Ita/100067/2015 Of The Commissioner Of Income Tax v. The Nagarbail Salt-Owners

IN THE HIGH COURT OF KARNATAKADHARWAD BENCH DATED THIS THE 19 DAY OF NOVEMBER 2016 PRESENT THE HON’BLE MR. JUSTICE ASHOK B. HINCHIGERI AND THE HON’BLE MR. JUSTICE P.S.DINESH KUMAR I.T.A.No.100067/2015 BETWEEN 1.THE COMMISSIONER OF INCOME TAXCENTRAL REVENUE BUILDINGATTAVAR, MANGALURU 2.THE INCOME TAX OFFICERWARD-2, SANTERI KRUJAPA BUILDINGHABBUWADA, KARWAR ... APPELANTS (BY SRI Y V RAVIRAJ, ADVOCATE) AND THE NAGARBAIL SALT-OWNERSCO-OPERATIVE SOCIETY LIMITEDSANIKATTE, GOKARNA, KUMTA-581 326PAN : AAAFT6229J ... RESPONDENT (BY SRI ASHOK KULKARNI & SRI H R KAMBIYAVAR,ADVOCATES) THIS ITA IS FILED U/S.260A OF THE INCOME-TAXACT, 1961, PRAYING TO FORMULATE THE SUBSTANTIALQUESTION OF LAW AS STATED AND ALLOW THE APPEALAND SET ASIDE THE ORDERS PASSED BY THE INCOME TAXAPPELLATE TRIBUNAL, PANAJI BENCH, PANAJI, IN ITA NO.252/PNJ/2014, DTD:23.01.2015 FOR THE ASSESSMENTYEAR 2006-07 AND CONFIRM THE ORDER PASSED BY THEINCOME TAX OFFICER, WARD-2, SANTERI KRUJAPABUILDING, HABBUWADA, KARWAR. THIS ITA HAVING BEEN HEARD AND RESERVED FORJUDGMENT, THIS DAY, P.S.DINESH KUMAR. J.,PRONOUNCEDTHE FOLLOWING:- JUDGMENT Revenue, aggrieved by the order passed by theIncome Tax Appellate Tribunal, Panaji Bench, Panaji(‘ITAT’ for short) in ITA No.252/PNJ/2014 dated23.1.2015 for the assessment year 2006-07 has presentedthis appeal raising certain questions of law. This Courtafter hearing the learned Standing Counsel for the IncomeTax Department and Counsel for the respondent –assessee vide order dated 2.11.2016 framed followingquestion of law: “Whether the respondent – Society assessedto tax on its income as ‘person’ as defined underSection 2(31) of Income Tax Act, 1961, is entitledto claim exemption over its profits paid to itsmembers and claim it as expenditure in theaccounts before offering the profit for tax?” 2.Heard Shri Y.V.Raviraj, learned standingCounsel for the Revenue and Shri Ashok Kulkarni, learnedCounsel for the respondent. 3.Submissions on behalf of appellant/Revenue: i)Respondent is a Co-operative Societyregistered under the provisions of theKarnataka Co-operative Societies Act,1959. Its objects are enumerated inChapter IV of the Bye-laws of the Society;registered under the provisions of theKarnataka Co-operative Societies Act,1959. Its objects are enumerated inChapter IV of the Bye-laws of the Society; ii)All members of the Society shall beowners of land (Agar) upon which salt ismanufactured. They are called as‘Maliks’. The principal aim and object ofthe Society was inter alia to acquireMaliks’ rights over their lands and tomanufacture salt and its by-products;owners of land (Agar) upon which salt ismanufactured. They are called as‘Maliks’. The principal aim and object ofthe Society was inter alia to acquireMaliks’ rights over their lands and tomanufacture salt and its by-products; iii)Pursuant to its objects, Society took overmanufacturing rights of members overtheir individual pieces of lands (Agar);manufacturing rights of members overtheir individual pieces of lands (Agar); iv)Society acquired and installed necessaryplants and machinery to manufacturesalt and its by-products; v) Salt is manufactured and sold by theSociety itself. A large portion of saleproceeds are transferred to an accountcalled ‘Distribution Pool Fund Account’and paid to its members commensuratewith their land holding. The remainingincome is offered to tax; vi) On 25.10.2006, Society filed return ofincome for the assessment year 2006-07by returning a sum of Rs.1,19,251/-being loss carried forward and computedincome as NIL after claiming deduction ofRs.3,45,021/- under Section 80P(1)(d) ofthe Income Tax Act, 1961 (‘the Act’ forshort) as per the Profit and Loss account; vii) iv)Society acquired and installed necessaryplants and machinery to manufacturesalt and its by-products; v) Salt is manufactured and sold by theSociety itself. A large portion of saleproceeds are transferred to an accountcalled ‘Distribution Pool Fund Account’and paid to its members commensuratewith their land holding. The remainingincome is offered to tax; vi) On 25.10.2006, Society filed return ofincome for the assessment year 2006-07by returning a sum of Rs.1,19,251/-being loss carried forward and computedincome as NIL after claiming deduction ofRs.3,45,021/- under Section 80P(1)(d) ofthe Income Tax Act, 1961 (‘the Act’ forshort) as per the Profit and Loss account; vii) A notice under Section 148 was issued.In reply, respondent – assessee assertedthat the total taxable income for the saidassessment year was NIL. Revenue tookup assessee’s case for scrutiny by issuingnotice under Section 143(2) of the Act.Assessee was represented by one Shri Anil Shantharam Nadkarni, Manager ofthe Society and Shri R.V.Hublikar, anIncome Tax Practitioner. Copies of Bye-laws, brief notes about the activities ofthe Society, certified copies of finalaccounts - Profit & Loss Account,Balance Sheet, Schedules showingDebtors and Creditors, Audit reportunder Section 44AB, copies of the VATreturns, details of cash sales,computation of income etc., were filed.However, Chartered Accountant’scertificate certifying the audit underSection 44AB of the Act was not filed.Therefore, Chartered Accountant wassummoned and his statement wasrecorded. He was specifically called uponto answer a question as to whethertransfer to ‘Distribution Pool FundAccount’ is an expenditure. TheChartered Accountant refused to answerthe said question and sought time tofurnish an explanation. Subsequently, hesent an explanation by email, which wasnot in consonance with the provisions ofSection 44AB of the Act. The assessingauthority held that the Chartered Accountant had hesitated to comment onthe deduction and transferred to the‘Distribution Pool Fund Account’; Bye-laws cannot be segregated and readin isolation to hold that the incomegenerated was the income of theappellant-assessee. The said order wasunsuccessfully challenged before theITAT. Feeling further aggrieved, Revenuehas preferred this appeal. 4.Assailing the orders passed by both the CIT(Appeals) and the ITAT, learned Standing Counsel for theRevenue contended that a combined reading of Society’sBye-laws 4(a), (b), (c), (d) & (k) clearly indicates that theAssessee-Society had indeed acquired salt manufacturingrights from Maliks, who are the members of the Society.Plant and machinery have been installed by the Society.The final product namely, the Salt and the by-product areadmittedly sold by the Society. Therefore, it is clear thatentire activity of manufacture and sale is undertaken bythe Society. Hence, Society was not justified in deductingfund transferred to ‘Distribution Pool Fund Account’ asexpenditure. 5.He further contended that assessee wasrequired to file an audit report under Section 44AB of theAct. But, the Chartered Accountant refused to answer thequestions posed by the assessing authority. He alsohesitated to submit a categorical reply with regard to thetransfer of funds to the ‘Distribution Pool Fund Account’.Therefore, the order passed by the assessing authority isjust and appropriate. 6.However, CIT (Appeals), the first appellateauthority misdirected himself and came to an erroneousconclusion that the taxable income of the Society is onlythe commission. Similarly, ITAT also fell in an error indismissing the appeal filed by the Revenue by acceptingthe arguments of the Assessee. 7.In sum and substance, learned StandingCounsel for the Revenue argued that the Assessee-Societyas a juristic person was carrying on the business of both‘manufacturing’ and ‘selling’ salt and its’ by-products. Itwas transferring funds to the Distribution Pool Fund to be 6.However, CIT (Appeals), the first appellateauthority misdirected himself and came to an erroneousconclusion that the taxable income of the Society is onlythe commission. Similarly, ITAT also fell in an error indismissing the appeal filed by the Revenue by acceptingthe arguments of the Assessee. 7.In sum and substance, learned StandingCounsel for the Revenue argued that the Assessee-Societyas a juristic person was carrying on the business of both‘manufacturing’ and ‘selling’ salt and its’ by-products. Itwas transferring funds to the Distribution Pool Fund to be distributed among its members. Only the remainingportion was being offered to tax. He contended thattransfer of funds to the Distribution Pool Fund isimpermissible because the Society had taken over the‘right to manufacture’ Salt from the Maliks of the land.Therefore, the amount paid to the members of the Societycannot be treated as an expenditure. Hence, the orderspassed both by the CIT (Appeals) and ITAT areunsustainable in law. 8. Submissions on behalf of Respondent/Assessee: i)Assessee-Society came into existencepursuant to an advice tendered by SaltExpert Committee appointed by theGovernment of India. The saidCommittee having foreseen thedifficulties of individual holders of smallunits had suggested that a merger eitherunder the Government control orpreferably under a Co-operative sectorappeared to be the sole remedy to save them from extinction. Accordingly,Assessee - Society was formed; ii)Objects defined in the bye-laws give aclear indication that the Society wasformed only to manufacture salt on co-operative basis. Clause 4(l) makes it clearthat the Society was required to pay the‘assessment’ and ‘mulgeni’ rents inrespect of individual areas on behalf of itsmembers. Clause (m) indicates that itwas expected of the Society to help themembers in getting a fair price to theirshare of Salt manufactured by Society;Clause (u) permits the Society to recovermanufacturing expenses from itsmembers;clear indication that the Society wasformed only to manufacture salt on co-operative basis. Clause 4(l) makes it clearthat the Society was required to pay the‘assessment’ and ‘mulgeni’ rents inrespect of individual areas on behalf of itsmembers. Clause (m) indicates that itwas expected of the Society to help themembers in getting a fair price to theirshare of Salt manufactured by Society;Clause (u) permits the Society to recovermanufacturing expenses from itsmembers; iii)The purpose and intent of the Society is‘Joint Manufacture’ of the salt as can begathered from Chapter-VI of the Bye –laws and particularly clause (d) thereof;‘Joint Manufacture’ of the salt as can begathered from Chapter-VI of the Bye –laws and particularly clause (d) thereof; iv)Distribution of profits could besanctioned by the General Body Meetingas prescribed in clause 35(c) of the Bye-Laws;sanctioned by the General Body Meetingas prescribed in clause 35(c) of the Bye-Laws; v)A combined reading of clauses 58(g), (j) &(l) clearly suggests that the purpose offorming the co-operative Society was onlyto manufacture Salt collectively. Theownership of the Salt to the extent ofindividual member’s share remained withthe respective member alone as memberswere permitted to raise loan proportionalto their interest in the ‘Agar’ as perclause 80 of the Bye – laws; and(l) clearly suggests that the purpose offorming the co-operative Society was onlyto manufacture Salt collectively. Theownership of the Salt to the extent ofindividual member’s share remained withthe respective member alone as memberswere permitted to raise loan proportionalto their interest in the ‘Agar’ as perclause 80 of the Bye – laws; and v)A combined reading of clauses 58(g), (j) &(l) clearly suggests that the purpose offorming the co-operative Society was onlyto manufacture Salt collectively. Theownership of the Salt to the extent ofindividual member’s share remained withthe respective member alone as memberswere permitted to raise loan proportionalto their interest in the ‘Agar’ as perclause 80 of the Bye – laws; and(l) clearly suggests that the purpose offorming the co-operative Society was onlyto manufacture Salt collectively. Theownership of the Salt to the extent ofindividual member’s share remained withthe respective member alone as memberswere permitted to raise loan proportionalto their interest in the ‘Agar’ as perclause 80 of the Bye – laws; and vi)Therefore, the Society was justified intransferring the funds to the Pool forfurther distribution among the members.This practice was in vogue for severalyears and to be precise, even prior to theKarnataka Co-operative Societies Actcoming into force. Therefore, the noticeunder Section 148 of the Act and allfurther proceedings thereon by theAssessing Authority are not onlymisconceived but also hit by doctrine ofres judicata;transferring the funds to the Pool forfurther distribution among the members.This practice was in vogue for severalyears and to be precise, even prior to theKarnataka Co-operative Societies Actcoming into force. Therefore, the noticeunder Section 148 of the Act and allfurther proceedings thereon by theAssessing Authority are not onlymisconceived but also hit by doctrine ofres judicata; 9.Thus, supporting the impugned order, ShriKulkarni argued that, what is taxable is the income of theSociety and the same is defined in Chapter-XVI of the Bye- laws. Society earns its income from levy of commission,collection of interest on loans, collection of rents, andcollection of service charges only. Therefore, the assessingauthority fell in an error by holding that the amounttransferred to ‘Distribution Pool Fund Account’ is taxablein the hands of Society. In support of his contentions, heplaced reliance on the few judgments and prayed fordismissal of this appeal. 10.We have given our careful consideration to therival contentions urged at the bar, perused the recordsand the rulings cited. 11. The preamble to the approved Bye-laws revealsthat Government of India had appointed a Salt ExpertCommittee to study Salt manufacturing activity indifferent parts of the country. After a study, the saidCommittee had suggested that a merger of Salt workseither under the Government control or preferably underthe Co-operative Society appeared as an inevitable optionto save the individual salt owners holding small units. It was also suggested that if such remedial measures werenot taken, small units would run the risk of extinctionbecause of their uneconomical size and unfavourableclimatic condition. The salt owners in an Extra-ordinaryGeneral Meeting of their Association held on 17.2.1952,resolved to form a Co-operative Society of Salt Owners forthe ‘manufacture of Salt’ on co-operative basis.Accordingly, assessee - Society was formed and registeredon 17.9.1952. The bye-laws were adopted on 2.10.1952. 12.Preamble to the approved Bye - laws of theSociety reads as follows:- “ I PREAMBLE 1.Whereas the Government of Indiahaving been advised by the Salt ExpertCommittee in 1950, and other Committeesappointed from time to time to investigate thequestion of salt manufacture in different parts ofthe country, have issued orders to the SaltDepartment that the recommendations made bythe committee should be given effect to andwhereas these recommendations interalia referto the raising of the standard purity of salt by 12.Preamble to the approved Bye - laws of theSociety reads as follows:- “ I PREAMBLE 1.Whereas the Government of Indiahaving been advised by the Salt ExpertCommittee in 1950, and other Committeesappointed from time to time to investigate thequestion of salt manufacture in different parts ofthe country, have issued orders to the SaltDepartment that the recommendations made bythe committee should be given effect to andwhereas these recommendations interalia referto the raising of the standard purity of salt by certain methods most important of which is theremodelling of salt works so as to adopt anoptimum ratio between the crystallisers and thecondensers cum reservoir and whereasaccording to the instructions of the SaltDepartment conveyed to the Salt owners of theNagarbail Saza through their Association fromtime to time, the highest standard of purity ofsalt has to be achieved in the manufacturingseason of 1953, and whereas, the Salt ExpertCommittee having foreseen the difficulties of theindividual salt owners holding small units, havesuggested that a merger of the salt works eitherunder Government control or preferably under aCo-operative Society appears to be the onlyremedy for saving these works as otherwisethey are bound to be extiniquished because oftheir uneconomic size, unfavourable climaticconditions etc. and whereas, the salt owners at-the ExtraOrdinary General Meeting of theirAssociation held on the 17[th] February 1952-having resolved to form a Cooperative Societyof the salt owners’ for the manufacture of salton a co-operative basis, the following Byelawshave been framed and adopted by the SaltOwners’ at the meeting of their Association heldon 8[th] May 1952 for the formation of such a co- operative Society. This Society was registeredon 17-9-1952 and the byelaws adopted subjectto certain amendments on 2[nd] October 1952.These byelaws were further amended in view ofthe Karnataka Co-operative Societies Act 1959in the Special General Meeting held on19-9-1979.” (emphasis supplied) 13.The words ‘Malik’ and ‘Agar’ are defined inChapter-III of the Bye-laws and they read as follows: “ “Malik” – means a person owning jointly orseverally jointly or having an interest in agar inthe Nagarbail Saza, Sanikatta on the date of theRegistration of this Society whether he beKhatedar or not and shall be deemed to includeshis heirs, successors and assigns and a receiverappointed by a competent Court. Record of Rightsmay also be taken into consideration as evidence.” “ “Agar” - means land on which salt ismanufactured in the Nagarbail Saza whichincludes Narnapur Salt Works.” 14.In order to decide whether the fund transferredto ‘Distribution Pool Fund Account’ ought to have been offered to tax, it is necessary to examine the aims andobjects of the Society described in Chapter-IV of the Bye-laws. The salient objects of the Society read as follows: “a) to acquire from the Maliks the right ofmanufacturing salt in the nagarbail Saza,Sanikatta, and to manufacture salt and otherbyproducts in these areas on Co-operativebasis.” “c)to consolidate and remodel the salt worksso as to manufacture salt and byproductseconomically and on a scientific basis, and tomanufacture table salt and high purity salt.” “k)to purchase and instal suitable plant orany other machinery required in connection withthe manufacture of salt and byproducts or anysubsidiary works undertaken.” “l)to pay on behalf of the members theassessment and mulgeni rent in respect of theindividual areas included in the salt workswhich will be a first charge on a produce of theindividual members.” “m)to help members in getting a fair price forthe salt and byproducts produced by the Societyon their behalf.” “q)to sell the salt and by-products eitherdirectly or through agents.” “u)to recover all the manufacturing expensesof the Society and any other dues from theindividual members from time to time.” (emphasis supplied) “k)to purchase and instal suitable plant orany other machinery required in connection withthe manufacture of salt and byproducts or anysubsidiary works undertaken.” “l)to pay on behalf of the members theassessment and mulgeni rent in respect of theindividual areas included in the salt workswhich will be a first charge on a produce of theindividual members.” “m)to help members in getting a fair price forthe salt and byproducts produced by the Societyon their behalf.” “q)to sell the salt and by-products eitherdirectly or through agents.” “u)to recover all the manufacturing expensesof the Society and any other dues from theindividual members from time to time.” (emphasis supplied) 15.The Society functions in consonance with theBye-laws. Clause (a) of the objects extracted above showsthat the principal aim of the Society was to acquire ‘rightof manufacturing salt’ and to manufacture the same onco-operative basis. Clause (l) gives a clear indication thatthe ‘assessment’ and ‘mulgeni’ in respect of the individuallands ‘Agar’ is paid by the Society on behalf of itsmembers. In furtherance of its objects contained inClause (m), assessee – Society is obliged to help itsmembers to get a fair price for the Salt. Clause (u) spellsout the ‘precise understanding’ or the contract between the Society and its members, whereunder the Society isentitled to recover all manufacturing expenses. 16.Thus, a combined reading of the preamble tothe Bye – laws and salient objects noted supra, lead to anirresistible inference that the Society was formed to saveindividual salt manufacturers from extinction as per theadvise tendered by the Salt Expert Committee. The veryfact that the Bye-laws permit the Society to recover the‘manufacturing expenses’ and ‘other dues’ from itsmembers is a sufficient and a robust indication that theownership of the Salt to the extent of their respectiveshare of each individual member continues to remain withthe respective member himself. This inference is fortifiedby Clause 80 of the Bye – laws, which permits themembers to raise loan on the ‘security’ of theirproportional interest in the ‘Agar’ and ‘Salt produced’. 17.Income of the Society is defined in Chapter-XVIof the Bye-law, which reads as follows:- “ The income of the Society shall be : (a)by levy of commission on manufacture onsale of salt and byproducts on behalf ofmembers.sale of salt and byproducts on behalf ofmembers. (b)by collection of interest on loan advancedto members and deposits with banks.to members and deposits with banks. (c)Deleted. (d)By collection of rents; (e)By collection of service charges;” 18.It is argued by the Revenue that, the Malikshad surrendered the right to manufacture salt and theyhad lost right to enjoy the physical possession of theproperty. Further, Society is a juristic person indulged inmanufacture and sale of salt. It has obtained the licenseto manufacture salt, registered itself with Sales Tax,Service Tax and other statutory authorities. Salt is shownas the closing stock of the Society. Therefore, the amounttransferred to ‘Distribution Pool Fund Account’ prior tooffering to Income Tax is impermissible in as much as the said amount is distributed to individual members. Thus,a substantial portion of profit earned by the Society isdiverted as expenses before offering to tax. In support ofthis contention, Revenue has placed reliance on thefollowing rulings: i)Judgment of Hon’ble Supreme Court inthe case of TUTICORIN ALKALICHEMICALS & FERTILIZERS Ltd v. CITreported in 227 ITR 172 (SC) to contendthat an issue will have to be decided onthe principle of law and not inaccordance with the accounting practice;the case of TUTICORIN ALKALICHEMICALS & FERTILIZERS Ltd v. CITreported in 227 ITR 172 (SC) to contendthat an issue will have to be decided onthe principle of law and not inaccordance with the accounting practice; said amount is distributed to individual members. Thus,a substantial portion of profit earned by the Society isdiverted as expenses before offering to tax. In support ofthis contention, Revenue has placed reliance on thefollowing rulings: i)Judgment of Hon’ble Supreme Court inthe case of TUTICORIN ALKALICHEMICALS & FERTILIZERS Ltd v. CITreported in 227 ITR 172 (SC) to contendthat an issue will have to be decided onthe principle of law and not inaccordance with the accounting practice;the case of TUTICORIN ALKALICHEMICALS & FERTILIZERS Ltd v. CITreported in 227 ITR 172 (SC) to contendthat an issue will have to be decided onthe principle of law and not inaccordance with the accounting practice; ii)Income Tax Officer v. C H Atchaiahreported in 218 ITR 239 (SC) to contendthat if the income is of an ‘association ofpersons’, then, in law, it is theassociation alone which has to be taxed.reported in 218 ITR 239 (SC) to contendthat if the income is of an ‘association ofpersons’, then, in law, it is theassociation alone which has to be taxed. iii)CommissionerofIncome Tax v. IndiraBalakrishna reported in 39 ITR 546 (SC)to contend that the word ‘associate’means to join in common purpose and inthe instant case assessee is anBalakrishna reported in 39 ITR 546 (SC)to contend that the word ‘associate’means to join in common purpose and inthe instant case assessee is an association of person and it is theassociation alone which has to be taxed. iv)Commissioner of income Tax v. ChandmalRajgarhia reported in 213 ITR 789 (Pat) topoint out that the essential requirementto attract the label of ‘association ofpurpose’ is the unity of income. 19.On the other hand, placing reliance on a rulingof Hon’ble Calcutta High Court in the case of NarayanPrasad Vijaivargiya v. Commissioner of Income – Tax, WestBengal reported in 102 ITR 748 (Cal), it wasargued byShri Kulkarni, learned Counsel for the assessee that theBye – laws of the Society have to be read and construed asa whole to know the intention of the members and thepurpose of forming the co-operative Society to decide as towhether the amounts paid to the members was taxable inthe hands of the Society. We have perused the saidJudgment. The relevant portion reads as follows:- “……………. In our view a deed is to be readand construed as a whole and, if possible, effectshould be given to all parts thereof. In other words,the general intention is to be collected from the instrument as a whole and that intention should beinferred from the general form of the deed. SeeOdger's Construction of Deeds and Statutes, fifthedition, page 55. This would be more so when adeed is to be construed reasonably. The way inwhich the learned counsel for the revenue wants usto read the deed would amount to deletion or notgiving effect to a part of the deed which representsthe intention of the parties to the deed. Unless apart of a deed is so inconsistent with the rest of itthat no effect can be given to it, that part should beread and given effect to while construing a deed.Further, while construing a deed, one should bear inmind the principle of construction as stated inOdger's Construction of Deeds and Statutes, fifthedition, at page 54. It is stated thus: "The law is anxious to save a deed if possible.This is sometimes expressed in the maxim utnesmagis valeat quam pareat. If by any reasonableconstruction the intention of the parties can bearrived at and that intention carried out consistentlywith the rules of law, the court will take thatcourse.” " (emphasis supplied) 20.We quite see substantial force in the argumentadvanced by Shri Kulkarni. We have held that the Society "The law is anxious to save a deed if possible.This is sometimes expressed in the maxim utnesmagis valeat quam pareat. If by any reasonableconstruction the intention of the parties can bearrived at and that intention carried out consistentlywith the rules of law, the court will take thatcourse.” " (emphasis supplied) 20.We quite see substantial force in the argumentadvanced by Shri Kulkarni. We have held that the Society has come into existence pursuant to the advice tenderedby the Salt Expert Committee, which was appointed by theGovernment of India. We have noted that the saidcommittee categorically recommended for a merger of saltworks under a co-operative society in view ofuneconomical size of the land and unfavourable climaticcondition. Pursuant thereto, the assessee – Society wasformed. The principal object of the Society is to‘manufacture salt on co-operative basis’. The cumulativeincome of the Society as enumerated in Chapter XVIcannot be anything more than commission earned onmanufacture and sale of salt, interest on loans advancedto members and deposits with the Bank and collection ofrents and service charges. 21.The next authority relied upon by the learnedCounsel for the assessee is a judgment of the Hon’bleSupreme Court in the case of Commissioner of Income –Tax, Bombay City II v. Sitaldas Tirathdas reported in 41ITR 367 (SC),wherein, it is held as follows:- “These are the cases which have consideredthe problem from various angles. Some of themappear to have applied the principle correctlyand some, not. But we do not propose to examinethe correctness of the decisions in the light of thefacts in them. In our opinion, the true test is whetherthe amount sought to be deducted, in truth, never reached the assessee as his income.Obligations, no doubt, there are in every case, but itis the nature of the obligation which is the decisivefact. There is a difference between an amount whicha person is obliged to apply out of his income andan amount which by the nature of the obligationcannot be said to be a part of the income of theassessee. Where by the obligation income isdiverted before it reaches the assessee, it isdeductible; but where the income is required to beapplied to discharge an obligation after such incomereaches the assessee, the same consequence, inlaw, does not follow. It is the first kind of paymentwhich can truly be excused and not the second. Thesecond payment is merely an obligation to payanother a portion of one'sown income, whichhas been received and is since applied.The firstis a case in which theincome never reaches theassessee, who even if he were to collect it, does so,not as part of his income, but for and on behalf ofthe person to whom it is payable.” (emphasis supplied) 22.Learned Counsel has also placed reliance onthe Division Bench Judgment of our High Court in thecase of Commissioner of Income – Tax v. Pompei Tile Worksreported in 175 ITR 1(Kar) which has also followed thejudgment of the Hon’ble Supreme Court in Sitaldas’scase. 23.He has also relied upon Tuticorin AlkaliChemicals & Fertilizers Ltd v. CIT,to advance an argumentthat the accounting practices cannot over-ride the trueintent and a case has to be decided on principle of law. 24.The next ruling cited is Commissioner of Income– Tax and another v. Ramakrishna Nursing Home reportedin (2009) 313 ITR 290 (Karn). Learned Counsel for theassessee submitted that in the said case the panel ofvisiting Doctors collected their fee directly though theywere practising in the same Nursing Home. The DivisionBench of this Court dismissed the appeal filed by theRevenue. 23.He has also relied upon Tuticorin AlkaliChemicals & Fertilizers Ltd v. CIT,to advance an argumentthat the accounting practices cannot over-ride the trueintent and a case has to be decided on principle of law. 24.The next ruling cited is Commissioner of Income– Tax and another v. Ramakrishna Nursing Home reportedin (2009) 313 ITR 290 (Karn). Learned Counsel for theassessee submitted that in the said case the panel ofvisiting Doctors collected their fee directly though theywere practising in the same Nursing Home. The DivisionBench of this Court dismissed the appeal filed by theRevenue. 25.Thus, in the facts and circumstances of thecase, we are persuaded to accept the view taken by theDivision Bench of the Calcutta High Court in the case ofNarayan Prasad Vijaivargiya, supra. Further, in the lightof the ratio laid down by the Hon’ble Supreme Court in thecase of Sitaldas Tirathdas, supra, which is followed by aDivision Bench of this Court in the case of Pompei TileWorks, we hold that income of the Society cannot beanything beyond the scope of Chapter XVI of the Bye –laws. Therefore, logically the amount transferred to the‘Distribution Pool Fund Account’ cannot be brought withinthe umbrella of Chapter XVI. Hence, it is not taxable inthe hands of the Society. 26.In the premise, the substantial question of lawdeserves to be answered against the appellant – Revenue.Consequently, this appeal must fail. 27.Before parting with this case, we deem itnecessary to place on record that by an earlier order dated26.2.2016, this appeal was allowed in favour of the Revenue after hearing Counsel on both sides whilst theappeal was listed for admission. Later a Review Petitionwas filed on the ground that a substantial question of lawwas not framed prior to hearing. The said Review Petitionwas allowed by order dated 06.09.2016. Subsequently,the question of law was framed on 2.11.2016 and learnedCounsel for the parties were called upon to address theirarguments on the said question in this second round.During the course of hearing, learned counsel for theassessee has brought to our notice the judgment of theHon’ble Supreme Court in the case of Sitaldas Tirathdas, ajudgment of Calcutta High Court in the case of NarayanPrasad Vijaivargiya and a judgment of this Court in thecase of Pompei Tile Works, the benefit of which was notavailable to this Court when the appeal was heard in thefirst round. Therefore, the earlier view taken isper incuriam. Nowfollowing the ratio laid down in theaforementioned judgments cited before us, we arepersuaded to hold that the order passed by the ITAT doesnot require any interference which is fully invariance and obverse to the view taken by this Court earlier in thisappeal, which we gracefully do. 28. Resultantly, we answer the question of lawagainst the Revenue. As a consequence, this appeal isdismissed without any order as to costs. Sd/- JUDGE Sd/-JUDGE cp*