- (1.) THIS is an application under Section 256(2) of the Income-tax Act, 1961, arising out of the Tribunal's order rejecting the application for making reference under Section 256(1) of the Act.
(2.) THE assessee which is a co-operative society has filed a return declaring its income as Rs. 71,630. THE Assessing Officer gave a finding that no separate accounts were maintained for members and non-members and the business was indivisible. While considering the claim for deductions under Section 80P(2) of the Income-tax Act, 1961, made by the assessee he disallowed proportionate expenses relatable to such income and the net income in respect of profits and gains of the activities with its members, which was made on estimated basis, the income of the assessee was increased to Rs. 78,635. The Appellate Assistant Commissioner did not agree with the Assessing Officer and allowed deduction of the entire expenses without dividing it proportionately. The Tribunal finally held that as the assessee was carrying on business which was indivisible, the proportionate expenses incurred for carrying on such business cannot be separated between business activity with members and business activity with non-members. Therefore, its expenses cannot be disallowed, if otherwise allowable under section 37 of the Act by bifurcating the expenses proportionately between income attributable to the exempted activity and non-exempted activity. In coming to this conclusion, the Tribunal relied on the decision of the Supreme Court in CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452. Aggrieved by the aforesaid order of the Tribunal dated March 27, 1989, the Commissioner of Income-tax filed an application under Section 256(1) of the Income-tax Act, 1961, by raising the following questions for making a reference to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the order of the Appellate Assistant Commissioner who has relied upon the Supreme Court's ruling in the case of Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452, without considering the facts of the two cases ?" The Tribunal rejected the application holding that since the issue is governed by the decision of the Supreme Court which binds all the courts and Tribunals in India, the question cannot be referred for the opinion of the court. Hence, this application under Section 256(2) of the Income-tax Act, 1961, is at the instance of the Revenue.
(3.) WE have heard learned counsel for the parties. It has been urged by learned counsel for the Revenue that in view of the provisions of section 80P(2), the ratio of the decision of CIt v. Maharashtra Sugar Mills Ltd. [1971] 82 ItR 452 (SC), would not apply to the facts of the present case. However, we are unable to sustain it. The allowability of expenses while computing the net taxable income does not depend on the question of exemption and taxable in part where the activity is one and indivisible which is well settled by the apex court. ;