Income Tax Officer, Ward-2, Karwar., Karwar V. The Nagarbail Salt-Owners Co-op. Society Ltd., Kumta

ITA 252/PAN/2014

• Counselvise Citation: 25224114 RSA 2014
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2015
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 21-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 23-07-2014
• Court: TRIBUNAL
• Department Lawyers: R DURAI PANDIAN LD
• Assessee Lawyers: NAVIN P NADKARNI LD
• Keywords: Business income; Depreciation
• Section: 131; 6; 12; 11

Judgement Text

1 I.T.A. NOS.252 TO 256 & 377 /P NJ /2014: ASSESSMENT YEARS - 2006 - 07 & 2007 - 08 TO 2011 - 2012 IN THE INCOME TAX APPELLATE TRIBUNAL, PANAJI BENCH, PANAJI BEFORE S/SHRI P.K.BANSAL (AM) AND D.T.GARASIA (JM) I.T.A. NO S.252 TO 256 & 377/PNJ/2014 : ASSESSMENT YEAR S - 200 6 - 07 & 0 7 - 08 TO 2011 - 201 2 INCOME TAX OFFICER, WARD - 2, SANTERI KRUJPA BUILDING, HABBUWADA, KARWAR. VS. THE NAGARBAIL SALT - OWNERS CO - OPERATIVE PAN: AAFT6229J, SOCIETY LIMITED, SANIKATTE, GOKARNA, KUMTA - 581 326 PA NO.AAAFT 6229J APPELLANT RESPONDENT FOR THE APPELLANT : SHRI R.DURAI PANDIAN, LD.DR FOR T HE RESPONDENT: SHRI NAVIN P.NADKARNI, LD.AR DATE OF HEARING: 21 - 01 - 2015 DATE OF PRONOUNCEMENT: 2 3 - 01 - 201 5 ORDER PER D.T.GARASIA, JM THE SE APPEAL S FILED BY THE REVENUE ARE DIRECTED AGAINST COMMON CONSOLIDATED ORDER DTD.2.4. 2014 OF LD CIT(A), MYSORE FOR THE AS SESSMENT YEA RS 200 7 - 08 TO 2011 - 2012, RESPECTIVELY, IN THE MATTER OF ASSESSMENT U/S.143(3) R.W.S 147 OF THE ACT. 2. GROUNDS COMMON TO ALL THE APPEALS RAISED BY THE REVENUE READ AS UNDER: 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE INCOME OF THE ASSESSEE BROUGHT TO TAX AS PROFIT OF ITS BUSINESS OF MANUFACTURE AND SALE OF SALT. 2. THE LEARNED CIT(A) ERRED IN ACCEPTING ASSESSEE S CONTENTION THAT THE METHOD OF COMPUTATI ON OF INCOME WAS FOLLOWED FROM THE INCEPTION OF THE SOCIETY AND ACCEPTED BY THE DEPARTMENT WHICH IS NOT IN ACCORDANCE WITH LAW. 3. THE LEARNED CIT(A) UP HELD THE PROCEEDINGS INITIATED U/ S 147 AND THE REASONS FOR REOPENING THE ASSESSMENT AND AT THE SAME T IME DELETED ASSESSMENT WHICH WAS BASED ON THE SAME REASONS RECORDED. - 4. THE LEARNED CIT(A) IGNORED THE FACT THAT SALE OF SALT WAS DECLARED IN THE VAT RETURNS AS THAT OF THE ASSESSEE - SOCIETY AND THE PROFIT BELONGED TO THE ASSESSEE AND LIABLE TO TAX ON LY IN THE HANDS OF THE ASSESSEE BEFORE DISTRIBUTION TO THE MEMBERS. 5. THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THAT THE CLAIM OF EXPENDITURE BY WAY OF TRANSFER OF NET SALES TO DISTRIBUTION POOL FUND BEING A SELF - IMPOSED OBLIGATION IS NOT AUTHORISED AND NOT ALLOWABLE UNDER ANY PROVISIONS OF INCOME TAX ACT 6. THE LEARNED CIT(A) ERRED IN APPLYING RATIO OF RADHASOAMI SATSANG VS CIT (1992) 193 ITR 321 (SC) WHICH DEALT WITH THE ISSUES OF ENTITLEMENT TO EXEMPTION UNDER SECTIONS 11 AND 12 OF TH E INCOME - TAX ACT OF 1961, WHEREAS THE ISSUES INVOLVED IN THE CASE OF THE ASSESSEE ARE THAT OF BUSINESS ASSOCIATION. 2 I.T.A. NOS.252 TO 256 & 377 /P NJ /2014: ASSESSMENT YEARS - 2006 - 07 & 2007 - 08 TO 2011 - 2012 7. THE LEARNED CIT(A) EN - ED APPLYING RATIO OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD VS CIT 227 ITR 172 (SC), WRONGLY CONSIDERING T HAT THE ENTIRE RECEIPTS OF THE BUSINESS BY SALE OF SALT WERE CHARGED TO INCOME TAX, AND IGNORED THAT ONLY THE PROFITS AFTER DEDUCTING MANUFACTURING AND ADMINISTRATIVE EXPENSES IS DETERMINED AS INCOME OF THE ASSESSEE. 8. THE LEARNED CIT(A) ERRED IN NOT FOLLOWING THAT THE COOPERATIVE SOCIETY IS NOT ALLOWED IN ANY LAW TO ACT AS AN AGENT FOR ITS OWN MEMBERS. THE LANDS WERE SURRENDERED TO THE SOCIETY TO INCREASE PROFIT AND THE SOCIETY IS LIABLE TO TAX BEFORE THE PROFITS ARE SHARED BY THE MEMBERS. 9. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, EDIT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT THE TIME OF OR BEFORE THE HEARING OF THE APPEAL. 3. THE BRIEF FACTS , AS ENUMERATED FROM THE IMPUGNED ORDER , ARE THAT THE ASSESSEE IS A COOPERATIVE SOCIETY FORMED ON 08 .05. 1952 AND REGISTERED UNDER BOMBAY CO - OPERATIVE SOCIETIES ACT ON 17.09.1952 WITH THE OBJECT OF CARRYING ON BUSINESS OF MANUFACTURE AND SALE - OF COMMON SALT . IT IS AN ASSOCIATION OF PERSON WHO ARE TERMED MALIKS, WHO A RE MEMBERS OF THE SOCIETY BY VIRTUE OF THEIR OWNERSHIP OR INTEREST IN THE LANDS FOR MANUFACTURE OF SALT IN LARGE TRACK OF SALTY WET LAND OF NARNAPUR AND NAGARBAIL VILLAGES OF GOKARRIA HUBLI OF KUMTA TALUK . THESE LANDS ARE GIVEN TO THE SOCIETY FOR MANUFACTU RE OF SALT AND SALE OF THE SATHE. THE SOCIETY MAINTAINED A RECORD OF ITS MANUFACTURE AND SALE OF SALT AND DISTRIBUTION OF PROFITS ONCE IN SIX MONTHS. THE SOCIETY MANUFACTURED SALT AND SOLD THE SAME. THE SOCIETY MAINTAINED SEPARATE RECORDS FOR THIS ACTIVITY AND AFTER DEBITING CONNECTED EXPENSES AND THE SOCIETIES COMMISSION AND INTEREST ON MANUFACTURING AND TRADING OF SALT AND THE SURPLUS WAS TAKEN TO ANOTHER ACCOUNT CALLED DISTRIBUTION POOL FUND ACCOUNT AND THEN THE PROPORTIONATE AMOUNTS TO THE MEMBERS A CCORDING TO THEIR UNIT HOLDING WERE DISTRIBUTED THROUGH THIS ACCOUNT. THE SAID SUM OF SOCIETYS COMMISSION AND INTEREST ON MANUFACTURING & TRADING OF SALT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT. THIS SYSTEM IS FOLLOWED BY THE SOCIETY FROM THE VERY BEGINNING. PRIOR TO THIS SOCIETY, THE CO - OPERATIVE THAT EXISTED SINCE 1 9 O4 WAS SANIKATTA CO - OPERATIVE SALT SALE SOCIETY LTD , SANIKATTA WHICH WAS A COOPERATIVE OF SALT PRODUCERS WHICH ONLY FACILITATED THE SALE OF SALT PRODUCED BY ITS MEMBERS THE EARLIER S OCIETY WAS NOT IN PRODUCTION OF SALT . 4. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE SOCIETY IS NOT ENGAGED IN THE BUS INESS OF MERE MARKETING OF SALT PRODUCED BY THE MEMBERS OR PROVIDING FACILITATES TO THE MEMBERS TO PRODUCE SALT . IT IS THE CASE OF I NCOME FROM MANUFACTURE AND SALE OF SALT BEING TRANSFERRED TO DISTRIBUTION POOL FUND ACCOUNT BEFORE OFFERING TO TAX AND HENCE THERE IS INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT . THE TRANSFER TO THE FUND AND 3 I.T.A. NOS.252 TO 256 & 377 /P NJ /2014: ASSESSMENT YEARS - 2006 - 07 & 2007 - 08 TO 2011 - 2012 SUBSEQUENT DISTRIBUTION TO MEMBERS BEF ORE PAYMENT OF TAX IS NOT A DEDUCTIBLE EXPENDITURE AND THE AMO UNT APPROPRIATED BY THE ASSESSEE OUT OF ITS INCOME AND CREDITED TO THE DISTRIBUTABLE POOL FUND ACCOUNT CANNOT BECOME A DEDUCTION FOR THE SOCIETY . HENCE, THE INCOME OF THE SOCIETY FROM ITS BUSIN ESS OF MANUFACTURE AND SALE OF SALT HAS ESCAPED ASSESSMENT . WITH THESE OBSERVATIONS , THE AO TOOK APPROPRIATE ACTIO NS IN THE RESPECTIVE YEARS FOR I NITIATING SCRUTINY . 5. BEFORE THE AO, THE ASSESSEE SUBMITTED VARIOUS DETAILS AS REQUIRED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. AFTER ANALYSING THE DETAILS, THE AO WAS OF THE VIEW THAT ASSESSEE IS A SEPARATE JUDICIAL ENTITY AND HENCE THERE IS NO PRINCIPLE OF MUTUAL ITY IN THE CASE OF THE ASSESSEE SINCE, ONE OF THE OBJECTIVES OF THE SOCIETY IS TO MAKE PROFIT S AND DECLARE DIVIDEND TO ITS MEMBERS. THE REGISTRATION AS CO - OPERATIVE SOCIETY SHALL RENDER IT A BODY CORPORATE BY THE NAME UNDER WHICH IT IS REGISTERED, HAVING PERPETUAL SUCCESSION AND A COMMON SEAL AND WITH POWER TO HOLD PROPERTY, ENTER INTO CONTRACTS, ETC. THE MEMBER MALLIKS WHO ARE THE OWNERS OF THE LAND IN THE SUBMERGED SALTY PLAIN SURRENDER THEIR LANDS TO THE SOCIETY FOR THE BUSINESS ACTIVITY OF MANUFACTURE AND SALE OF SALT. IN VIEW OF THIS, HE OBSERVED THAT THE ASSESSEE IS NEITHER A WORKER CO - OPER ATIVE NOR A PRODUCER CO - OPERATIVE. THERE IS NO ACTIVE PARTICIPATION OF MEMBERS. THE AO, IN THE ASSESSMENT ORDER, DISCUSSED VARIOUS CLAUSES MENTIONED IN THE OBJECTIVES OF THE SOCIETY AND PROPOSED TO ASSESS THE NET PROFIT ARRIVED AT WITHOUT ALLOWING DEDUCT ION CLAIMED AS TRANSFER TO THE DISTRIBUTION POOL ACCOUNT SINCE THE SAME HAS NO CONNECTION TO EARNING PROFIT AND IS A CASE OF APPLICATION OF INCOME. THE AO OBSERVED THAT THE ASSESSEE HAS NOT SEGREGATED THE RESIDUAL BYE - LAWS OF ITS PREDECESSOR SALT SALE SOCIETY AS IRRELEVANT AND TRANSFERRED INCOME OF THE SOCIETY BY MANUFACTURE AND SALE OF SALT TO DISTRIBUTION POOLED FUND ACCOUNT BEFORE OFFERING TO INCOME TAX WHICH IS NOT A DEDUCTIBLE EXPENDITURE IN COMPUTATION OF BUSINESS INCOME. IT WAS IN THI S BACKDROP THAT THE ASSESSING OFFICER AFTER ALLOWING DEPRECIATION AND COMMISSION OF SOCIETY ARRIVED AT THE TAXABLE INCOME BY INCLUDING THE AMOUNTS TRANSFERRED TO THE DISTRIBUTION POOL FUND ACCOUNT. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE CARRIED THE MA TTER IN APPEALS BEFORE LD CIT(A). 6. LD CIT(A) UPHELD THE ASSESSMENT ORDER PASSED BY THE AO U/S.147 OF THE ACT AS HE OBSERVED THAT THE AO HAD GIVEN DETAILED REASONS FOR REOPENING THE ASSESSMENT. 7. BEFORE LD CIT(A), THE ASSESSEE FILED THE RESOLUTION FOR CHARGING OF COMMISSION, BYE - LAWS OF THE SOCIETY AND THE LIST OF MEMBERS ALONGWITH THEIR PAN NUMBERS AND INCOME IN THEIR INDIVIDUAL HANDS. ASSESSEE REFERRED TO CLAUSE 4(A) OF THE BYE LAW, WHEREIN, IT IS MENTIONED 4 I.T.A. NOS.252 TO 256 & 377 /P NJ /2014: ASSESSMENT YEARS - 2006 - 07 & 2007 - 08 TO 2011 - 2012 THAT WHAT THEY OBTAIN FROM MALIKS IS ONLY R IGHT OF MAN . UFACTURING SALT ON COOPERATIVE BASIS AND UNDER CLAUSE (C), THE ROLE OF THE SOCIETY IS TO CONSOLIDATE AND REMODEL THE SALT WORKERS SO AS TO MANUFACTURE SALT AND BYE PRODUCTS ECONOMICALLY AND ON A SCIENTIFIC BASIS AND TO MANUFACTURE TABLE SALT AND HIGH PURITY SALT. IN VIEW OF THE ABOVE OBJECTS, IT WAS SUBMITTED THAT THE AOS VIEW THAT THE LANDS SURRENDERED COME UNDER COOPERATIVE OWNERSHIP AND MEMBERS DO NOT HAVE ANY CLAIM ON THE SALT PRODUCE ARE NOT CORRECT. IT WAS SUBMITTED THAT NONE OF THE BYE LAWS OF THE SOCIETY ARE AGAINST ANY PROVISIONS OF INCOME TAX ACT OR CONSTITUTION OF INDIA OR OTHER ENACTMENTS OF PARLIAMENT. THE TOTALITY OF THE BYE LAW LEADS TO FORMATION OF THE SOCIETY AND THE UNDERTAKING BETWEEN THE MEMBERS THE SOCIETY AND THE SOCI ETY . IT WAS SUBMITTED THAT THE OWNERSHIP OF SURRENDERED LANDS STILL VESTS WITH THE MEMBERS DO NOT DISQUALIFY THE ASSESSEE SOCIETY FROM OFFERING THE INCOME GENERATED FROM THE LA ND TO TAX DUTY COMPLIED WITH SINCE THE ASSESSEES SHARE OF THE INCOME GENERATED IN TH E FORM OF COMMISSI ON IS OFFERED IN THE ASSESSEES HANDS WHILE THAT OF THE EMBERS IS OFFERED IN THEIR RESPECTIVE HANDS , THERE IS NO VIOLATION ON THIS A CCO UNT ALSO . IT IS EVIDENT FROM THE BYE LAWS THA T THE MEMBERS SURRENDER THEIR RIGHT TO M ANUFACTUR E SALT ON THEIR LANDS WITH THE CLEAR UNDERSTANDING THAT THE ASSESSEE SHALL DO THAT PART ON THEIR BEHALF AND PRODUCE SAL T AND SELL THE SAME FOR WHICH THE ASSESSEE SHALL DERIVE COMMISSION AND AFTER ALL THE MANUFACTURING EXPENSES AND EXCLU DING THE COMMISSION THE BALANCE GOES TO THE MEMBERS AND WHILE ACCOUNTING, THIS BALANCE IS TRANSFER RED TO ANOTHER ACCOUNT FOR CLARITY AND DISTRI BUTED TO RESPECTIVE MEMBERS ACCORDING TO T HEIR SHARE. IT WAS SUBMITTED THAT THE MEMBERS HAD RIGHT ON THIS INCOME BY OV ERRIDING TITLE AND THE ASSESSEE SOCIETY DO NOT HAVE ANY RIGHT ON THIS INCOME WHATSOEVER EXCEPT GIVING IT TO THE MEMBERS . HENCE IT CANNOT BE TRE ATED AS INCOME OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THERE IS NO BAR ON ANY CO - OPERATIVE SOCIETY TO A CT AS A FACILITATOR TO THE MEMBERS TO MAXIMIZE THEIR PROFITS AND CHARGE A COMMISSION FOR THA T. IT WAS SUBMITTED THAT THE EARLIER SOCIETY WAS FOR THE LIMITED PURPOSE OF SELLING THE PRODUCTS MANUFACTURED BY THE MEMBERS IN A PROFITABLE WAY BY TAKING ADVANTAG E OF COOPERATIVE METHODS AND THE PRESENT SOCIETY IS ACTING ON SIMILAR LINES, DENIAL OF THE SAME IS NOT LEGALLY CORRECT. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, LD CIT(A) ALLOWED THE ASSESSEES APPEALS, INTER ALIA, BY OBSERVING AS UNDER: 1 HAVE CO NSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE CRUCIAL FACT ON THIS ISSUE IS THE APPROVED BYE LAWS OF THE SOCIETY . THE RELEVANT CLAUSES ARE EXTRACTED IN THE ASSESSMENT ORDER AL SO . HOWEVER, THE AO OBSERVED THAT CERTAIN OF THE CLAUSES ARE IRRELEVANT . I DO NOT AGREE WITH THE OBSERVA TION OF THE AO THAT CLAUSES LIKE 4(M) AND 4(U) CEASES TO OPERATE. IN FACT, THIS CLAUSES ARE SUPPLEMENTARY AND COMPLIMENTARY TO 4(A) & 4(Q) IN FACT CLAUSE 4(I) STIPUL ATES THAT THE SOCIETY PAYS ON BEHALF OF THE MEM BERS THE ASSES SMENT AND MALIGN RENT . THIS ALSO SHOWS THAT 5 I.T.A. NOS.252 TO 256 & 377 /P NJ /2014: ASSESSMENT YEARS - 2006 - 07 & 2007 - 08 TO 2011 - 2012 THE SOCIETY IS ONLY MANAGING THE WHOLE ACTIVITY ON BEHALF OF THE MEMBERS TO MAXIMIZE THE PROFITS IN THE MOST BENEFICIAL WAY TO THE MEMBERS THIS ACTIVITY IS CARRIED ON FOR LAST SEVERAL YEARS AND EVEN BEFOR E TH E OPERATION OF THE PRESENT I T ACT WHICH IS IT ACT 1962. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES I FIND STRENGTH IN THE ARGUMENT OF THE APPELLANT THAT THE BYE LAWS CANNOT BE SEGREGATED AND READ TO HOLD THE I NCOME GENERATED AS INCOME OF THE APPELLANT . IT IS POINT WORTH NOTING THAT THE MEMBERS HAVE OFFERED THE INCOME IN THEIR HANDS . TAKING STRENGTH FROM THE DECISION OF THE HONBLE SUPREME COURT IN THE CAS E OF RADHASOANV SATSANG (293 ITR 321 ), I DO NOT FIND ANY INFIRMITY N THE ACCOUNTI NG OF THE APPELLANT ALSO, SINCE I AM OF THE VIEW THAT THE MEMBERS HAVE RIGHT BY OVERRIDING TITLE ON THE INCOME GENERATED AND CO N SIDERIN G THE TOTALITY OF THE BYE LAWS THE APPELLANT IS ELI GIBLE ONLY FOR COMMISSION PART OF FT. HENCE, I FIND STRENGTH IN T HE ARGUMENT OF THE APPELLANT THAT WHAT CAN BE TAXED I N THE HANDS OF THE APPELLANT, EVE N ON REAL INCOME CONCEPT, IS ONLY THE COMMISS ION AND ACCORDINGLY ALLOW THE APPEAL. 8. AGGRIEVED BY THE ORDER PASSED BY LD CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 9. AT THE TIME OF HEARING, LD D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER. 10. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELO W. BEFORE US, ASSESSEE FILED WRITTEN SUBMISSIONS AS UNDER: THE CO - OP SOCIETY WAS FORMED ON 08.05.1952 & IS REGISTERED UNDER BOMBAY CO - OP SOCIETIES ACT ON 17.091952. THE SAID ACT WAS REPEALED BY SECTION 131 OF THE KARNATAKA CO - OPERATIVE SOCITIES ACT 1959. IT IS AN ASSOCIATION OF PERSONS TERMED AS M ALIKS WHO ARE THE MEMBERS OF THE SOCIETY BY VIRTUE OF THEIR OWNERSHIP IN TRACK OF SALTY WET AND OF NAVNAPUR & NAGARBAIL VILLAGES OF GOKAMA. THE LANDS ARE GIVEN TO SOCIETY FOR MANUFACTURE & SALE OF SALT. THE SOCIETY MAINTAINS RECORDS OF MANUFACTURE & SALE OF SALT AS AGEN TS OF MEMBERS FOR DISTRIBUTION OF PROFITS ONCE IN 6 MONTHS. AFTER CLAIMING EXP ENSES & ACCOUNTING FOR COMMISSION SURPLUS WAS TAKEN TO SEPARATE ACCOUNT CALLED DISTRIBUTION POOL FUND ACCOUNT & THEN PROPORTIONATE AMOUNT AS PER UNIT HOLDINGS ARE DISTRIBUTE D TO MEMBERS. THE MAIN OBJECT OF THE SOCIETY IS TO PROMOTE ECONOMIC INTERESTS OF THE MEMBERS. I) AS PER BYE LAWS MEMBERS SURRENDER THEIR RIGHT TO MANUFACTURE SALT ON THEIR LANDS WITH CLEAR UNDERSTANDING THAT THE SOCIETY SHALL DO THIS ON THEIR BEHALF & PRODUCE AND SELL SALT FOR WHIC H SOCIETY SHALL DERIVE COMMISSION. AFTER DEDUCTING MANUFACTURING EXPS THE BALANCE GOES TO MEMBERS. RESOLUTIONS FOR CHARGING COMMISSION ALSO AUTHORIZE THIS. THE CONSTITUTION IS TO ENABLE THE SMALL LAND OWNERS TO GET BENEFI T OF EXPLOITATION OF SALT PRODUCTION CO - OPERATIVELY. IT HELPS INDIVIDUAL MEMBERS BY CONSOLIDATING THE LAND FOR BETTER PRODUCTION & SALE OF SALT ON THEIR BEHALF. II) THE CONTRACT BETWEEN THE SOCIETY & MEMBERS HAS ONLY PROVIDED COMMISSION TO SOCIETY AS I TS INCOME. II ) IT IS UNDISPUTED THAT MEMBERS HAVE PAID TAXES ON THEIR SHARE INDIVIDUALLY . 6 I.T.A. NOS.252 TO 256 & 377 /P NJ /2014: ASSESSMENT YEARS - 2006 - 07 & 2007 - 08 TO 2011 - 2012 IV ) THIS SYSTEM IS FOLLOWED FOR LAST SEVERAL YEARS & IS ACCEPTED BY DEPT IN EARLIER YEARS. V) THE SOCIETY IS CARRYING ON THIS ACTIVITY FOR & ON BEHALF OF MALIK MEMBERS WHO ARE THE OWNERS OF LAND. VI) THE CLEAR UNDERSTANDING AS PER BYE LAWS & RESOLUTIONS IS THAT LAND BELONGING TO MEMBERS IS PUT TO USE FOR PRODUCTION & SALE OF SALT & PROCEEDS AFTER ACCOUNTING FOR COMMISSION & EXPS IS DISTRIB UTED PRO - RATA OF AND HOLDING AMONG THE MEMBERS. II . THE RELEVANT BYE LAWS OF THE SOCIETY ARE AS UNDER. I) BYE LAW NO. 4 (A) - TO ACQUIRE FROM THE MALIKS THE RIGHT OF MANUFACTURE OF SALT IN THE NAGARBAIL SAZA, SANKATTA & TO MANUFACTURE SALT AND OTHER BYE PRODUCTS IN THESE AREAS ON CO - OPERATIVE BASIS II ) BYE LAW NA 4 (M) - TO HELP MEMBERS IN GETTING A FAIR PRICE FOR THE SALT & BY PRODUCTS PRODUCED BY THE SOCIETY ON THEIR BEHALF. I II) BYE LAW NO 4 (Q) - TO SELL THE SALT & BYE PRODUCTS DIRECTLY OR THROUG H AGENTS. IV ) BYE LAW NO. 4 (Q - SOCIETY PAYS ON BEHALF OF MEMBERS THE ASSESSMENT & MULGINE RENT V) BYE L A W (N NO 4 (II) - TO RECOVER ALL M ANUFACTURING EXPS OF THE SOCIET Y & OTHER DUES FROM THE INDIVIDUAL MEMBERS FROM TIME TO TIME. VI) BYE LAW MO 4 ( W) . TO UNDERTAKE SUCH OTHER WORK, MEASURES, ACTIVITIES AS WILL BE CONDUCIVE TO THE ECONOMIC WELL BEING OF THE MEMBERS. VII ) BYE LAW NO. 9 (D) - NO PERSON SHALL BE A MEMBER UNLESS HE SURRENDERS HIS INDIVIDUAL RIGHT OF MANUFACTURE OF SALT TO THE SOCIET Y FOR THE PURPOSE OF JOINT MANUFACTURE OF SALT & BY PRODUCTS BY THE SOCIETY. VII ) BYE JAW NO, 58 (H) - THE INTEREST OF EACH MEMBER IN COMMON PRODUCE OF THE SOCIETY SHALL BE DETERMINED IN TERMS OF UNITS DECLARED BY THE GENERAL BODY. IX ) BYE LAW NO. 58 (J ) - SELL THE SALT & BYE PRODUCTS & CREDIT THE SALE PROCEEDS TO THE ACCOUNT OF THE MEMBERS IN PROPORTION TO THEIR INTEREST IN THE AGARS EITHER DIRECTLY OR THROUGH AGENTS. X) BYE LAW NO.83 (A) THE INCOME OF THE SOCIETY SHALL BE BY LEVY OF COMMISSION ON MANUFACTURE & SALE OF SALT & BYE PRODUCTS ON BEHALF OF MEMBERS. XI) BYE LAW NO.84 - THE FOLLOWING SHALL BE THE FIRST CHARGE ON THE REVENUE OF THE SOCIETY. A) INTEREST ON DEPOSITS & LOANS. B) ANY LOSSES UNDERGONE BY THE SOCIETY C) DEDUCTIONS FOR DEPRE CIATION ON MACHINERY, BUILDING, ETC. D) ALL INSURANCE CHARGES. E) ALL EXPENS3ES IN CONNECTION WITH RUNNING OF OFFICE. 7 I.T.A. NOS.252 TO 256 & 377 /P NJ /2014: ASSESSMENT YEARS - 2006 - 07 & 2007 - 08 TO 2011 - 2012 XI) BYE LAW NO.85 - THE GENERAL BODY MAY ON THE RECOMMENDATION OF THE COMMITTEE DISTRIBUTE THE NET PROFITS OF THE SOCIETY AS UNDER: A) NOT LESS THAN 25% TO RESERVE FUND B) DIVIDEND NOT EXCEEDING 9% C) CONTRIBUTION TO SPECIAL RESERVE D) PAYMENT OF BONUS TO MEMBERS OF STAFF AND WORKMAN E) WORKERS WELFARE FUND F) BUILDING FUND. 11. LD COUNSEL FOR THE ASSESSEE ALSO RELIED UPON THE FOLLOW ING DE CISIONS IN SUPPORT OF HIS CASE: I) ICHARKARANJI CO - OP SPINNING MI LLS LTD V DCII 102 ITO 177 (PUN E) (TM) II) CIT V Y.S.. DESALE, 137 ITR 117 (BOM ) III) POO NA ELECTRIC SUPPL Y CO LTD., V S CIT . 57 ITS 521 (SC) IV) CIT V CRAWFORD SAYLEY & CO , 106 ITR 884 (BOM ) V) SMI SAVITA MONAN NAGPAL V CIT 154 ITR 449 (RAJ) CIT V M. D . MANOHAR RAO 155 TR 696 (A. P) VI) CIT V A. TOSH & SONS (P) LTD , 166 ITR 867 (CAL) VII) J IT & PAL X RA YS (P) LTD V CIT 267 ITR 370 (ALL ) VIII) RADHA SOARNI SATSANG V CIT 193 ITR 321 (SC) 12 . HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSING THE MATERIALS ON RECORD, WE FIND NO INFIRMITY IN THE WELL REASONED ORDER OF LD CIT(A) TO INTERFERE. WE ALSO FIND THAT LD CIT(A) HAS CATEGORICALLY DISCUSSED EVERY POINTS RAISED BY THE ASS ESSING OFFICER AND ALSO THE SUBMISSIONS OF THE ASSESSEE IN THE IMPUGNED ORDER. WE HAVE ALSO GONE THROUGH THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE BEFORE US, WHEREIN, IN DIFFERENT BYE LAWS, THE OBJECTIVES OF THE SOCIETY ARE MENTIONED. WE FIND THAT THE CLAUSES MENTIONED IN THE BYE LAWS OF THE SOCIETY ARE SUPPLEMENTARY AND COMPLIMENTARY TO CLAUSES 4(A) & 4(Q). IN FACT CLAUSE 4(I) STIPUL ATES THAT THE SOCIETY PAYS ON BEHALF OF THE MEM BERS THE ASSESSMENT AND MALIGN RENT . THIS ALSO 8 I.T.A. NOS.252 TO 256 & 377 /P NJ /2014: ASSESSMENT YEARS - 2006 - 07 & 2007 - 08 TO 2011 - 2012 SHOWS THAT THE SOCIETY I S ONLY MANAGING THE WHOLE ACTIVITY ON BEHALF OF THE MEMBERS TO MAXIMIZE THE PROFITS IN THE MOST BENEFICIAL WAY TO THE MEMBERS . THIS ACTIVITY IS CARRIED ON FOR LAST SEVERAL YEARS AND EVEN BEFOR E THE OPERATION OF THE PRESENT I T ACT , WHICH IS IT ACT 1962. THE SUBMISSIONS OF THE ASSESSEE THAT EARLIER SOCIETY WAS FOR THE LIMITED PURPOSE OF SELLING THE PRODUCTS MANUFACTURED BY THE MEMBERS IN A PROFITABLE WAY BY TAKING ADVANTAGE OF COOPERATIVE METHODS AND THE PRESENT SOCIETY IS ACTING ON SIMILAR LINES, THEREFO RE, DENIAL OF THE SAME IS NOT LEGALLY CORRECT BY TAKING DIFFERENT PLEA BY THE AO. IT IS A FACT THAT THE BYE LAWS CANNOT BE SEGREGATED AND READ TO HOLD THE I NCOME GENE RATED AS INCOME OF THE ASSESSEE . WE HAVE GONE THROUGH THE CASE LAWS CITED BY THE ASSESSE E, WHICH ARE ALSO SUPPORTING THE CASE OF THE ASSESSEE. IN VIEW OF THIS, WE REJECT GROUNDS OF APPEAL TAKEN BY THE REVENUE. ITA NO.377/PNJ/2014 A.Y 2006 - 07 (BY THE DEPARTMENT) 13. THIS APPEAL IS FILED BY THE DEPARTMENT AGAINST THE ORDER OF THE LD. CIT(A), MYSORE DATED 05.05.2014 FOR THE ASSESSMENT YEAR 2006 - 07 IN THE MATTER OF ASSESSMENT U/S143(3) R.W.S 147 OF THE I.T ACT 1961. 14. DURING THE COURSE OF HEARING BEFORE US THE LD.DR SUBMITTED THAT THE LD.CIT(A) HAS FOLLOWED THE ORDERS FOR THE ASSESSMENT YEAR S 2007 - 08 TO 2011 - 12 RESPECTIVELY IN THE ASSESSMENT YEAR 2006 - 07. WE FIND THAT THE ISSUE IN THE APPEAL IS CONTROVERSY BY THE ABOVE JUDGMENT FOR THE ASSESSMENT YEARS 2007 - 08 TO 2011 - 12 AND ON THE SAME REASONING GIVEN IN ASSESSMENT YEARS 2007 - 08 TO 2011 - 12, THIS DEPARTMENTAL APPEAL FILED FOR THE ASSESSMENT YEAR 2006 - 07 IS DISMISSED. 15. IN THE RESULT, ALL THE APPEAL S FILED BY THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 2 3 / 01 /201 5 S D / - S D / - (P.K.BANSAL) (D.T.GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, PANAJI 2 3 / 01 /201 5 ** PRADIP ,SR. PS COPY OF THE ORDER FORWARDED TO: 9 I.T.A. NOS.252 TO 256 & 377 /P NJ /2014: ASSESSMENT YEARS - 2006 - 07 & 2007 - 08 TO 2011 - 2012 1. THE ASSESSEE : 2. THE REVENUE: 3. THE CIT, 4. THE CIT(A) 5. DR, PANAJI BENCH 6. GUARD FILE. TRUE COPY// BY ORDER ASST. REGISTRAR, ITAT, PANAJI