- (1.) ON an application under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question for our opinion : "Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing claim under Section 80P(2)(a)(iii) of the Income-tax Act, 1961, notwithstanding the fact that the business was not wholly done with the members only ?"
(2.) THE assessee is a co-operative society deriving income from sale of fertilizers, agricultural commodities, pesticides, controlled sugar, etc. It also derives income from tractor, matador, truck, godown rent, interest and receipts. On the basis of computation furnished by the assessee, the assessee had claimed relief under Section 80P(2) at Rs. 4,75,999. The Income-tax Officer, however, required it to furnish the working of the net income from the business done with the members only. The assessee, in compliance with the directions of the Income-tax Officer, has given working of the income earned in dealings with the members at Rs. 76,723. The Income-tax Officer restricted the relief to that extent only. It was contended before the Income-tax Officer that as the assessee was earning income from various activities, the expenditure is indivisible. The Income-tax Officer had not accepted it and restricted the amount for benefit under Section 80P to the tune of Rs. 76,723. The Commissioner of Income-tax (Appeals) following the decision of the Punjab and Haryana High Court given in the case of Punjab State Co-operative Supply and Marketing Federation Ltd. v. CIT [1981] 128 ITR 189 allowed the claim of the assessee and directed the Income-tax Officer to allow the entire expenditure incurred on the activities, i.e., transaction with the members of the society and non-members of the society for earning of income under Section 80P of the Income-tax Act, 1961. In appeal before the Tribunal, the Tribunal has also followed the decision of the Punjab and Haryana High Court given in the case of Punjab State Co-operative Supply and Marketing Federation [1981] 128 ITR 189. It has also been pointed out that SLP filed before the apex court against the decision of the Punjab and Haryana High Court [1981] 128 ITR 189 has been dismissed by the Supreme Court reported in [1983] 143 ITR (St.) 64. None appeared on behalf of the assessee. Heard learned counsel for the Revenue, Mr. Singhi. Mr. Singhi, learned counsel for the Revenue, submits that after the insertion of Section 14A by the Finance Act, 2001, no deduction shall be allowed in respect of the expenditure incurred by the assessee in relation to income which is exempted under this Act.
(3.) HE also brought to our notice that new Section 14A has been inserted in the Act to clarify the position of law relating to expenditure relating to exempted income. After the insertion of Section 14A, the expenditure can be allowed only in respect of the income which is taxable under the Act and if any expense is incurred in respect of non-taxable income or which is exempt, that expenditure should not be allowed. Before the insertion of Section 14A, there was a dispute on allowability of the expenditure relating to exempted income and various courts have made some observations in this regard. In Rajasthan State Warehousing Corporation v. CIT [2000] 242 ITR 450 (SC), their Lordships have laid down some guidelines in respect of allowable expenditure in case of exempt income if the business is indivisible, at page 455, their Lordships observed as under : "(i) if income of an assessee is derived from various heads of income, he is entitled to claim deduction permissible under the respective head whether or not computation under each head results in taxable income ; (ii) if income of an assessee arises under any of the heads of income but from different items, e.g., different house properties or different securities, etc., and income from one or more items alone is taxable whereas income from the other item is exempt under the Act, the entire permissible expenditure in earning the income from that head is deductible ; and (iii) in computing 'profits and gains of business or profession' when an assessee is carrying on business in various ventures and some among them yield taxable income and the others do not, the question of allowability of the expenditure under Section 37 of the Act will depend on : (a) fulfilment of requirements of that provision noted above ; and (b) on the fact whether all the ventures carried on by him constituted one indivisible business or not; if they do, the entire expenditure will be a permissible deduction but if they do not, the principle of apportionment of the expenditure will apply because there will be no nexus between the expenditure attributable to the venture, not forming an integral part of the business and the expenditure sought to be deducted as the business expenditure of the assessee." ;