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Chatrapati Shivaji Sahakari Sakhar Karkhana Ltd. Vs. Commissioner of Income-tax, Poona - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 78 of 1968
Judge
Reported in[1978]115ITR312(Bom)
ActsIncome Tax Act, 1922 - Sections 10, 14(3), 16(1) and 80P(2)
AppellantChatrapati Shivaji Sahakari Sakhar Karkhana Ltd.
RespondentCommissioner of Income-tax, Poona
Appellant AdvocateY.P. Trivedi, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
direct taxation - computation - sections 10, 14 (3), 16 (1) and 80p (2) of income tax act, 1922 - assessee a co-operative society filed returns - income from business sought to be computed - assessee contended that computation of income not necessary - computation of income even though it was from co-operative society contemplated by provision of section 16 (1) - tax to be payable by co-operative society in respect of profits and gains of business carried on by it - assessee's income from business liable to be included in computation. - .....an income of only rs. 600 which was shown as interest on securities and in the column relating to 'business income' the remark was 'exempted being co-operative society registered under the act'. the income disclosed in part d of the form of the return was rs. 3,24,000 which it was claimed, was not liable to tax. no particulars with regard to the claim for depreciation were filed, but on being asked by the ito to produce the particulars they were produced. the contention raised by the assessee before the ito was firstly that there was no need to compute the income from business because the income from business of a co-operative society was exempt from tax and, secondly, that no depreciation having actually been allowed for the earlier assessment year 1958-59, in the assessment year.....
Judgment:

Chandurkar, J.

1. This is a reference at the instance of the assessee in which two questions have been referred and we have found considerable difficulty in ascertaining the scope of question No. 2

2. The assessee is a sugar factory and actual production of suger had started only on January 17, 1957, though the factory building was erected and machinery was installed by the end of August, 1956. The accounting year of the society was July 1, to 30 th of June and in response to a notice issued under s. 22(2) of the Indian Income-tax Act, 1922, the assessee filed its first return of income for the assessment year 1958-59, showing income as 'nil'. In the column relating to particulars regarding claim for depracation of the assets also, no details were given and the remark was 'nil'. When the ITO took up the assessments proceedings in respect of the assessment year 1958-59, for consideration, he passed a cryptic order as follows :

'The assessee is a co-operative society registered as such income from its business in the manufacture and sale of sugar and from interest on deposits with other co-operative banks. Under section 14(3) of the I.T. Act both the business profit on sales and the interest derived from other co-operative banking instructions are exempt.

Declared not liable for tax.'

3. In the subsequent assessment year 1959-60, the assessee filed a return returning an income of only Rs. 600 which was shown as interest on securities and in the column relating to 'business income' the remark was 'exempted being co-operative society registered under the Act'. The income disclosed in Part D of the form of the return was Rs. 3,24,000 which it was claimed, was not liable to tax. No particulars with regard to the claim for depreciation were filed, but on being asked by the ITO to produce the particulars they were produced. The contention raised by the assessee before the ITO was firstly that there was no need to compute the income from business because the income from business of a co-operative society was exempt from tax and, secondly, that no depreciation having actually been allowed for the earlier assessment year 1958-59, in the assessment year 1959-60, depreciation had to be allowed on the basis of the original cost of the assets. Both the contentions were negatived by the ITO who held that in view of the provisions of s. 16(1)(a), in computing the total income, even the income from business which was exempted was liable to be included. With regard to the claim relating to depreciation the ITO took the view that for the assessment year 1959-60, it was the written down value of the assets which had to be taken into account which was equal to the original cost as reduced by the depreciation amount of Rs. 1,75,361. The ITO, however, found that the correct amount of depreciation permissible in respect of the year 1958-59 was Rs. 1,45,858. The findings given by the ITO were upheld by the AAC and the assessee then filed an appeal before the Tribunal.

4. Now, so far as the order of the Tribunal is concerned, in the opening part of the order it sets out five contentions which are said to have been raised before it by the assessee. The first question which is considered by the Tribunal in paragraph 7 of the order was whether the income of a co-operative society which is exempt from tax under s. 14(3) of the Act is required to be computed at all and the Tribunal took the view after reproducing s. 16(1)(a) of the Act that even if the business income of the assessee was exempt from tax under s. 14(3), 'there is no doubt that its computation was yet permissible because such income did form part of the total income'. The order of the Tribunal shows that this contention with regard to the computation of the total income was raised in the context of the proceedings for the assessment year 1958-59, as would be clear from the following observations :

'The mere fact that in the assessment year 1958-59, the total income itself was exempt from tax under section 14(3) of the Act is no answer to the point the computation of such income was all the same necessary in view of the said provisions of the Act.'

5. The Tribunal then directed its attention to the second question which was posed as to whether it can be said that depreciation had actually been allowed in the assessment year 1958-59. It is obvious that the contention before the Tribunal on behalf of the assessee was that no depreciation had been actually allowed on the assets of the assessee in the assessment year 1958-59 and, therefore, the cost of the assets should be taken as the proper amount for working out depreciation permissible in the year 1959-60. The case of the revenue before the Tribunal was that the assessee was entitled to depreciation not on the original cost of the assets but on the written down value because depreciation had already been taken into account in the first assessment year 1958-59. The contention of the assessee was accepted and on a construction of the assessment order in respect of the year 1958-59 the Tribunal took the view that depreciation cannot be said to have been actually allowed to the assessee in the assessment year 1958-59. In paragraph 10 of the order an additional reason was given by the Tribunal support of its conclusion, the reason being that in the assessment year 1958-59, no particulars were furnished by the assessee which it was obligatory upon the assessee to do if depreciation is to be claimed under s. 10(20)(vi) of the Act. Thus, in paragraph 11 of the order the conclusion reached by the Tribunal was that the assessee would be entitled to depreciation for the assessment year 1959-60 calculated on the basis of the original cost. The only other contention which was advanced before the Tribunal, as it appears from the order, was that the depreciation to be considered must be in proportion to the taxable income in the relevant year and that inasmuch as the only other taxable income of the assessee was Rs. 600, depreciation with reference to the entire business income should not be computed. This contention was negatived. The order of the Tribunal, therefore, shows that only three questions were agitated before the Tribunal : firstly, whether in the case of a co-operative society, whose income is exempted under s. 14(3) of the Act, a computation of the income under s. 16 is necessary; secondly, what was the value of the assets to be taken into account for the purposes of depreciation; and, thirdly, whether the depreciation had to be worked out on a proportionate basis with reference to the total income. After these findings we must now reproduce the two questions which have been referred by the Tribunal at the instance of the assessee. The questions are :

'(1) Whether on a proper construction of the provisions of ss. 3, 14(3) and 16(1)(a) of the Indian Income-tax Act, 1922, as in force on April 1, 1959, it was necessary to compute the assessee's income from business under s. 10 of the said Act

(2) Whether, on the facts and in the circumstances of the case, depreciation under s. 10(2)(vi) of the Indian Income-tax Act, 1922, was liable to be allowed as a deduction when no claim for such deduction was made by the assessee ?'

6. Now, there can be no difficulty in holding that the first question arises out of the findings given by the Tribunal in paragraph 7 of the order where the contention of the assessee considered was that the income of the assessee being that of a co-operative society was excluded and computation of income was not necessary. We have merely to reproduce the provisions of s. 16(1)(a) of the Act to point out that there is no error in the order of the Tribunal when it held that the computation of the income of the assessee, even though it was a co-operative society, was contemplated by the provisions of section 16(1). s. 16(1)(a), so far as is material, provides that in computing the income of an assessee any sums exempted under the first proviso to sub-s. (1) of s. 7, the second and third proviso to s. 8, sub ss. (2), (3) (4) and (5) of s. 14, s. 15, s. 15B and s. 16C shall be included and any sum expended under s. 15A shall also be included except for the purposes of determining the rates at which income-tax is payable by the assessee to whom the exemption is given. S. 14(3), it is not disputed, provides that the tax shall payable by a co-operative society in respect of profits and gains of business carried on by it. Now, so far as the provisions of the Income-tax Act are concerned, the exemptions granted under the Act are of two kinds. Certain classes of income are exempted from tax and also excluded from the computation of total income while certain other classes of income exempted from tax are to be included in the assessee's total income. As observed by Chagla C.J. in CIT v. Raiji [1949] 17 ITR 180, with reference to the scheme of the Indian Income-tax Act, 1922, wherever one finds an exemption or exclusion from payment of tax, the exemption or exclusion operates for the purpose of computing the total income and not only is the sum not liable to tax but it is also not to form part of the total income for the purpose of determining the rate. It was further pointed out in that case that 'when the legislature intends that certain sums, although not liable to tax should be included in the total income, it expressly so provides, as it is done in s. 16'. The legislature has expressly provided in s. 16(1)(a) that income exempted under s. 14 (3), which deals with the profits and gains of business carried on by a co-operative society, shall be included while computing the total income of the assessee though such inclusion is not for the purpose of determining the rates at which income-tax is payable by the assessee to whom the exemption is given. The Tribunal was, therefore, justified in rejecting the contention of the assessee that for the purpose of computation under s. 16(1)(a), the business income of the assessed-co-operative society could not be taken into consideration. The first question must, therefore, be answered in the affirmative and against the assessee.

7. Now, so far as the second question is concerned, as we have already observed, we have found considerable difficulty in ascertaining the scope of that question and finding out whether it really arose from the order of the Tribunal. We are unable to find any discussion of the contention on which the second question is based. According to Trivedi, appearing on behalf of the assessee, that question relates to the assessment year 1959-60. We have referred in extenso to the three contentions which were raised before the Tribunal. It was sought to be argued by Mr. Trivedi that question No. 2 seemed to arise out of the contention rejected by the Tribunal in paragraph 12 of the order which related to a claim for proportionate deduction in respect of depreciation. Now, on reading the question, it is impossible for us to relate that question to that part of the order of the Tribunal in paragraph 12. Apart from the discussion in paragraph 12 of the order of the Tribunal, it was not possible for Trivedi to point out of any other discussion in the order of the Tribunal which could be said to be relevant to the second question referred by the Tribunal.

8. It was then contended by Trivedi that, in order to clear the doubt raised, namely, that the question does not arise out of any part of the order of the Tribunal, a supplementary statement of the case should be called for. We are not inclined to adopt such a course as it is clear from the Tribunal's order that the contention on which the second question was framed was not argued before the Tribunal at all. We, therefore, decline to answer question No. 2 on the ground that it does not arise at all out of the order of the Tribunal.

9. In the result, question No. 1 is answered in the affirmative and against the assessee. Question No. 2 does not arise out of the order of the Tribunal and, therefore, need not be answered. The assessee must pay the costs of the revenue.


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