ABSENCE OF THE MECHANISM OF TRANSFER OF FUNDS IT CANNOT BE SAID THAT THE INTEREST INCOME HAD BEEN EA RNED FROM INVESTMENTS MADE BY THE ASSESSEE. RELEVANT FIN DINGS OF THE CIT(A) AT PARAS 6.2 AND 6.3 OF HIS ORDER ARE AS UNDER: 6.2 I HAVE CONSIDERED THE OBSERVATIONS OF THE A.O. AS MADE BY HIM IN THE ASSESSMENT ORDER WHILE MAKING IMPUGNED ADDITION/DISALLOWANCE. I HAVE ALSO CONSIDERE D WRITTEN SUBMISSIONS FILED BY THE ASSESSEE CO-OP SOCIET Y THROUGH ITS LD. AR VIDE LETTER DATED 08.06.2016 ON T HE ISSUE UNDER REFERENCE. I HAVE FURTHER CONSIDERED VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE ASSESSEE CO-OP SOC IETY AS WELL AS OTHER MATERIAL PLACED BY IT ON RECORD. O N CAREFUL CONSIDERATION OF THE ASSESSMENT ORDER, IT H AS BEEN NOTICED THAT THE ASSESSING OFFICER HAS MADE THE IMP UGNED ADDITION IN THE HANDS OF THE ASSESSEE CO-OP SOCIETY AS IN HIS OPINION THE INTEREST INCOME EARNED BY THE ASSESSEE C O-OP SOCIETY IS NOT DERIVED FROM THE INVESTMENTS MADE BY I T WITH ANOTHER CO-OP SOCIETY I.E. MILKFED BUT IT IS TO BE T REATED AS INCOME FROM OTHER SOURCES WHICHS NOT QUALIFIED FOR DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT. WHILE MAKING THE IMPUGNED ADDITION, THE ASSESSING OFFICER ALSO TOOK SUP PORT FROM THE DECISION OF THE HONORABLE SUPREME COURT IN THE CASE OF TOTGARS CO-OPERATIVE SALES SOCIETY LIMITED VS. INC OME TAX OFFICER REPORTED AT (2010) 322 ITR 283(SC). ANOTHER GROUND FOR MAKING THE IMPUGNED ADDITION WAS THAT THE ASSESSE E CO- OP SOCIETY HAS NOT DISCLOSED THE MECHANISM FOR EARN ING AND PAYING THE INTEREST FROM/TO MILKFED. ON THE OTHER HA ND, THE LD. AR OF THE ASSESSEE CO-OP SOCIETY HAS SUBMIT TED THAT THE ASSESSEE CO-OP SOCIETY HAS CORRECTLY CLAIMED THE DEDUCTION UNDER 80P(2)(D) OF THE ACT AS THE INTEREST WAS RECEIVED FROM ANOTHER CO-OPERATIVE SOCIETY. TO SUPP ORT HIS POINT OF VIEW, THE LD AR OF THE ASSESSEE CO-OP SOCIETY HAS ALSO UPON THE FOLLOWING JUDICIAL PRONOUNCEMENTS:- (I). CIT VS. DOABA CO-OP SUGAR MILLS LIMITED - 230 IT R 774 (P&H) WHEREIN IT HAS BEEN STATED TO BE HELD THAT THE DEDUCTION UNDER SECTION 80P(2)(D) IS ALLOWABLE ON GROSS RECEIPTS AND NOT ON NET RECEIPTS OF INTEREST. (II). CIT VS. HARYANA CO-OPERATIVE SUGAR MILLS LIMITED (III). ADDL. CIT VS. UP CO-OP FEDRATION LTD. (1978) 7 CTR (ALL.) 293 (IV). CIT VS. SHRI AMRELI SHAKARI KHARID VECHAN SAN GH LIMITED (1991) 39 ITD 65 (AHMEDABAD ITAT) LD. AR OF THE ASSESSEE CO-OP SOCIETY HAS FURTHER SUBMITTED THAT THE RATIO OF THE DECISION OF THE HONORABLE SUPREME COURT IN THE CASE OF TOTGARS CO- OPERATIVE SALES SOCIETY LIMITED VS. INCOME TAX OFFI CER REPORTED AT (2010) 322 ITR 283(SC) IS NOT APPLICABL E TO THE ITA NO.1467/CHD/2016 A.Y.2009-10 4 FACTS OF THE CASE OF THE ASSESSEE CO-OP SOCIETY AS THE FACTS OF THE CASE OF THE ASSESSEE CO-OPERATIVE SOCIETY ARE D IFFERENT FROM THE FACTS OF THE CASE OF TOTGARS CO-OPERATIVE S ALES SOCIETY LIMITED. ON CAREFUL CONSIDERATION OF THE RIVAL CONTENTIONS, IT HAS BEEN NOTICED THAT THE ASSESSEE CO- OPERATIVE HAS RECEIVED INTEREST OF RS.49,90,022/- FRO M MILKFED AND ALSO PAID INTEREST TO THE EXTENT OF RS.59,87,403/- TO MILKFED. IN NUTSHELL, THE ASSESSEE CO-OP SOCIETY HAS NOT EARNED ANY INTEREST INCOME BY GIVING SU RPLUS MONEY TO MILKFED BUT HAS PAID MORE INTEREST TO MILKFED THAN EARNED BY IT. MOREOVER, THE ASSESSEE CO- OPERATIVE SOCIETY HAS NOT DISCLOSED THE MECHANISM FOR EARNING AND PAYING- INTEREST FROM/TO MILKFED. IN THE ABSENCE OF MECHANISM ONE CANNOT DECIDE WHETHER IT HAS BEEN EARNED ON INVESTMENTS OR NOT. MOREOVER, THE ASS ESSEE CO-OP SOCIETY HAS NOT EARNED ANY INTEREST INCOME FRO M MILKFED AS THE INTEREST PAID BY IT WAS MORE THAN THE INTEREST EARNED. AS FAR AS THE JUDICIAL PRONOUNCEME NTS RELIED ASSESSEE CO-OP SOCIETY ARE CONCERNED, I AM O F THE OPINION THAT THE RATIOS OF THOSE DECISIONS DO NOT AP PLY TO THE FACTS OF THE CASE OF THE ASSESSEE CO-OP SOCIETY. IN ALL THE CASES RELIED UPON BY THE ASSESSEE CO-OP SOCIETY, TH E INTEREST WAS EARNED EITHER FROM INVESTMENTS AND THA T TOO FROM BANKS WHEREAS IN THE CASE OF THE ASSESSEE, THE INTEREST HAS NOT BEEN EARNED FROM ANY INVESTMENT MOREOVER, I N MY CONSIDERED OPINION THE ASSESSEE CO-OPERATIVE SOCIET Y HAS NOT EARNED ANY INTEREST INCOME WHICH WILL BE QUALIF IED FOR DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT AS IT H AS PAID MORE INTEREST TO MILKFED THAN EARNED BY IT FROM MILKF ED. UNDER SUCH CIRCUMSTANCES, THE ACTION OF THE ASSESSIN G OFFICER IN MAKING AN ADDITION OF RS.49,90,002/- IN THIS CASE ON ACCOUNT OF DENIAL OF DEDUCTION CLAIMED BY THE ASSES SEE CO- OP SOCIETY UNDER SECTION 80P(2)(D) OF THE ACT CANNO T BE SAID TO BE UNJUSTIFIED. 6.3 IN VIEW OF THE ABOVE STATED FACTS AND IN THE CIRCUMSTANCES OF THE CASE, I AM OF THE CONSIDERED O PINION THAT THE ASSESSING OFFICER IS FULLY JUSTIFIED IN MAKING AN ADDITION OF RS.49,90,002/- IN THIS CASE ON ACCOUNT OF DENIAL OF DEDUCTION CLAIMED BY THE ASSESSEE COOP SOCIETY UNDER SECTION 80P(2)(D) OF THE ACT. THE ADDITION OF RS.49,9 0,002/- MADE BY THE ASSESSING OFFICER IN THIS CASE ON ACCOU NT OF DISALLOWANCE OF DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT IS, THEREFORE, UPHELD. IN THE RESULT, GROUNDS NO. 3 A ND 4 OF APPEAL TAKEN BY THE ASSESSEE CO-OP SOCIETY ARE DISMISSED . 5. AGGRIEVED BY THE SAME THE ASSESSEE HAS COME IN A PPEAL BEFORE US RAISING THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN NOT CONSIDERING THE SUBMISSIONS PLACED BEFORE HIM DURING THE COURSE OF APPELLATE PROCEEDINGS. HE HAS ALSO ERRED I N NOT CONSIDERING THE DECISIONS CITED BEFORE HIM OF VARIO US COURTS/TRIBUNALS INCLUDING DECISIONS OF JURISDICTIO NAL HIGH COURT. ITA NO.1467/CHD/2016 A.Y.2009-10 5 2. THAT THE ORDER PASSED BY THE LD. COMMISSIONER OF I NCOME TAX (APPEALS)-4, LUDHIANA IS CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THAT THE LD. CIT(A), THEREFORE ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITIONS FOR RS.49,90,022/ - MADE BY THE ADDL. COMMISSIONER OF INCOME TAX, RANGE- VI, LUDHIANA (AO) ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U/S 80P OF THE INCOME TAX ACT, 1961 FOR INTEREST RECEIVED BY THE ASSESSEE FROM MILKFED. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ADDITIONS MADE BY TH E AO FOR RS.49,90,022/- FOR DISALLOWANCE OF DEDUCTION U /S 80P FOR INTEREST RECEIVED FROM MILKFED OUGHT TO HAV E BEEN DELETED. 4. THE LD. CIT (A) HAS ERRED IN FACT AND IN LAW, IN NOT ACCEPTING THE ASSESSEE'S SUBMISSIONS THAT,- A) PROVISIONS OF SEC. 80P(2)(D) OF THE INCOME TAX A CT, 1961 HAVE NOT BEEN CONSTRUED PROPERLY BY THE LD. AO, WHICH HAS RESULTED IN ERRONEOUS ORDER AND UNTENABLE CONCLUSION. B) FUNDS/ MONEY TRANSFERRED TO MILKFED WERE INVESTMENT OF SURPLUS FUNDS OUT OF THE CIRCULATING CAPITAL OF THE ASSESSEE. 5. THE APPELLATE MAY BE ALLOWED TO ADD, AMEND, ALTER OR RAISE ADDITIONAL GROUNDS OF APPEAL. 6. DURING THE COURSE OF HEARING BEFORE US THE LD. C OUNSEL FOR ASSESSEE CONTENDED THAT IT HAD BEEN DENIED ITS CLAIM OF DEDUCTION U/S 80P(2)(D) OF THE ACT FOR THE FOLLOWIN G REASONS: I) THAT THE MECHANISM OF TRANSFER OF FUNDS HAD NOT BEEN EXPLAINED. II) THAT IN ANY CASE, THE FUNDS TRANSFERRED TO MILK FED DID NOT QUALIFY AS INVESTMENT. III) THAT IT HAD PAID MORE INTEREST TO MILKFED THAN EARNED FRORM MILKFED AND THEREFORE, IT HAD NOT EARN ED ANY INTEREST INCOME. 7. THE LD. COUNSEL FOR ASSESSEE THEREAFTER CONTENDE D THAT ALL THE ABOVE CONTENTIONS WERE INCORRECT. TAKING UP THE FIRST CONTENTION THAT IT HAD NOT DISCLOSED THE MECHANISM FOR EARNING INTEREST FROM MILKFED, THE LD. COUNSEL FOR ASSESSEE POINTED OUT THAT DURING APPELLATE PROCEEDINGS IT HA D FILED REPLY DATED 8.6.2016 WHEREIN UNDER THE HEAD REPLY ON ITA NO.1467/CHD/2016 A.Y.2009-10 6 MERITS, IT HAD DISCLOSED THE MECHANISM OF TRANSFER OF FUNDS STATING THAT THE ASSESSEE COOPERATIVE SOCIETY HAD G IVEN ADVANCES TO MILKFED AS IT WAS ARRANGING FOR RAW MAT ERIAL AND OTHER ITEMS ON BEHALF OF THE ASSESSEE AS THE ASSESS EE HAD NOT SEPARATE WORKING CAPITAL LIMIT FOR THIS PURPOSE FROM BANK ETC. AND FURTHER THIS ARRANGEMENT WAS IN LINE WITH THE BYELAWS OF THE ASSESSEE SOCIETY. IT WAS FURTHER EXP LAINED THAT AS PER THE PRESCRIBED PROCEDURE THE ASSESSEE USED T O TRANSFER THE MONEY COLLECTED FROM THE SALE OF ITS P RODUCTS IN A ROUTINE MANNER AFTER KEEPING THE FUNDS REQUIRED F OR ITS IMMEDIATE USE AND THUS IN THIS WAY IT EARNED INTERE ST INCOME ON THE SURPLUS FUNDS INVESTED WITH MILKFED A T THE AGREED RATE OF 8%. OUR ATTENTION WAS DRAWN TO POINT NO.5 OF THE SUBMISSIONS MADE IN WRITING BEFORE US IN THIS R EGARD AS UNDER: 5. THAT THE LD. CIT (APPEALS) HAS OBSERVED AT PARA-6.2 OF HIS ORDER THAT THE ASSESSEE CO-OPERATIVE SOCIETY HAS NOT DISCLOSED THE MECHANISM FOR EARNING INTEREST FROM MI LKPED. IN THIS CONNECTION, THE APPELLANT CONTENDS THAT MECHANI SM FOR EARNING INTEREST FROM MILKFED WAS DULY DISCLOSED BY THE ASSESSEE IN ITS REPLY DATED 08 06 2016 DURING APPEL LATE PROCEEDINGS WHEREIN AT POINT-2 UNDER THE HEADING ' REPLY ON MERITS' IN THE MATTER OF DISALLOWANCE OF DEDUCTION U /S 80P(2)(D), THE ASSESSEE STATED AS UNDER: 2. THAT ONE OF THE REASON FOR DISALLOWANCE OF DEDU CTION U/S 80P(2)(D) WAS THAT AO DID NOT CONSIDER THE ADVANCES MADE TO MILKFED AS 'INVESTMENT' WITHIN THE MEANING OF CLAUS E (D) OF SUB- SECTION (2) OF SEC. 80P OF THE I.T. ACT. IN THIS CO NNECTION, THE ASSESSEE CONTENDS THAT THE SAID INTEREST OF RS.49,9 0,022/- HAS BEEN RECEIVED ON ADVANCES GIVEN TO MILKFED AS IT WA S ARRANGING FOR RAW MATERIAL AND OTHER ITEMS ON BEHALF OF THE A SSESSEE AS IT (ASSESSEE) HAS NO SEPARATE WORKING CAPITAL LIMIT FOR THIS PURPOSE FROM BANKS ETC. THIS ARRANGEMENT WAS IN LINE WITH THE BYE-LAWS OF THE ASSESSEE'S SOCIETY AND AS PER THE IN STRUCTIONS OF THE REGISTRAR OF CO-OPERATIVE SOCIETIES AND MILK FED BEING THE APEX INSTITUTION OF THE ASSESSEE. FURTHER, AS PER THE PRESCRIBED PROCEDURE, THE ASSES SEE USED TO TRANSFER THE MONEY COLLECTED FROM SALE OF ITS PRODUC TS IN A ROUTINE MANNER AFTER KEEPING THE FUNDS REQUIRED FOR ITS ITA NO.1467/CHD/2016 A.Y.2009-10 7 IMMEDIATE USE AND IN THIS WAY THE SURPLUS FUNDS INVESTED OUT OF THE CIRCULATING CAPITAL ALSO EARNED INTEREST INCOME AS PER THE AGREED TERMS AND CONDITIONS WITH THE MILKFED INCLUDI NG FOR RATE OF INTEREST (WHICH WAS 8%) ETC. THE APPELLANT REITERATES IT'S ABOVE SUBMISSIONS AS MADE ABOVE BEFORE THE LD. CIT(A) FOR THE MECHANISM FOR INTERES T RECEIVED FROM MILKFED. 8. LD.COUNSEL FOR THE ASSESSEE FURTHER FILED BEFOR E US COPY OF ACCOUNT OF INTEREST PAID TO MILKFED IN IT S BOOKS TO SUPPORT ITS CLAIM THAT IT HAD EARNED INTEREST FROM MILKFED ON ADVANCES MADE TO IT FOR PROCURING GOODS ON ITS B EHALF. REFERRING TO THE SAME IT WAS CONTENDED THAT IT HAD EARNED INTEREST FOR THE PERIOD FROM OCTOBER 2008 TO MARCH 2008 WHEN THERE WAS CREDIT BALANCE OF MILKFED, WHILE FOR THE REST OF THE YEAR IT HAD PAID INTEREST ON ACCOUNT OF THERE BEING DEBIT BALANCE OF MILKFED. THE LD. COUNSEL FOR ASSESSEE THUS CONTENDED THAT THE MECHANISM FOR TRAN SFER OF FUNDS HAD BEEN DULY EXPLAINED TO THE AUTHORITIES BE LOW AS BEING IN THE NATURE OF ADVANCES GIVEN TO MILKFED FO R ARRANGING SUPPLY OF RAW MATERIAL FOR THE ASSESSEE . THEREAFTER THE LD. COUNSEL FOR ASSESSEE CONTENDED T HAT THESE ADVANCES QUALIFIED AS INVESTMENTS FOR THE PURPOSE OF CLAIM OF DEDUCTION U/S 80P(2)(D) OF THE ACT AND RELIED UP ON THE FOLLOWING CASE LAWS IN SUPPORT OF ITS ABOVE CONTENT ION POINTING OUT THAT IN THESE CASE LAWS IT HAD BEEN HE LD THAT EVEN ADVANCE MADE FOR PURCHASE OF GOODS WOULD BE TR EATED AS INVESTMENT AND THAT IT INCLUDED INVESTMENT OF CI RCULATING CAPITAL: 1) CIT, LUCKNOW VS. U.P. CO-OPERATIVE FEDERATION LTD., 176 ITR 435 (SC). ITA NO.1467/CHD/2016 A.Y.2009-10 8 2) CIT VS. HARYANA CO-OPERATIVE SUGAR MILLS LTD. 3) ADDL.CIT VS. UP CO-OPERATIVE FEDERATION LTD. (1978) 7 CTR (ALL) 293. 4) CIT VS. SHRI AMRELI ZILLA SHAKARI KHARID VEHCAN SANGH LTD. (1991) 39 ITD 65. 9. THE LD. COUNSEL FOR ASSESSEE THEREAFTER CONTENDE D THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. DOABA CO-OPERATIVE SUGAR MILLS LTD., 230 ITR 775,HA D HELD THAT THE GROSS INTEREST INCOME QUALIFIED FOR DEDUCT ION U/S 80P(2)(D) OF THE ACT AND NOT THE NET INTEREST INCOM E. COPY OF THE ORDER WAS PLACED BEFORE US. THE LD. COUNSEL FOR ASSESSEE, THEREFORE, CONTENDED THAT THE ADVANCES MADE BY IT T O MILKFED QUALIFIED AS INVESTMENT AND GROSS INTEREST INCOME E ARNED THEREFROM AMOUNTING TO RS.49,90,022/- THUS HAD BEEN RIGHTLY CLAIMED AS DEDUCTIBLE UNDER THE PROVISIONS OF SECTION 80P(2)(D) OF THE ACT AND THE ACTION OF THE LOWER AU THORITIES IN DENYING THE SAME WAS NOT JUSTIFIED IN LAW AND NEEDE D TO BE SET ASIDE. 10. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 11. AFTER THE CONCLUSION OF THE HEARING ON 13-10-18 , IT CAME TO THE NOTICE OF THE BENCH THAT THE HON'BLE JURISDICTIONAL HIGH COURT HAD IN THE CASE OF MILKFE D ITSELF HELD THAT ONLY NET INTEREST INCOME WAS ELIGIBLE FOR DEDUCTION U/S 80P(2)(D) OF THE ACT IN THE FOLLOWING TWO CASES : 1. THE PUNJAB STATE COOPERATIVE MILK PRODUCER'S FEDERATION LTD. VS. COMMISSIONER OF INCOME TAX-II, CHANDIGARH AND ANOTHER (2016 238 TAXMAN 207 (P&H). ITA NO.1467/CHD/2016 A.Y.2009-10 9 2. THE PUNJAB STATE COOPERATIVE MILK PRODUCERS FEDERATION L TD. VS. COMMISSIONER OF INCOME-TAX AND ANOTHER [2011] 336 IT R 495(P&H). AND THAT EVEN THE APEX COURT HAD HELD THAT IT WAS O NLY THE NET INCOME WHICH WAS ELIGIBLE FOR DEDUCTION U/S 80P IN THE CASE OF SABARKANTHA ZILLA KHARID VECHAN SANGH LTD. VS. CIT (1993) 114 CTR (SC) 459 : (1993) 203 ITR 1027 (SC) 12. THE APPEAL WAS THEREFORE REFIXED FOR CONFRONTIN G THE SAID DECISIONS TO THE CONCERNED PARTIES AND SEEKING CLARIFICATION FROM THEM, ON 11/01/19. ON THE SAID D ATE THE HEARING WAS ADJOURNED TO 16-01-19 ON THE REQUEST OF LD.COUNSEL FOR THE ASSESSEE. ON THE SAID DATE WHEN CONFRONTED WITH THE SAID DECISIONS, LD.COUNSEL FOR THE ASSESSEE STATED THAT HE WAS UNAWARE OF THE SAID DEC ISIONS AND ACCORDINGLY SOUGHT TIME TO FILE REPLY TO THE S AME. IT WAS POINTED OUT TO HIM THAT THE HONBLE HIGH COURT HAD CONSIDERED THE DECISION IN THE CASE OF DOABA (SUPRA ) IN THE SAID DECISIONS WHILE HOLDING THAT ONLY NET INTEREST WAS ELIGIBLE FOR DEDUCTION AND IT WAS ALSO POINTED OUT THAT THE DECISIONS HAD BEEN RENDERED IN THE CONTEXT OF MILKF ED FROM WHICH THE ASSESSEE HAD EARNED INTEREST . THE LD.CO UNSEL FOR THE ASSESSEE WAS THEREFORE ASKED TO FILE REPLY BY THE 21 ST OF JANUARY 2019, FAILING WHICH IT WOULD BE DEEMED THAT HE HAD NOTHING TO SAY ON THE MATTER. NO REPLY WAS RECEIVED BY THE SAID DATE. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW . WE DO NOT FIND ME RIT IN THE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE THAT THE ENTIRE INTEREST INCOME EARNED BY IT FROM MILKFED WAS ELIGI BLE FOR ITA NO.1467/CHD/2016 A.Y.2009-10 10 DEDUCTION U/S 80P(2)(D) OF THE ACT. UNDENIABLY THE ASSESSEE HAD EXPLAINED TO THE AUTHORITIES BELOW THAT THE INT EREST INCOME HAD BEEN EARNED ON ADVANCE MADE TO MILKFED W HICH ARRANGED THE RAW MATERIAL REQUIRED BY THE ASSESSEE AND THE MECHANISM OF TRANSFER OF FUNDS WAS ALSO EXPLAINED A S THE SURPLUS COLLECTED BY IT FROM SALE OF ITS PRODUCTS B EING TRANSFERRED TO MILKFED AS ADVANCE FOR ARRANGING RAW MATERIAL FOR IT AND THE SURPLUS REMAINING WITH MILKFED EARNI NG INTEREST THEREON. IT WAS ALSO POINTED OUT THAT THE SAID ARRANGEMENT WAS AS PER THE TERMS AND CONDITIONS AGR EED BETWEEN THE TWO PARTIES AND IN CONSONANCE TO THE BY ELAWS OF THE ASSESSEE SOCIETY. THE REVENUE HAS NOT CONTROVER ED THE ABOVE FACTS BEFORE US. THEREFORE WE HOLD THAT THE FINDINGS OF THE LD.CIT(A) THAT THE ASSESSEE HAD FAILED TO E XPLAIN THE MECHANISM OF TRANSFER OF FUNDS TO MILFED IS INCORRE CT. FURTHER WE HAVE ALSO GONE THROUGH THE DECISIONS CIT ED BY THE LD. COUNSEL FOR ASSESSEE BEFORE US, AND FIND THAT I T HAS BEEN HELD BY COURTS THAT LOANS AND ADVANCES GIVEN FOR A RRANGING PURCHASES QUALIFY AS INVESTMENT FOR THE PURPOSE OF SECTION 80P(2)(D) OF THE ACT. IN THE CASE OF CIT, LUCKNOW V S U.P CO- OPERATIVE (SUPRA), THE HONBLE APEX COURT HELD THAT AMOUNTS ADVANCED TO MEMBER COOPERATIVE SOCIETIES FOR ENABLI NG THEM TO CARRY OUT WORK ENTRUSTED TO THEM BY THE ASSESSEE QUALIFIED AS INVESTMENTS AND INTEREST EARNED THEREO N WAS ELIGIBLE FOR DEDUCTION U/S 14(3)(1)(II) OF THE INCO ME TAX ACT,1922,WHICH IS PARA MATERIA WITH CLAUSE (D) OF S ECTION 80P OF THE INCOME TAX ACT,1961. THE HON'BLE APEX CO URT HELD AS UNDER: ITA NO.1467/CHD/2016 A.Y.2009-10 11 WE SHALL NOW DEAL WITH THE OTHER QUESTION. DEALING WITH IT, THE HIGH COURT STATED: 'THE FACTS RELATING TO THE CASE FOR EXEMPTION IN RE SPECT OF THE TWO AMOUNTS OF RS. 51,295 AND RS. 58,937 (THE SECOND AMOUNT IS NO MORE IN DISPUTE) COVERED BY QUESTION N O. (3) MAY BE STATED. WE SHALL BEGIN BY REFERRING TO FACTS RELAT ING TO ADVANCES MADE IN RELATION TO THE SUGAR BUSINESS. TH E ASSESSEE WAS APPOINTED AS ONE OF THE WHOLESALE DEALERS FOR DISTRIBUTION OF SUGAR IN THIS STATE. IT HAD, IN PURSUA NCE OF AN AGREEMENT ENTERED INTO BETWEEN IT AND THE STATE GOVER NMENT, TO ARRANGE FOR LIFTING, HANDLING, STORING AND DISTRIB UTING TO THE RETAILERS THE STOCKS OF SUGAR RELEASED BY THE GOVERNM ENT OF INDIA. THE DISTRICT CO-OPERATIVE DEVELOPMENT FEDERATION S OF DEORIA, GARHWAL, TEHRI GARHWAL, PILIBHIT, ETAWAH AND ALLAHABAD, ENTERED INTO AGREEMENTS WITH THE ASSESSEE TO WORK AS AGENTS FOR THE WHOLESALE DISTRIBUTION OF SUGAR IN T HEIR DISTRICTS. A SAMPLE OF THE AGREEMENT ENTERED INTO BET WEEN THE ASSESSEE AND THESE VARIOUS DISTRICT COOPERATIVE DEV ELOPMENT FEDERATIONS .....' THE ASSESSEE WAS TO MAKE NECESSARY INVESTMENTS BY WAY OF PAYMENT OF PRICE OF SUGAR TO BE PROCURED FROM THE FACTORIES AND ALSO TO PAY THE ADMI NISTRATIVE CHARGES INCURRED FOR THE DISTRIBUTION OF SUGAR. THIS ADMINISTRATIVE CHARGE WAS, HOWEVER, RECOUPED BY THE A GENTS AND PAID OVER TO THE ASSESSEE. THE DELIVERY OF THE SU GAR FROM THE VARIOUS FACTORIES WAS TO BE TAKEN BY THE VARIOU S DISTRICT CO-OPERATIVE DEVELOPMENT FEDERATIONS WHICH HAD ENTERE D INTO AGREEMENTS WITH THE ASSESSEE ON BEHALF OF THE ASSESS EE AS SOON AS THE RELEASE ORDERS WERE ISSUED BY THE GOVERN MENT OF INDIA. THE SUGAR SO RECEIVED WAS TO BE STORED IN GODO WNS AND WAS TO REMAIN UNDER THE CUSTODY OF GODOWN-KEEPERS OF THE ASSESSEE OR THE BANKERS OF THE ASSESSEE. THE SALARIE S OF THE GODOWNKEEPERS AND THE CHOWKIDARS APPOINTED FOR SAFE CUSTODY OF THE STOCKS OF SUGAR WERE TO BE PAID BY T HE AGENTS . . .'' THE SUGAR SO STORED WAS TO BE RELEASED TO THE AGENT S AS AND WHEN REQUIRED BY THEM ON FULL PAYMENT OF ITS PRICE AT THE RATE FIXED BY THE STATE GOVERNMENT OR THE DISTRICT MAGIS TRATE CONCERNED. THE STOCKS OF SUGAR TAKEN OVER BY THE AGE NTS WAS TO BE SOLD BY THEM TO RETAILERS, AND PERMIT HOLDERS WHO WERE TO BE NOMINATED BY THE DISTRICT MAGISTRATE OR THE OF FICER AUTHORISED BY HIM. THE WHOLESALERS' MARGIN ON THE SUGA R SOLD FOR THE PERIOD BEGINNING SEPTEMBER 1959, ONWARDS WITH WHICH WE ARE CONCERNED WAS RS. 2.06 PER BAG. THE SHARE OF TH E ASSESSEE AND THE DISTRICT COOPERATIVE DEVELOPMENT FED ERATIONS IN THIS AMOUNT IS SET OUT IN CL. 18 OF THE AGREEMENT . . .' THE HIGH COURT EXTRACTED THE TERMS AND CAME TO HOLD: 'IT APPEARS FROM A LETTER DT. 30TH SEPT., 1959, THAT T HE VARIOUS DISTRICT CO-OPERATIVE DEVELOPMENT FEDERATIONS WERE NO T IN A POSITION TO ARRANGE THE ENTIRE FINANCES FOR THE BUS INESS AND ACCORDINGLY THE ASSESSEE AGREED TO ARRANGE FOR FINA NCES OF THE BUSINESS ON CERTAIN TERMS AND CONDITIONS. THE TERMS A ND ITA NO.1467/CHD/2016 A.Y.2009-10 12 CONDITIONS ON WHICH THE FINANCES WERE TO BE ARRANGE D MAY BE EXTRACTED: . . . . . (5) THE MONEY INVESTED IN THE BUSINESS WILL EARN INTER EST AT 6 PER RENT PER ANNUM . . .' IT WILL BE SEEN THAT MONEY WHICH THE ASSESSEE MADE AV AILABLE TO THE DISTRICT CO-OPERATIVE DEVELOPMENT FEDERATIONS WAS TO BE UTILISED FOR THE PURCHASE OF THE STOCKS OF SUGAR WH ICH THE DISTRICT CO-OPERATIVES SOLD AS AGENTS OF THE ASSESSEE . IN THE ACCOUNTING YEAR IN QUESTION, THE ASSESSEE REALISED T HE THE FOLLOWING AMOUNTS OF INTEREST FROM THE DISTRICT CO-OPE RATIVE DEVELOPMENT FEDERATIONS MENTIONED BELOW: 8. THE DISPUTE COVERED BY THE SECOND QUESTION TO BE ANSWERED IS OVER THIS AMOUNT. THE ITO AS ALSO THE TWO APPELLATE AUTHORITIES, RELYING UPON THE DECISIONS OF THE BOMBAY HIGH COURT IN SIR CHINNUBHAI MADHAVLAL VS. CIT (1937) 5 IT R 210 (BOM) : TC 14R.384 AND CIT VS. BOMBAY STATE CO-OPERATIV E BANK LTD. (1966) 59 ITR 31 (BOM) : TC26R.691, HELD THAT THE AMOUNT ON WHICH INTEREST HAD BEEN EARNED UNDER THE AGREEMENT DID NOT CONSTITUTE INVESTMENT AND, THEREFO RE, WAS NOT COVERED BY S. 14(3)(III) OF THE ACT. 9. SEC. 14(3) PROVIDES THAT TAX SHALL NOT BE PAYABLE BY A CO- OPERATIVE SOCIETY IN CERTAIN SITUATIONS. CLAUSE (I) U NDER ITS SIX SUB-CLAUSES REFERS TO SPECIFIC CLASSES OF CO-OPERATIV E SOCIETIES IN WHOSE CASES THERE IS TOTAL EXEMPTION. CLAUSE (II) EXEMPTS INCOME IN RESPECT OF PROFITS AND GAINS OF BUSINESS OF CO- OPERATIVE SOCIETIES NOT COVERED BY CL. (I) UP TO RS. 1 5,000. CLAUSE (III) EXEMPTS INTEREST AND DIVIDENDS AND INCOM E DERIVED FROM INVESTMENTS WITH ANY OTHER CO-OPERATIVE SOCIETY. CLAUSE (IV) EXEMPTS INCOME DERIVED FROM LETTING OF G ODOWNS OR WAREHOUSES FOR STORAGE, PROCESSING OR FACILITATING TH E MARKETING OF COMMODITIES WHILE CL. (V) EXEMPTS INTERES T ON SECURITIES CHARGEABLE UNDER S. 8 OR ANY INCOME FROM PR OPERTY NAME AMOUNT RS. (I) DISTRICT CO-OPERATIVE DEVELOPMENT FEDERATION LTD., DEORIA. 4,694.16 (II) DISTRICT CO-OPERATIVE DEVELOPMENT FEDERATION LTD., GARHWAL. 15,797 60 (III) DISTRICT CO-OPERATIVE DEVELOPMENT FEDERATION LTD., TEHRI GARHWAL 5,557.50 (IV) DISTRICT CO-OPERATIVE DEVELOPMENT FEDERATION LTD., ETAWAH. 2,984 24 (V) DISTRICT CO-OPERATIVE DEVELOPMENT FEDERATION LTD., PILIBHIT. 2,616.21 (VI) DISTRICT CO-OPERATIVE DEVELOPMENT FEDERATION LTD., ALLAHABAD. 19,645 53 TOTAL 51,295.24 ITA NO.1467/CHD/2016 A.Y.2009-10 13 CHARGEABLE UNDER S. 9, WHERE THE TOTAL INCOME OF THE CO- OPERATIVE SOCIETY OF SPECIFIC TYPES MENTIONED THERE IN DOES NOT EXCEED RS. 20,000. 10. THERE CAN BE NO DISPUTE ON THE CONCLUSION REACHED BY THE HIGH COURT THAT THE MONEY PROVIDED BY THE ASSESSEE WAS BY WAY OF INVESTMENT. IN FACT, IF THIS MONEY HAD NOT BEEN MADE AVAILABLE, THE BUSINESS AS STIPULATED UNDER THE SCHEM E COULD NOT HAVE BEEN CARRIED OUT AND PERHAPS THERE WOULD HA VE BEEN NO BUSINESS. 'INVESTMENT' HAS NOT BEEN DEFINED IN TH E ACT. P. RAMANATHA AIYAR'S LAW LEXICON (REPRINT EDITION 1987) STAT ES: 'THE TERM INVEST' IS USED IN A SENSE BROAD ENOUGH TO COVER THE LOANING OF THE MONEY BUT IS NOT RESTRICTED TO THAT M ODE OF INVESTMENT' OR LOANS MADE ON COMMERCIAL PAPER. THE WOR D INVEST' HAS BEEN JUDICIALLY DEFINED AS FOLLOWS: TO PLACE PROPERTY IN BUSINESS; TO PLACE SO THAT IT WI LL BE SAFE AND YIELD A PROFIT. IT IS ALSO COMMONLY UNDERSTOOD AS GIVING MONEY FOR SOME OTHER PROPERTY (AS) INVESTING FUNDS ON LANDS AND HOUSES. INVESTMENT' MEANS, IN COMMON PARLANCE, PU TTING OUT MONEY ON INTEREST, EITHER BY WAY OF LOAN, OR BY PUR CHASE OF INCOME PRODUCING PROPERTY...' IN THE FACTS OF THE PRESENT CASE, THE MONEY PROVIDED BY THE ASSESSEE WAS NECESSARY TO RUN THE BUSINESS AND GENE RATE PROFITS; UNDER THE AGREEMENT, INTEREST HAS BEEN EARNE D. IN THE PECULIAR SITUATION APPEARING IN THE CASE AS FOUND BY THE HIGH COURT, THE PROVISION OF MONEY BY THE ASSESSEE, THE PU RPOSE FOR WHICH THE MONEY WAS PROVIDED, THE STIPULATION FOR EA RNING OF INTEREST, WERE ALL RELEVANT CONSIDERATIONS TO BE TAKEN INTO ACCOUNT AND IT BECOMES DIFFICULT TO TAKE A VIEW DIFF ERENT FROM THAT OF THE HIGH COURT THAT THE FUNDING WAS INVESTM ENT AND UNDER THE AGREEMENT, INTEREST HAS BEEN EARNED. ADMITT EDLY, THE FUNDING WAS TO OTHER CO-OPERATIVE SOCIETIES. IN OU R OPINION, THEREFORE, THE AMOUNT OF RS. 51,295 SQUARELY CAME WITHI N S. 14(3)(III) OF THE ACT. THE HIGH COURT, THEREFORE, WAS RI GHT IN ITS CONCLUSION THAT NO TAX WAS PAYABLE ON THE SAID AMOUNT . WE WOULD LIKE TO POINT OUT THAT UNDER S. 14(3), PROVISION HAS BEEN MADE TO EXTEND CERTAIN ADVANTAGES TO CO-OPERATIVE SO CIETIES IN ORDER THAT THE LEGISLATIVE PURPOSE OF PROVIDING INCE NTIVES TO THE CO-OPERATIVE MOVEMENT MAY BE FULFILLED. THE HIGH COURT WAS RIGHT IN HOLDING THAT THE PROVISIONS CONTAINED IN S. 14(3) SHOULD BE LIBERALLY CONSTRUED. 11. OUR ANSWER TO THE SECOND QUESTION, THEREFORE, IS THAT , ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND ON A TRUE AND CORRECT INTERPRETATION OF THE VARIOUS CLAUSES OF THE AGREEMENT, THE SUM OF RS. 51,295 RECEIVED AS INTEREST ON ADVANCES IN THE ASSESSEE'S INCOME FROM SUGAR BUSINE SS WAS EXEMPT UNDER S. 14(3) OF THE IT ACT, 1922. 14. RELYING ON THE AFORESAID DECISION OF THE APEX C OURT, THE ITAT, IN THE CASE OF AMRELI ZILA SAHKARI KHARID VEH CAN ITA NO.1467/CHD/2016 A.Y.2009-10 14 SANGH LTD.(SUPRA) HELD THAT INTEREST RECEIVED BY A CO- OPERATIVE SOCIETY FROM STATE MARKETING FEDERATION F ROM LOANS GIVEN FOR PURCHASE OF GOODS ON THEIR BEHALF WOULD C OME WITHIN THE PURVIEW OF SECTION 80P(2)(D) OF THE ACT, THE FUNDS PROVIDED QUALIFYING AS INVESTMENT WITH OTHER COOPER ATIVE SOCIETIES. THE RELEVANT FINDINGS OF THE ITAT AT PA RA 6.4 OF ITS ORDER ARE AS UNDER: 6.4. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LEARNED REPRESENTATIVES AND HAVE ALSO GONE THROUGH THE RELEVANT PARAS OF THE CIT(A)'S ORDER AND OTHER DOCUME NTS TO WHICH OUR ATTENTION WAS DRAWN DURING THE CROSS OF H EARING. A PERUSAL OF THE PRINTED BALANCE SHEET AT PAGE 25 THER E OF REVEALS THAT IN THE INTEREST ACCOUNT APPEARING IN THE LEDGER FOLIO NO. 254 CREDIT IN INTEREST ACCOUNT WAS RS. 16,40,88 2.95 PS. THE DEBITS IN THIS INTEREST ACCOUNT WAS RS. 14,03,57 2.33 PS. THUS THERE WAS A NET CREDIT IN INTEREST ACCOUNT O F ONLY RS. 2,37210. THE DETAILS OF CREDITS IN INTEREST ACCOUNT AG GREGATING TO RS. 16,40,882 PLACED AT PAGE 17 OF THE PAPER BOOK R EVEALS THAT THE ASSESSEE RECEIVED BY WAY OF INTEREST AN AM OUNT OF RS. 13,93,250 FROM, GUJARAT STATE SAHAKARI MARKETING FEDERATION LTD. FOR LOAN GIVEN BY THE SOCIETY FOR P URCHASE OF GROUNDNUT, GROUNDNUT SEEDS, (HPS) AND TIL, ETC. THE CIT (A) GRANTED DEDUCTION UNDER S. 80P(2)(D) ON THE AFORESAID AMOUNT OF INTEREST OF RS. 13,93,250 RECEIVED FROM SAID MARKET ING FEDERATION. IN OUR VIEW THE NATURE OF INTEREST INCOM E RECEIVED BY THE ASSESSEE FROM GUJARAT SATE SAHAKARI MARKETIN G FEDERATION LTD. FOR LOAN GIVEN FOR THE PURCHASE OF G OODS ON THEIR BEHALF WOULD CLEARLY COME WITHIN THE SCOPE OF, E XEMPTION PROVIDED UNDER S. 80P(2)(D). THE FUNDS PROVIDED BY THE SOCIETY FOR PURCHASE OF GOODS ON BEHALF OF THE SAID FEDERAT ION WOULD BE TREATED AS INVESTMENTS WITH THE OTHER CO-OPERATIVE SOCIETY AND INTEREST INCOME DERIVED THEREFROM WILL BE ELIGIBLE FOR GRANT OF EXEMPTION UNDER THIS SECTION. THIS VIEW IS FULLY FO RTIFIED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. U.P. CO-OPERATIVE FEDERATION LTD. (1989) 76 CTR (SC) 22: (1989) 176 ITR 435 (SC). 13. THE LD. DR HAS BEEN UNABLE TO DISTINGUISH THE S AID DECISIONS BEFORE US. THEREFORE, THE ADVANCES GIVEN BY THE ASSESSEE SOCIETY TO MILKFED, WE HOLD QUALIFY AS INV ESTMENT FOR THE PURPOSE OF SECTION 80P(2)(D) OF THE ACT. 14. HAVING SAID SO, WE HOWEVER ,DO NOT AGREE WITH T HE CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE THAT THE GROSS ITA NO.1467/CHD/2016 A.Y.2009-10 15 INTEREST INCOME WOULD QUALIFY FOR DEDUCTION U/S 80P (2)(D) OF THE ACT, IN VIEW OF THE DECISION OF THE APEX COURT IN SABARKANTHA ZILLA KHARID VECHAN SANGH LTD. VS. CIT (1993) 114 C TR (SC) 459 : (1993) 203 ITR 1027 (SC AND THAT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF MILKFED ITSELF ,AS POINTED OUT TO THE LD.COUNSEL FOR THE ASSESSEE ,IN PRECEDING YEARS WHEREIN INTEREST EARNE D BY IT FROM DISTRICT COOPERATIVE SOCIETIES LIKE THE ASSESS EE BY VIRTUE OF THE ARRANGEMENT AS EXPLAINED IN THE PRESENT CAS E, WAS HELD TO BE DEDUCTIBLE NET OF EXPENSES INCURRED AND NOT GROSS. THE HONBLE HIGH COURT FOLLOWED THE DECISION OF THE APEX COURT IN THE CASE OF SABARKANTHA (SUPRA) AND FURTH ER HAS ALSO DISTINGUISHED THE DECISION RENDERED IN THE CAS E OF DOABA COOPERATIVE AS UNDER: 12.THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER S. 80P (2)(D) OF THE ACT AFTER EXCLUDING THE EXPENDITURE ATTRIBUTABLE T O THE EARNING OF SUCH INCOME. THE APEX COURT IN SABARKANTH A ZILLA KHARID VECHAN SANGH LTD.S CASE (SUPRA), WHERE THE HIGH COURT WHILE REJECTING THE CLAIM OF THE ASSESSEE HAD H ELD THAT THE ASSESSEE WHO WAS ENGAGED IN THE PURCHASE OF AGRIC ULTURAL IMPLEMENTS, SEEDS, LIVE-STOCKS ETC. WAS ENTITLED TO DEDUC TION UNDER S. 81 OF THE ACT FROM TAX ONLY IN RELATION TO NET PROF IT AND NOT GROSS PROFITS. IT WAS HELD AS UNDER : 'THE SAID PROVISION, AS SEEN THEREFROM, UNDOUBTEDLY E XEMPTS AN ASSESSEE-CO-OPERATIVE SOCIETY, WHICH CARRIES ON THE BUSINESS ENVISAGED THEREIN, FROM PAYMENT OF INCOME-T AX ON PROFITS AND GAINS OF SUCH BUSINESS. BUT THE CONTROVE RSY WHICH RELATES TO THE SAID PROVISION IS, WHETHER THE INCOM E-TAX NOT PAYABLE THEREUNDER, FALLS TO BE CALCULATED EITHER WITH REFERENCE TO THE FULL AMOUNT OF PROFITS AND GAINS OF THE CO- OPERATIVE SOCIETYS BUSINESS, AS CONTENDED ON BEHALF OF THE ASSESSEE OR WITH REFERENCE TO THE NET AMOUNT OF PROF ITS AND GAINS OF THE CO-OPERATIVE SOCIETYS BUSINESS, AS OTHER WISE COMPUTABLE UNDER THE PROVISIONS OF THE IT ACT FOR TH E PURPOSE OF CHARGING INCOME-TAX THEREON, AS CONTENDED ON BEHA LF OF THE REVENUE. IF THE RELEVANT PROVISIONS OF THE IT ACT PRO VIDING FOR CHARGING A PERSON INCLUDING A CO-OPERATIVE SOCIETY WIT H INCOME-TAX ON 'PROFIT AND GAINS' OF SUCH PERSONS BU SINESS SHOW THAT IT IS THE NET PROFITS AND GAINS, I.E., INCOME OF SUCH BUSINESS COMPUTED IN ACCORDANCE WITH THE PROVISIONS O F THE IT ACT, WHICH IS INCLUDIBLE IN SUCH PERSONS TOTAL INCOME LIA BLE TO CHARGE OF INCOME-TAX, IT MUST FLOW THEREFROM, AS A NEC ESSARY ITA NO.1467/CHD/2016 A.Y.2009-10 16 COROLLARY THEREOF, THAT THE 'PROFITS AND GAINS' FOR W HICH EXEMPTION FROM INCOME-TAX IS ENVISAGED UNDER S. 81(I )(D) OF THE IT ACT, OUGHT TO BE NET PROFITS AND GAINS, I.E. INCOME OF BUSINESS COMPUTED IN ACCORDANCE WITH THE PROVISIONS O F THE IT ACT WHICH IS INCLUDIBLE IN SUCH PERSONS TOTAL INCOME F OR CHARGING INCOME-TAX THEREON.' 13. IT MAY BE NOTICED THAT S. 80P WAS INSERTED IN PLACE OF S. 81 WHICH WAS SIMULTANEOUSLY DELETED BY FINANCE (NO. 2) ACT, 1967, W.E.F. 1ST APRIL, 1968. 14. FURTHER, S. 14A WAS INSERTED IN THE ACT BY FINANCE ACT, 2001 W.E.F. 1ST APRIL, 1962. THE SAID SECTION PROVIDES THAT ANY EXPENSES INCURRED BY THE ASSESSEE FOR EARNING INCOM E WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT, SHA LL NOT BE AN ALLOWABLE EXPENDITURE. THE APEX COURT IN WALFORT SHA RE & STOCK BROKERSS CASE (SUPRA), DEFINING THE SCOPE OF S. 14A OF THE ACT, INCORPORATED RETROSPECTIVELY FROM 1ST APRIL, 1962, HAD LAID DOWN AS UNDER : 'THE INSERTION OF S. 14A WITH RETROSPECTIVE EFFECT IS THE SERIOUS ATTEMPT ON THE PART OF THE PARLIAMENT NOT TO ALLOW DED UCTION IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AGAINST THE TAXABLE INCOME (SEE CIRCULAR NO. 14 OF 2001 DT. 22ND NOV., 2001). IN OTHER WORDS, S. 14 A CLARIFIES THAT EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE I NCOME. IN MANY CASES THE NATURE OF EXPENSES INCURRED BY THE A SSESSEE MAY BE RELATABLE PARTLY TO THE EXEMPT INCOME AND PAR TLY TO THE TAXABLE INCOME. IN THE ABSENCE OF S. 14A, THE EXPENDITUR E INCURRED IN RESPECT OF EXEMPT INCOME WAS BEING CLAIM ED AGAINST TAXABLE INCOME. THE MANDATE OF S. 14A IS CLEAR . IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF E XPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXAB LE INCOME AND AT THE SAME TIME AVAIL THE TAX INCENTIVE BY WAY OF EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO E XEMPT INCOME. THE BASIC REASON FOR INSERTION OF S. 14A IS T HAT CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE COMPUTING TOTAL INCOM E AS THESE ARE EXEMPT UNDER CERTAIN PROVISIONS OF THE AC T. IN THE PAST, THERE HAVE BEEN CASES IN WHICH DEDUCTION HAS B EEN SOUGHT IN RESPECT OF SUCH INCOMES WHICH IN EFFECT W OULD MEAN THAT TAX INCENTIVES TO CERTAIN INCOMES WAS BEING US ED TO REDUCE THE TAX PAYABLE ON THE NON-EXEMPT INCOME BY DE BITING THE EXPENSES, INCURRED TO EARN THE EXEMPT INCOME, AGA INST TAXABLE INCOME. THE BASIC PRINCIPLE OF TAXATION IS TO TAX THE NET INCOME, I.E., GROSS INCOME MINUS THE EXPENDITURE. ON THE SAME ANALOGY THE EXEMPTION IS ALSO IN RESPECT OF NET INCOM E. EXPENSES ALLOWED CAN ONLY BE IN RESPECT OF EARNING OF TAXABLE INCOME. THIS IS THE PURPORT OF S. 14A. IN S. 14A, THE F IRST PHRASE IS FOR THE PURPOSES OF COMPUTING THE TOTAL I NCOME UNDER THIS CHAPTER WHICH MAKES IT CLEAR THAT VARIOUS HEADS OF INCOME AS PRESCRIBED UNDER CHAPTER IV WOULD FALL WITHI N S. 14A. THE NEXT PHRASE IS, IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. IT MEANS TH AT IF AN ITA NO.1467/CHD/2016 A.Y.2009-10 17 INCOME DOES NOT FORM PART OF TOTAL INCOME, THEN THE R ELATED EXPENDITURE IS OUTSIDE THE AMBIT OF THE APPLICABILITY OF S. 14A. FURTHER, S. 14 SPECIFIES FIVE HEADS OF INCOME WHICH A RE CHARGEABLE TO TAX. IN ORDER TO BE CHARGEABLE, AN INCOM E HAS TO BE BROUGHT UNDER ONE OF THE FIVE HEADS. SECS. 15 TO 5 9 LAY DOWN THE RULES FOR COMPUTING INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX UNDER THOSE HEADS. SECS. 15 TO 59 QUANTIFY THE TOTAL INCOME CHARGEABLE TO TAX. THE PERMI SSIBLE DEDUCTIONS ENUMERATED IN SS. 15 TO 59 ARE NOW TO BE ALLOWED ONLY WITH REFERENCE TO INCOME WHICH IS BROUGHT UNDER ONE OF THE ABOVE HEADS AND IS CHARGEABLE TO TAX. IF AN INCOM E LIKE DIVIDEND INCOME IS NOT A PART OF THE TOTAL INCOME, T HE EXPENDITURE/DEDUCTION THOUGH OF THE NATURE SPECIFIED IN SS. 15 TO 59 BUT RELATED TO THE INCOME NOT FORMING PART OF TOTAL INCOME COULD NOT BE ALLOWED AGAINST OTHER INCOME INCLUDIBLE IN THE TOTAL INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX. THE THEORY OF APPORTIONMENT OF EXPENDITURES BETWEEN TAXABLE AND NON- TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER S. 14A . READING S. 14 IN JUXTAPOSITION WITH SS. 15 TO 59, IT IS CLEAR THAT THE WORDS 'EXPENDITURE INCURRED' IN S. 14A REFERS TO EXPENDITURE ON RENT, TAXES, SALARIES, INTEREST, ETC. IN RESPECT OF WHICH ALLOWANCES ARE PROVIDED FOR (SEE SS. 30 TO 37).' 15. ADVERTING TO THE JUDGMENTS RELIED UPON BY THE LEA RNED COUNSEL FOR THE ASSESSEE, THE SAME DO NOT ADVANCE ITS CASE. SUFFICE IT TO NOTICE THAT THE DOABA CO-OPERATIVE SUG AR MILLS CASE (SUPRA) WAS A CASE PRIOR TO INSERTION OF S. 14A BY FINANCE ACT, 2001 RETROSPECTIVELY FROM 1ST APRIL, 1962 AND WOULD , THUS, BE OF NO ASSISTANCE TO THE ASSESSEE. FURTHER, TH IS COURT IN KING EXPORTS CASE (SUPRA), ON CONSIDERATION OF FAC TS INVOLVED THEREIN HAD CONCLUDED THAT THERE WAS NO EXPE NDITURE WHICH HAD BEEN INCURRED BY THE ASSESSEE FOR EARNING THE INCOME AND THE SAME DID NOT FORM PART OF TOTAL INCO ME. THAT IS NOT THE SITUATION IN THE PRESENT CASE. 16. IN VIEW OF THE ABOVE, THE SUBSTANTIAL QUESTIONS OF LAW ARE ANSWERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. 15. IN VIEW OF THE SAME WE HAVE NO HESITATION IN AP PLYING HE SAID CASE LAWS TO THE FACTS OF THE PRESENT CASE AND THEREBY UPHOLD THE ORDER OF THE LD.CIT(A) HOLDING THAT THE NET INTEREST INCOME QUALIFIED FOR DEDUCTION U/S 80P (2)(D) OF THE ACT. 16. IN VIEW OF THE ABOVE FACTS AND THE POSITION OF LAW IN THIS REGARD, WE HOLD THAT THE ADVANCES GIVEN BY THE ASSE SSEE COOPERATIVE SOCIETY TO MILKFED QUALIFIES AS INVESTM ENT FOR THE PURPOSE OF DEDUCTION U/S 80P(2)(D) OF THE ACT AND T HE NET ITA NO.1467/CHD/2016 A.Y.2009-10 18 INTEREST INCOME EARNED THEREFROM IS ELIGIBLE FOR DE DUCTION UNDER THE SAID SECTION. SINCE IN THE FACTS OF THE PRESENT CASE NO NET INTEREST INCOME WAS EARNED BY THE ASSES SEE, THE ASSESSEE, WE HOLD, WAS NOT ENTITLED TO ANY CLAIM OF DEDUCTION U/S 80P(2)(D) OF THE ACT. THE ORDER OF THE CIT(A) U PHOLDING THE DENIAL OF CLAIM OF DEDUCTION U/S 80P(2)(D) OF T HE ACT OF RS.49,90,022/- IS, THEREFORE, UPHELD IN VIEW OF THE ABOVE, THE GROUNDS RAISED BY THE ASS ESSEE ARE DISMISSED. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- ' # $ %! (SANJAY GARG ) (ANNAPURNA GUPTA) / JUDICIAL MEMBER &' / ACCOUNTANT MEMBER )' /DATED: 31 JANUARY, 2019 * ! * &) *+,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' - / CIT 4. ' - ( )/ THE CIT(A) 5. +./ 0 , $0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35# / GUARD FILE &) ' / BY ORDER, / ASSISTANT REGISTRAR