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Facts
The Revenue appealed against the order of the CIT(A)/NFAC, which allowed deduction under Section 80P(2)(a)(iii) of the Income Tax Act for commission income earned by the assessee, a cooperative society, from sugar factories. The Assessing Officer had disallowed this deduction, treating the income as 'other income' and not 'business income'.
Held
The Tribunal held that the commission income received by the assessee from sugar factories for marketing sugarcane grown by its members was indeed business income and eligible for deduction under Section 80P(2)(a)(iii). The decision of the Hon'ble Supreme Court in Totgars Cooperative Sale Society Ltd. was distinguished as it pertained to interest income from deposits, not commission income from marketing activities.
Key Issues
Whether commission income earned by a cooperative society from sugar factories for marketing sugarcane is eligible for deduction under Section 80P(2)(a)(iii) as business income.
Sections Cited
143(3), 143(3A), 143(3B), 57, 80P(2)(a)(iii)
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Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
Before: Ms. MADHUMITA ROY & SHRI NAVEEN CHANDRA
O R D E R
PER Ms. MADHUMITA ROY, JM:
The instant appeal filed by the Revenue is directed against the order passed by the Ld. CIT(A)/NFAC, Delhi dated 27.09.2023 [DIN & Order No. ITBA/NFAC/S/2023-24/1056591398(1) arising out of the order dated 26.03.2021 passed by the Assessing Officer, National e-Assessment Centre, Delhi under Section 143(3) r.w.s. 143(3A) & 143(3B) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for Assessment Year 2018-19. Grounds of appeal taken by the Revenue read as under:
“1. That the CIT(A), NFAC has erred in law and in facts by not appreciating the disallowance of deduction u/s 80P(2)(a)(iii) of the IT Act, 1961 claimed on commission income from sugar factory and was unjustified and unsustainable in the eyes of law.
That the CIT(A), NFAC has erred in law and in facts by not appreciating the facts that the assessee itself claimed commission income under the head 'Income from Other Sources' in place of 'Profits and gains of Business or Profession'.
3. That the CIT(A), NFAC has erred in law and in facts that the deduction u/s 80P(2)(a)(iii) of the IT Act, 1961 is not applicable on the income shown under the Head 'Income from Other Sources' as has been held in Totgars Cooperative Sale Society Ltd. Vs. ITO/2010) 188 Taxman 282 (SC) that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society.”
2. According to statement of facts filed by the assessee before the CIT(A), the assessee is a Cooperative Society, engaged in the activity falling under Section 80P(2)(a)(iii) of the Act. It filed its Return of Income showing taxable income at Rs.47,810/- after claiming deduction of Rs.2,48,97,047/- u/s 80P(2)(a)(iii) out of GTI of Rs.2,49,44,857/-, which includes net H.P. income of Rs.47,810/- and net income of Rs.2,48,97,047/- (arrived at by deducting expenses of Rs. 1,95,00,000/- under Section 57 from total gross receipts of Rs.4,43,97,047/-) from activity falling u/s 80P(2)(a)(iii). According to assessee, the Assessing Officer without providing sufficient opportunity of being heard, disallowed total deduction claimed u/s 80P(2)(a)(iii) at Rs.2,48,97,049/- and thus assessed T.I. at Rs.2,49,44,857/-. 2.1 Aggrieved against the order passed by the Learned Assessing Officer the assessee preferred appeal before the Learned First Appellate Authority who partly allowed the appeal, inter alia, by allowing deduction under Section 80P(2)(a)(iii) of the Act on addition made towards commission receipts of Rs. 3,62,87,047/- treating the same as ‘business income’ earned in the form of commission income Learned AO. Aggrieved against the aforesaid order of Ld. CIT(A) allowing deduction under Section 80P(2)(a)(iii) of the Act, now the Revenue is in appeal before us.
We have heard rival submissions and perused the material available on record. The Ld. CIT(A) has allowed the assessee’s claim of deduction under Section 80P(2)(a)(iii), treating commission receipts of Rs. 3,82,87,047/- as ‘business income’ by observing as under: “Ground Nos.6 & 7: Addition made towards commission receipts of Rs.3,62,87,047/-:
30.0 The reason for not allowing the deduction claimed on income earned from the marketing of agricultural produce i.e., sugarcane, is purely based on the decision of Hon'ble Supreme Court in the case of Totgars' Co- operative Sale Society Ltd. Vs. ITO [2010] 322 ITR 283/188and the portion of the decision relied upon by the AO is also finding place in assessment order. Though at the cost of repetition, the relevant portion quoted by the AO is reproduced below for ready reference.
The interest on surplus invested in short-term deposits, not being attributable to the business of providing credit facilities to the members or marketing of agricultural produce of the members is assessable as "other income" and not as "business profits"; The words "the whole of the amount of profits and gains of business" attributable to one of the activities specified in s.80P(2)(a) means that the source of income is relevant and that the income must be "operational Income".
31.0 As seen from the above, the discussion in the Totgars' Co-operative Sale Society Ltd. (supra) is purely pertaining to the interest income allowability on the deposits made in the bank accounts u/s. 80P(2)(a) but not the income earned on marketing the agricultural produce. Here the commission earned from the marketing of agricultural produce is the business income of the assessee society and the activities are covered u/s. 80P(2)(a)(iii) of the Act i.e., marketing of agricultural produce grown by its members. Except relying upon the decision of the Hon'ble Supreme Court in the case of Totgars' Co-operative Sale Society Ltd. (supra), the AO did not state any other reason such as income shown is not derived from the marketing of members agricultural produce. In this backdrop, I am in complete agreement with the reply of the assessee submitted during the course of assessment proceedings, which is extracted by the AO in the assessment order. For the completeness of the order, the reply of the assessee against the proposal of denial of disallowance of commission earned from the sugar factories on supply of sugarcane by its members is reproduced below.
"it is most important to mention here that the decision of Hon'ble Supreme Court in cited case of Totgars Cooperative Sale Society Limited does not apply in respect of said commission receipts, which are from the sugar factory(ies) against our main activity of marketing of the sugarcane grown by our members, as per object set forth in our bylaws. This commission is received as consideration against our marketing activity as already explained in detail with supporting documentary evidences and with reference to relevant statutory provisions of law. It has not been earned on any deposit/investment with any bank, but it is our turnover and as it has been received against activity of marketing of the sugar cane, which, in the case falls u/s 80P(2)(a)(iii), hence, this commission is fully eligible for 100% deduction u/s 80P(2)(a)(iii) and therefore, by no stretch of imagination, the decision of Hon'ble S.C. in cited case of Totgars Cooperative Sale Society applies in the case."
32.0 In view of the above, it is opined that the denial of deduction by the AO relating to the income of the assessee from the sugar factories in the form of commission against the sale of sugarcane is unjustified and cannot be sustainable. Hence, the AO is directed to allow the deduction u/s 80P(2)(a) (iii) of the Act on the business income earned in the form of commission income. Therefore, Ground Nos. 6 & 7 raised by the assessee against addition made towards commission receipts are allowed.”
3.1 A perusal of the CIT(A)’s order on the issue in question clearly reveals that the Learned CIT(A) after elaborate discussion has arrived at the conclusion that the impugned income of the assessee in the form of commission is ‘business income’, not hit by the ratio of decision in PCIT vs. Totagars Co-operative Sale Society 83 taxmann.com 140 (Karnataka), thus allowable for deduction under Section80P(2)(a)(iii). No flaw or infirmity in the order of Ld. CIT(A) has been pointed out on behalf of the Revenue. The order of Ld. CIT(A) on the issue in question is thus affirmed.
Revenue’s appeal is dismissed.
Order pronounced in open court on 29.10.2025.