High Court Of Allahabad
CIT vs. Kisan Sahkari Chini Mills Ltd.
Section 57(iii)
Asst. Year 1978-79, 1979-80
R.K. Agrawal & K.N. Ojha, JJ.
IT Ref. No. 5 of 1984
27th July, 2004
Counsel Appeared
A.N. Mahajan, for the Revenue : None, for the Assessee
JUDGMENT
By the court :
The Tribunal, Allahabad, has referred the following question of law under s. 256(1) of the IT Act, 1961 (hereinafter referred to as the Act), for opinion to this Court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in allowing various expenses against the income from other sources?”
2. Briefly stated the facts giving rise to the present reference are as follows : The references arise under the Act for the asst. yrs. 1978-79 and 1979-80 for which the relevant previous year ended on 30th June, 1977, and 30th June, 1978, respectively.
The assessee was registered on 31st March, 1975 as a co-operative society with Registrar of Sugarcane Co- operative Societies, UP, Lucknow. Its object was primarily to set up a sugar mill. For this purpose, it collected funds from its members and from the Government as subsidy. The Tribunal was told that till the end of the previous years relevant to the assessment years under reference, the sugar mill had not been set up. Whatever were the receipts, they were on account of investment of its aforesaid funds. Against these, there were also expenses for maintenance of the office of the society, for the planning of the construction and for the construction of the mill as such, part of the interest arising to the assessee-society from the post office savings bank account was claimed to be exempt under s. 10(15)(ii) of the Act.
The ITO did not allow any expenses on the ground that no business had been carried on by the assessee in any of the two years under reference. The disallowance was also confirmed by the CIT (A).
The assessee appealed to the Tribunal. Before the Tribunal, the learned counsel for the assessee submitted that the latter being a co-operative society had maintained not only registered office but also the necessary staff and had incurred expenses on accounting, audit, etc., in order to comply with the various statutory requirements which were essential for the very existence of the society. It was further submitted by him that even for earning income from other sources, some expenses were necessary. He, therefore, submitted that the Revenue authorities were not justified in not allowing any expenditure for earning interest income.
On the other hand, the learned Departmental Representative relied on para 20 of the order of the CIT(A) for the asst. yr. 1978-79 where he had observed that unless the expenses were wholly and exclusively incurred for the earning or making of the income under the head ‘Other sources’, they could not be allowed as deduction in determining the income from that source.
The Tribunal dealt with the matter in para 8 of its order in the following words : “8. We have carefully considered the rival submissions. It is not under dispute that the assessee is a co-operative society, which has not complied with the various statutory requirements of a cooperative society. For this purpose the maintenance of a registered office and some staff is necessary for the very existence of the co-operative society. Such expenses, which are of basic necessity for the very existence of the co-operative society cannot be ignored in working out the income under the head ‘Other source’. Besides, since the assessee was depositing the funds in the bank, in the post office, with other co-operative societies and other persons it was necessary to have an accountant who will maintain the account books and besides the audit of the assessee cooperative society will have to be done by a chartered accountant in order to meet the statutory requirements. The Tribunal has been generally holding that where in such circumstances the assessee earns income from interest, 5 per cent of the income from interest may be held to be attributable expenses for earning the interest income. Here it would be necessary to point out that the entire interest income of the assessee is not liable to tax and the assessee cannot claim deduction of expenses for earning the interest income or other income, which are claimed to be exempt and which are not liable to tax. We, therefore, direct that out of the income from interest and other incomes which are held by the Revenue authorities to be liable to tax, 5 per cent should be allowed on account of estimated expenses for earning that income. The ITO is directed to work out the relief on this issue to the assessee for both the assessment years accordingly.”
We have heard Sri A.N. Mahajan, learned counsel for the Revenue, but nobody appears for the respondent- assessee.
It is not in dispute that the respondent-assessee earned interest on investments with banks and post-office deposits. However, it claimed expenses to the tune of Rs. 2,03,573. The aforesaid expenses, which it had debited was towards maintenance of office, staff, audit and other expenses. Under s. 57 of the Act certain deductions are permissible while computing income chargeable under head ‘Income from other sources’. Sec. 57(iii) provides for deduction of any other expenditure, which is not in the nature of capital expenditure and is laid out or expended wholly and exclusively for the purpose of making or earning such income. The respondent-assessee must have incurred some expenses for earning interest income other than the exempted interest income and, therefore, if the Tribunal has fixed 5 per cent of the taxable interest income as a deduction while computing income from other sources, it cannot be said that the Tribunal has committed any illegality. Since nobody had appeared for the respondent-assessee, there will be no order as to costs.
In view of foregone discussion, we answer the aforementioned question of law in the affirmative, i.e., in favour of the respondent-assessee and against the Revenue.
[Citation : 274 ITR 119]
