Case: Commissioner Of Income Taxtamil Nadu-V, Madras Vs. Kotagiri Industrial Co-Operativetea Factory Ltd., Kotagiri

The Kotagiri Industrial Cooperative Tea Factory Ltd., the respondent (hereinafter referred to as "the assessee") is a cooperative society. It carries on business in the manufacture and sale of tea from bought tea leaves and the purchase and supply of agricultural manure to the members. It is also deriving income from dividends from investments with other cooperative societies. In the previous year relevant to the Assessment Year 1972-73 the assessee earned a total income of Rs. 85, 150. The losses of the earlier year which had been carried forward to the said assessment year were Rs. 1, 82, 744. The assessee claimed a deduction of Rs. 53, 386 under Section 80-P(2) from the income of Rs. 85, 150. The Income Tax Officer first set off the losses of the previous years that had been carried forward against the income and since the losses were in excess of the income, he held that no deduction was permissible under Section 80-P of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The said view of the Income Tax Officer was not accepted by the Appellate Assistant Commissioner who held that deduction under Section 80-P should first be made out of the income and thereafter the losses of the previous year were to be set off. The said decision of the Appellate Assistant Commissioner was affirmed in appeal by the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal"). The Tribunal referred the following question for the opinion of the Highon the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the deduction under Section 80-P of the Income Tax Act should be allowed before set-off of unabsorbed losses of earlier year ?"The said question has been answered by the High Court against the Revenue. In the impugned judgment the High Court has followed its earlier decision in CIT v. Katpadi Coop. Timber Works Ltd.(Mad)) wherein the High Court had held that so long as the gross total income of a cooperative society includes income referable to the activities mentioned in Section 80-P(2) the assessee would be eligible for the deduction and it is only if there is any amount left thereafter that could be the subject of consideration of set-off of carried-forward losses. The High Court followed the decision of this Court in Cloth Traders (P) Ltd. v. CIT as well as its own decision in CIT v. Venkatachalam (Mad))

Court's reasoning:
7. If Section 80-P(1) is read with the definition of the expression "gross total income" contained in Section 80-B(5), it has to be held that for the purpose of making deduction under Section 80-P it is necessary to first determine the gross total income in accordance with the other provisions of the Act. This means that for the purposes of the present case the gross total income must be determined by setting off against the income the business losses of the earlier years as required under Section 72 of theIt may also be pointed out that while considering the provisions of Section 80-T of the Act this Court has followed the decision in Distributors (Baroda) (P) Ltd. in H. H. Sir Rama Varma v. CIT. In that case it has been held that a long-term capital loss brought forward from earlier assessment years had to be first set off against the long-term capital gains of the current assessment year before deduction contemplated by Section 80-T of the Act is allowed and the relief under Section 80-T is to be given only for the amount of long-term capital gains of the current assessment year after the long-term capital loss of the earlier years brought forward is set off11. It is no doubt true that the decision of the Madras High Court in CIT v. Venkatachalam (Mad)) has been affirmed in appeal by this Court in CIT v. Venkatachalam. That decision was also given in the context of Section 80-T of the Act. It has been taken note of by this Court in H. H. Sir Ramu Varma v. CIT. B. P. Jeevan Reddy, J. was a party in both these decisions. In Venkatachalam this Court has emphasised that the deduction under Section 80-T had to be made from out of capital gains and no question would arise of the business loss being set off against the amount of capital gains12. Having regard to the law as laid down by this Court in Distributors (Baroda) (P) Ltd. and H. H. Sir Rama Varma, it must be held that before considering the matter of deduction under Section 80-P(2) the Income Tax Officer had rightly set off the carried-forward losses of the earlier years in accordance with Section 72 of the Act and on finding that the said losses exceeded the income, he rightly did not allow any deduction under Section 80-P(2) and the Appellate Assistant Commissioner as well as the Tribunal and the High Court were in error in taking a contrary view13. The principle of statutory construction invoked by Ms Ramachandran has no application in construing the expression "gross total income" in sub-section (1) of Section 80-P. In view of the express provision defining the said expression in Section 80-B(5) for the purpose of Chapter VI-A, there is no scope for construing the said expression differently in Section 80-P