Case Law Details
M/s. Kuthuparamba Range Kalluchethu Vyavasaya Thozhilali Sahakarana Sangham Ltd. Vs CIT (Kerala High Court)
Regulatory regime under the Abkari Act would also be not relevant in deciding whether the Society would be entitled to the exemption as available under Section 80P. The Society comprised of the members, who are said to be tapping workers, extracts toddy from the trees owned by its own members and others. When such extraction of toddy is carried on from the trees belonging to the members of the Society, it is definitely an agricultural produce grown by its members. Vending of such produce grown by its members even under a regulatory regime would be marketing of an agricultural produce. The mere fact that the Society carries on vending of toddy; a trade in liquor, which, the Hon’ble Supreme Court has held to be res extra commercium, would not have any effect on the essential nature of the activity of growing trees for the purpose of tapping toddy. The fact of the tree tax being paid by the Society is only on account of the license of tapping and vending having been obtained by the Society. The tax so paid is on behalf of the members of the Society. We also have to notice that tapping of toddy is a traditional agricultural enterprise within the State and the State also encourages it; as distinguished from the foreign liquor trade. We, hence, do not find any reason to interfere with the orders of the Tribunal. We answer the questions of law as framed by us in the appeals filed by the Revenue, against the Revenue and in favour of the assessee.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
Co-operative Societies engaged in tapping of toddy and vending it through licensed shops are the assessees in all these appeals. The question raised in one of the appeals [I.T.A.No.273 of 2015] is whether the Society-assessee can claim a deduction when no return was filed. In all the other cases, returns were filed; but the question arises as to whether the Societies were entitled to claim deduction under Section 80P(2)(iii) of the Income Tax Act, 1961 [for brevity “IT Act”].
2. The questions of law framed in the appeals are re-framed as follows:
Whether the Tribunal was correct in having affirmed the orders of the lower authorities declining deduction under Section 80P for the mere reason that no return was filed; when deduction as permissible under Section 80A(1) is of the total income?
I.T.A.Nos.139, 140, 142, 143, 151, 153, 154 & 156 of 2016:
(i) Whether the Tribunal was correct in having upheld the order of the first appellate authority granting deduction to the turnover of toddy which is said to have been tapped from the trees belonging to the members of the Society since ‘toddy’ is ‘liquor’, regulated by the State under the Abkari Act [1 of 1077] and cannot be termed to be an ‘agricultural produce’?
(ii) Whether the Tribunal was correct in having granted deduction to the Society when they were primarily involved in vending of liquor and engaged neither in the process of agriculture nor in marketing of agricultural produce?
(iii) Whether the Tribunal was correct in its finding on facts with respect to toddy extracted being from the property owned by the members alone and is not the same perverse?
3. I.T.A.No.273 of 2015 is considered first. The learned Senior Counsel would point out Section 80A(1) of the IT Act, to contend that the exemption as applicable to Co-operative Societies under Section 80P is a deduction of the total income and, hence, the same could be applied even without a return filed. CIT v. Yokogawa India Ltd. [(2017) 291 CTR 1 (SC)] is relied on to contend that the deduction being available to the total income, de hors the technical defect of return having not been filed, the Assessing Officer [AO] ought to have allowed the deduction at the point of computing of gross total income as provided under Chapter IV.
4. Yokogawa India Ltd. was a case in which the question arose as to when the deduction available under Section 10A has to be allowed. The Hon’ble Supreme Court found that the deduction under Section 10A has to be made from the gross total income at the time of computing the total income under Chapter IV of the Act and not at the stage of computation under Chapter VI. We do not think that the said proposition would apply here, since it is not the particular income that is granted a deduction, but the institution which is granted it on the ground of it being a Co-operative Society, as defined under Section 80P, carrying on such activities from which the income is generated as specified in sub-section (2) of Section 80P. We also see that the AO had relied on Section 80A(5) to specifically decline the deduction claim under Section 80P for reason of the same having not been made with the filing of a proper return.
5. Section 80A(5) is extracted hereunder:
“S.80A. Deductions to be made in computing total income: xxx xxx xxx
(5) “gross total income” means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter”.
Section 80P comes under sub-chapter ‘C’ “Deduction in respect of certain incomes”. A claim for such deduction has to be made in the return of income inter alia of the deduction permissible under Section 80P for reason of it being allowed to Co-operative Societies. We also notice a Division Bench decision of this Court in Chirakkal Service Co-operative Bank Ltd. v. CIT [(2016) 384 ITR 590 (Ker.)], which relied on the aforesaid provision to decline exemption insofar as a similar situation in which no return was filed. In such circumstance, the failure to file a return under Section 139; even when a notice was issued under Section 142(1), is not a technical defect. We also do not think that the decision in Yokogawa India Ltd. applies, since deduction as spoken of in Section 80A(1) with reference to the provision under sub-chapter ‘C’ being 80P, is with respect to the institution being a Co-operative Society. Only when a return is filed claiming deduction under Section 80P, the AO will be enabled to first consider the question of eligibility of the assessee and then consider the allowability of deduction from the total income. We, hence, answer the question of law framed in I.T.A.No.273 of 2015 against the assessee and in favour of the Revenue. The I.T.A. would stand dismissed.
6. The Income Tax Appeals filed by the Revenue are on the premise that toddy cannot be termed to be an ‘agricultural produce’. The learned Standing Counsel appearing for the Revenue would contend that the finding on facts with respect to toddy being an ‘agricultural produce’ is perverse. The Tribunal has agreed with the first appellate authority that toddy is an agricultural produce. The learned Standing Counsel would argue that toddy being an intoxicating liquor, the extraction and sale are regulated by the State under the provisions of the Abkari Act. The income generated from such vending under license, cannot be covered under Section 80P(2)(iii). It is also argued that initially the claim of the assessee was under Section 80P(2)(vi), which later, before the first appellate authority the assessee changed to one under Section 80P. The claim under “collective disposal of the labour of its members” was on the premise that the members of the Society are toddy tappers engaged in the actual work of toddy tapping and the sale of it through the licensed shops under the Abkari Act. The further contention is that the tapping of toddy is not carried on entirely from the property owned by the members. The specific provision under sub-clause (iii) of Section 80P(2) is “the marketing of the agricultural produce grown by its members”. The tapping of toddy is under a licensing regime and every person granted permission to so tap toddy is liable to pay tree tax. The Society pays the tree tax and taps trees belonging to its members and other persons, which takes it out of an activity of marketing of agricultural produce grown by the members alone. It is also emphasized that essentially the Society is engaged in vending of toddy under license, which cannot be said to be marketing of agricultural produce. What is intended by the exemption provision is to grant an incentive to the agricultural activity, which cannot be extended to ‘toddy’ coming under the definition of ‘liquor’ as defined under the Abkari Act.
7. We are unable to agree with the contentions of the learned Standing Counsel. We have considered the issue in the light of the findings on facts elaborately taken note of by the first appellate authority and the Tribunal. As has been found by the first appellate authority and the Tribunal, toddy is a product which is extracted from a tree just as any other agricultural produce is extracted. The AO in his order as also his report before the first appellate authority had waxed eloquent about there being no activity of sawing and tilling and so on and so forth. A coconut or palm cultivation would not require such sawing and tilling as is required with a paddy cultivation. The mere fact of a particular agricultural activity having not been carried out would not be the sole ground for denying the exemption as available to the marketing of an agricultural produce when carried out by the Co-operative Society.
8. Regulatory regime under the Abkari Act would also be not relevant in deciding whether the Society would be entitled to the exemption as available under Section 80P. The Society comprised of the members, who are said to be tapping workers, extracts toddy from the trees owned by its own members and others. When such extraction of toddy is carried on from the trees belonging to the members of the Society, it is definitely an agricultural produce grown by its members. Vending of such produce grown by its members even under a regulatory regime would be marketing of an agricultural produce. The mere fact that the Society carries on vending of toddy; a trade in liquor, which, the Hon’ble Supreme Court has held to be res extra commercium, would not have any effect on the essential nature of the activity of growing trees for the purpose of tapping toddy. The fact of the tree tax being paid by the Society is only on account of the license of tapping and vending having been obtained by the Society. The tax so paid is on behalf of the members of the Society. We also have to notice that tapping of toddy is a traditional agricultural enterprise within the State and the State also encourages it; as distinguished from the foreign liquor trade. We, hence, do not find any reason to interfere with the orders of the Tribunal. We answer the questions of law as framed by us in the appeals filed by the Revenue, against the Revenue and in favour of the assessee.
9. One other question raised by the Revenue is as to the perversity of the findings of the Tribunal on facts in having granted exemption to the entire income when it was seen that the toddy tapped is also from trees belonging to persons other than the members of the Society. We notice the findings on facts by the Tribunal as available in the impugned order. The Tribunal has noticed the remand report of the AO, which states that out of 636 members, 498 members are toddy tappers who have their own property from which toddy is extracted. The 498 members together have 3845 trees on their own land. A specimen of 974 trees were considered for the purpose of verifying the yield. It was found that 90% of the total of 19,85,461 litres of toddy traded by the assessee came from 498 members having 3845 trees on their own land. It is hence the Tribunal found that 100% of the assessee’s income from toddy marketing was eligible for deduction. We do not find any perversity in the findings on facts. We, hence, on that question also hold against the Revenue and in favour of the assessee. The appeals by the Revenue are dismissed.
Ordered accordingly. No costs.
