PATTUKOTTAI AGRICULTURAL PRODUCERS CO-OP MARKETING SOCIETY LIMITED,PATTUKKOTTAI vs. ACIT, THANJAVUR

All the appeals of the assessee are directed against the common order of the Commissioner of Income Tax (Appeals)-2, Tiruchirappalli, dated 11.12.2014 and pertain to assessment years 2006-07 to 2010-11.

Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the assessee is a co-operative society engaged itself in marketing of agricultural produce cultivated by its members. According to the Ld. counsel, the income generated by the assessee-co-operative society is eligible for deduction under Section 80P(2)(a)(iii) of the Income-tax Act, 1961 (in short 'the Act'). The Ld.counsel further submitted that by an order dated 11.08.1987, the assessee-co-operative society was ordered by the State Government to operate a fair price shop. According to the Ld. counsel, the income generated out of the operation of fair price shop is attributable to the marketing agricultural produce, therefore, the assessee is eligible for exemption under Section 80P(2)(a)(iii) of the Act. However, the Assessing Officer rejected the claim of the assessee on the ground that the products sold by the assessee are not produced by its members. According to the Ld. counsel, the Assessing Officer proceeded on the restrictive meaning thereby omitting the word “attributable to”. The Ld.counsel fairly submitted that the Assessing Officer found that the assessee is eligible for exemption under Section 80P(2)(a)(iii) of the Act, however, refused to allow the claim of the assessee only in respect of the income relatable to marketing the products for the fair price shop.

Referring to the additional ground raised by the assessee before the CIT(Appeals), the Ld.counsel for the assessee submitted that the fair price shop was run by the State Government in the course of its sovereign function. Therefore, it is not subjected to taxation under Article 289 of the Constitution of India. The Ld.counsel has also submitted that co-operative society, being a “State” within the meaning of Section 2(31) of the Act, it would not fall within the definition of “Person”. Therefore, the income of the assessee is not liable for taxation. Since the assessee has raised the additional ground before the Commissioner, he is expected to dispose of the same by a speaking order. Unfortunately, according to the Ld. counsel, the Commissioner has not disposed of the ground raised by the assessee by way of additional ground.

The Ld.counsel for the assessee further submitted that the Assessing Officer has taken the gross profit instead of net profit for computing the taxable income. According to the Ld. counsel, the starting point for computation of assessed income should be the net profit and not the gross profit. Since the Assessing Officer has taken the gross profit, the assessee has raised additional ground before this Tribunal in all the appeals. Therefore, the Ld.counsel submitted that the matter may be remitted back to the Assessing Officer.

We heard Sh. P. Radhakrishnan, the Ld. Departmental Representative also. According to the Ld. D.R., the assessee is engaged in marketing of agricultural produce cultivated by its members. In the course of its business activity, the assessee has also operated a fair price shop. The fair price shop was expected to be operated by the State Government and the assessee is not marketing the agricultural produce cultivated by its members. Therefore, the assessee is not eligible for deduction under Section 80P(2)(a)(iii) of the Act in respect of the income generated on the operation of fair price shop. This ground was taken before the Assessing Officer by way of a revised return. Therefore, according to the Ld. D.R., the Assessing Officer had no occasion to consider the same. Since the assessee has not raised this issue by way of revised return, the CIT(Appeals) placing his reliance on the judgment of Apex Court in Goetze (India) Ltd. v. CIT (2006) 284 ITR 323, found that the assessee cannot raise this issue other than by way of a revised return before the Assessing Officer. Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer.

We have considered the rival submissions on either side and perused the relevant material available on record. The first ground of appeal is that the additional ground raised before the CIT(Appeals) was not considered. We have carefully gone through the additional ground raised before the CIT(Appeals) and the order of the CIT(Appeals). The additional ground is with regard to status of the assessee-co-operative society as “State”. The assessee claims that the co-operative society is a “State”, therefore, it will not come within the definition of “Person” under Section 2(31) of the Act. From the bare reading of the order of the CIT(Appeals) it is obvious that this contention of the assessee was considered specifically by the CIT(Appeals) after calling for remand report from the Assessing Officer. The Commissioner specifically found that the assessee-co-operative society is a “Person” within the meaning of Section 2(31) of the Act. Therefore, the contention of the assessee that the assessee is a “State”, therefore, its income cannot be subjected to taxation, is devoid of merit. This Tribunal is of the considered opinion that co-operative society is not a “State” within the meaning of Article 12 of the Constitution of India. Therefore, it has to naturally fall within the definition of “Person” under Section 2(31) of the Act. This is what the CIT(Appeals) found in his order. Therefore, we are unable to accept the contention of the Ld.counsel for the assessee. This Tribunal is of the considered opinion that co-operative society cannot be construed as “State”.

From the grounds of appeal it appears that the assessee has raised one more ground regarding claim of Section 80P(2)(c)(i) of the Act as applicable to the consumer co-operative society as far its activity relating to public distribution system is concerned. This ground was raised by way of another additional ground before the CIT(Appeals). Unfortunately, the CIT(Appeals) has not decided the same. In fact, the CIT(Appeals) rejected the claim of the assessee on the ground that the same was not raised by way of a revised return. We have carefully gone through the judgment of Apex Court in Goetze (India) Ltd. (supra). The Apex Court in categorical terms held that the power of this Tribunal may not impinge for admitting the additional grounds. When the assessee specifically claims by way of additional ground before the CIT(Appeals) that its income was exempted under Section 80P(2)(c)(i) of the Act as consumer co-operative society, this Tribunal is of the considered opinion that the CIT(Appeals) is expected to dispose of the ground raised by the assessee by way of an additional ground. Since such an exercise was not done, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the CIT(Appeals) and dispose of the additional ground raised by the assessee with regard to claim of Section 80P(2)(c)(i) of the Act. Accordingly, the additional ground raised by the assessee before the CIT(Appeals) under Section 80P(2)(c)(i) of the Act in respect of the income generated out of public distribution system, is remitted back to the file of the CIT(Appeals). The CIT(Appeals) shall examine the issue in the light of the provisions of Section 80P(2)(c)(i) of the Act and thereafter decide the same in accordance with law after giving reasonable opportunity to the assessee.

In the result, the appeals of the assessee are partly allowed for statistical purposes.