The Tamil Nadu Brick & Tile Manufacturers Industrial Service Co.operative Society Limited, Chennai v. The Commissioner Of Income-Tax,Tamil Nadu Iii, Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 31/12/2002 CORAM THE HONOURABLE MR.JUSTICE N.V.BALASUBRAMANIANANDTHE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN TAX CASE NO.254 OF 1999AND TAX CASE NOS. 255 TO 259 OF 1998 AND 413 OF 1999 The Tamil Nadu Brick & TileManufacturers IndustrialService Co.operative SocietyLimited, Chennai. ..... Applicant in all T.C.s. -Vs- The Commissioner ofIncome-tax,Tamil Nadu III,Chennai. ..... Respondent in T.C.Nos.254 to 259 of 1998 &413 of 1999. !For Applicant : Mr.T.N.Seetharaman For Respondent: Mrs.Pushya Sitharaman,Sr.Standing Counsel forIncome-tax. Prayer: Tax Case Nos.254 to 259 of 1998 submitted by the Income-taxAppellate Tribunal, Madras B Bench in R.A.Nos.638 to 643/MDS/1997 inI.T.A.Nos.2969 to 2974 /Mds/1990 for the assessment years and Tax Case No.413of 1999 submitted by the Income-tax Appellate Tribunal, Madras A Bench inR.A.No.741/MDS/1996 in I.T.A.No.2924/Mds/1986 for the assessment year 1985-86. :JUDGMENT N.V.BALASUBRAMANIAN,J. In all these tax cases, the common question of law referred for theopinion of this Court is as follows:"Whether, on the facts and in the circumstances of the case, theAppellate Tribunal was right in law in holding that the 'purchase bonus' isnot allowable deduction out of profits and gains of business to the society?2. In respect of T.C.No.413 of 1999, an additional question of law isalso referred to, which is as follows:"Whether on the facts and in the circumstances of the case, theAppellate Tribunal was right in law in holding that the assessee society was not entitled to deduction of Rs.40,000/- under Section 80P(2)(c)(i) of theIncome-tax Act. 3. In respect of T.C.No.254 to 259 of 1998, the relevant assessmentyears are 1980-81, 1981-82, 1982-83, 1983-84, 1984-85 and 1987-88respectively. The relevant assessment year in respect of T.C.No.413 of 1999is 1985-86. Though in T.C.No.413 of 1999, the respondent is shown as theInspecting Assistant Commissioner of Income-tax (Asst.), Range IV, Madras,only the Commissioner of Income-tax, Tamil Nadu III, Chennai should be theparty/respondent. Accordingly, the cause title in T.C.No.413 of 1999 isamended showing the Commissioner of Income-tax, Tamil Nadu III, Chennai as therespondent instead of the Inspecting Assistant Commissioner of Income-tax (Asst.) Range IV, Madras. not entitled to deduction of Rs.40,000/- under Section 80P(2)(c)(i) of theIncome-tax Act. 3. In respect of T.C.No.254 to 259 of 1998, the relevant assessmentyears are 1980-81, 1981-82, 1982-83, 1983-84, 1984-85 and 1987-88respectively. The relevant assessment year in respect of T.C.No.413 of 1999is 1985-86. Though in T.C.No.413 of 1999, the respondent is shown as theInspecting Assistant Commissioner of Income-tax (Asst.), Range IV, Madras,only the Commissioner of Income-tax, Tamil Nadu III, Chennai should be theparty/respondent. Accordingly, the cause title in T.C.No.413 of 1999 isamended showing the Commissioner of Income-tax, Tamil Nadu III, Chennai as therespondent instead of the Inspecting Assistant Commissioner of Income-tax (Asst.) Range IV, Madras. 4. The facts are identical in respect of all the assessment years.The assessee being a Co-operative society supplied coal and diesel to itsmembers, who are manufacturers of bricks and tiles. In respect of relevantassessment years, the assessee claimed deduction in various amounts as"purchase bonus" payable to its members. It was contended before theAssessing Authority that as per the provisions of the Tamil Nadu CooperativeSocieties Act, 1961 (Tamil Nadu Act No.53 of 1961 ) and Tamil NaduCo.operative Societies Act, as amended by Act 30 of 1983, the purchase bonusis payable to its members with reference to the business done by them and thesum so payable is allowable as business expenditure of the Society. However,the Assessing Officer disallowed the claim on the ground that the payment wasonly by way of application or appropriation of net profit already earned andcannot be deducted as expenditure incurred for earning the business income.On appeal, the Commissioner of Income-tax (Appeals) has held that though"purchase bonus" payable to each member was calculated on the basis of theextent of their business with the assessee society, it was neverthelessappropriation out of the net profit. Before the Commissioner of Income-tax(Appeals), the assessee also urged that in view of the Circular No.117, dated22.8.1973 issued by the Central Board of Direct Taxes, the purchase "bonuspayable" by the Society should be allowed as a deduction in computing thebusiness income of the assessee society. This ground was also rejected by theCommissioner of Income-tax (Appeals) on the ground that the clarification inregard to the "rebate" or "purchase bonus" allowed to the members of theconsumer cooperative societies has no relevance in the context of bonusallowable to members of the Society under the Cooperative Societies Act, inthe sense, the said circular of the CBDT was applicable only to the consumerCooperative Societies and not to the petitioner Society, which was not aconsumer cooperative Society. On further appeal to the Tribunal, the Tribunalupheld the order of the Commissioner of Income-tax (Appeals), which confirmedthe order of the assessing Officer. At the instance of the assessee, thereference is made as stated above. 5. Mr.Seetharaman, learned counsel appearing for the assessee has submittedthat inasmuch as Section 72 of the Cooperative Societies Act, whichspecifically referred to the payment of "bonus" to members with reference tothe business done with or service rendered to the registered society, suchpayment is payable not because they are members, but because they have madecertain purchase from the society on the basis of which the bonus isquantified. He further contended that as per the Cooperative Societies Act,in order to ensure that the Cooperative Society does not incur loss, the bonus 5. Mr.Seetharaman, learned counsel appearing for the assessee has submittedthat inasmuch as Section 72 of the Cooperative Societies Act, whichspecifically referred to the payment of "bonus" to members with reference tothe business done with or service rendered to the registered society, suchpayment is payable not because they are members, but because they have madecertain purchase from the society on the basis of which the bonus isquantified. He further contended that as per the Cooperative Societies Act,in order to ensure that the Cooperative Society does not incur loss, the bonus to its members are paid only after closing the account and after ascertainingthe net result of the profit or loss of the trading transaction. Insubstance, he contended that the purchase bonus paid to the members withreference to the business done is to be considered as a deferred discount. Inorder to sustain his contention that the "purchase bonus" payable to themembers is allowable deduction, he relied on the decision of the AndhraPradesh High Court in the case of COMMISSIONER OF INCOME TAX VS.T.T.D.CO-OPERATIVE STORES LIMITED reported in (1998) 232 ITR 109 and thedecision of the Supreme Court in the case of POONA ELECTRIC SUPPLY COMPANYLIMITED VS. COMMISSIONER OF INCOME TAX, BOMBAY CITY I reported in (1965) 57ITR 521. The learned counsel has also relied on the circular No.117 of theCBDT and contended that the Board in consultation with the Department ofCommunity Development and Cooperation has decided that the "rebate" or"bonus", which is in the nature of deferred discount passed on by the consumerco-operative Stores to their members on the value of the purchases made bythem during a year should be allowed as a deduction in computing the businessincome of such society and in the light of the circular issued, the purchase "bonus payable" to the members with regard to their purchase they had with thesociety should be allowed as a deduction in computing the business income. Hehas further contended that in respect of the assessment year 1990-91, inrespect of the very same assessee, the Appellate Tribunal had accepted thecontention of the assessee by holding that the nature of the "rebate"considered by the Andhra Pradesh High Court in (1998) 232 ITR 109 and thenature of the "purchase bonus" to the members of the assessee society wassimilar, that the Tribunal rejected the contention of the revenue to theeffect that in respect of the assessee's own case for the assessment year1985-86, "the purchase bonus" claimed as allowable under business income wasrejected and following the decision of the Andhra Pradesh High Court in 232ITR 109 allowed the claim of assessee in regard to "purchase bonus". No muchargument has been advanced by the learned counsel for the assessee in respectof the claim under Section 80P(2)(c)(i). 6. Mrs.Pushya Seetharaman, the learned Senior Central GovernmentStanding Counsel appearing for the respondent has pointed out that theprovision specifically referred to payment of bonus out of the net profit andsubmitted that this was only an appropriation of income and could not beallowed as a deduction. She further submitted that where the amount is paidafter arriving at the income, it must be taken as an appropriation of income,unless or otherwise there are some materials to indicate that there was adiversion of that profit by overriding title before the profit accrues. Insupport of her contention, she relied on a decision of this Court in the caseof COMMISSIONER OF INCOME-TAX, TAMIL NADU - V VS. SOUTH ARCOT DISTRICTCO-OPERATIVE SUPPLY & MARKETING SOCIETY LIMITED reported in (1981) 127 ITR467. 7. We heard the arguments of the learned counsel on either side andperused the materials on record. 7. We heard the arguments of the learned counsel on either side andperused the materials on record. 8. In order to appreciate the rival contentions, we are of the viewthat it is appropriate to refer to the provisions of the Cooperative SocietiesAct. Section 72 of the Cooperative Societies Act, which came into force from13.4.1988, which is corresponding to Section 62 of the 1961 Act is as follows:"72. Disposal of net profits. - (1) (a) A registered society shall, out of its net profits as declared by the Registrar for the purposes of thisAct in respect of any year, contribute - (i) three per cent of the net profits to the research and development fund; and (ii) two per cent of the net profits to the education fund,within such time and in such manner as may be prescribed. (b) The research and development fund and the education fund shall bemaintained by the Tamil Nadu Co-operative Union Limited and administered bycommittees constituted in accordance with the rules. Such committees shallconsist of nominees of the Government (who shall be specialists or technicalexperts in agriculture or animal husbandry or sugar technology or textiletechnology or in such other matters as may be prescribed or officers of theGovernment) and also of nominees of the prescribed apex societies.(2) The balance of the net profits as so declared shall be appropriated, - firstly, for being credited to a reserve fund, the amount to creditedbeing not less than twenty per cent of the net profits; secondly, towards contribution to an agricultural credit stabilizationfund at fifteen per cent of the net profits in the case of every agriculturalservice society including the State and primary agriculture and ruraldevelopment banks and other financing banks: Provided that the State Agriculture and rural development bank shallalso contribute to a failed wells fund and to a project service account atsuch rates as may be specified in the rules; Thirdly, towards payment of honorarium to the members of the boardincluding the president and the vice-president of the registered society atsuch rates and subject to such conditions as may be prescribed : Provided that the aggregate of the honorarium so paid shall not exceedten per cent of the net profits; Fourthly, towards payment of dividend on shares to members at a ratenot exceeding fourteen per cent per annum on the paid-up value of each share :Provided that the Government may by general or specific order permitany registered society or any class or category of registered societies todeclare dividend at a rate exceeding fourteen per cent per annum subject tothe condition that the amount of dividend in excess of fourteen per cent shallbe credited to the share account of the members in such manner as may beprescribed; Fifthly, towards payment of bonus to members with reference tobusiness done with or services rendered to the registered society, at suchrate and subject to such conditions as may be specified in the rules;Sixthly, towards payment of bonus to paid employees of the registeredsociety not governed by the Payment of Bonus Act, 1965 (Central Act 21 of1965) at such rate and subject to such conditions as may be specified in therules. Seventhly, towards contribution to such other funds and at such ratesas may be specified in the by-laws; Eighthly, towards contribution to the common good fund at such ratenot exceeding ten per cent of the net profits as may be specified in the rules; and Ninthly, the remainder, if any, of the net profits being credited tothe reserve fund." 9. As seen from the above provision, it is evident that the provision Seventhly, towards contribution to such other funds and at such ratesas may be specified in the by-laws; Eighthly, towards contribution to the common good fund at such ratenot exceeding ten per cent of the net profits as may be specified in the rules; and Ninthly, the remainder, if any, of the net profits being credited tothe reserve fund." 9. As seen from the above provision, it is evident that the provision provided for disposal of net profits and clause (i)(a) of Section 72 providesthat a registered society shall "out of its net profits", as declared by theRegistrar for the purposes of this Act in respect of any year contribute threeper cent of the net profits to the research and development fund and two percent of the net profits to the education fund. Sub-section (2) provides thatthe balance of the net profits as so declared shall be appropriated, -firstly, ?..secondly,thirdly, ?fourthly, ?.Fifthly, towards payment of bonus to members with reference tobusiness done with or services rendered to the registered society, at suchrate and subject to such conditions as may be specified in the rules. 10. The corresponding Rule viz., Rule 96 of the Tamil Nadu Societies Rules, 1988 provides that any society other than a credit societymay, in accordance with its by-laws, pay bonus to its members based on theextent of business done by the members with it or the value of the servicesrendered by such members to the society subject to a maximum of fifty per centof its net profits. The Rule also provides that the Society shall not utilizeany portion of the bonus accruing on the business done by non-members forpayment of bonus to members but shall carry the entire amount so accrued tothe reserve fund or business loss reserve as may be decided by the generalbody.11. A careful reading of section 72 of the Co-operativeSocieties Act and Rule 96 of the Tamil Nadu Co-operative Societies Rules showsthat the disbursement out of net profit as declared by the Registrar ofCo-operative Societies is not lo robably, the arrangement of varioussub-sections as to the disbursement of net profit of a Co-operative Societyhas been made keeping in mind the object of the Co-operative Societies Actthat the net profit of the Co-operative Society is not to be dissipated. Inother words, the arrangement under the Co-operative Societies Act has norelevance for the determination of taxable profits under the Income-tax Act.Under Section 72 of the Co-operative Societies Act, the payment of dividend isfound in 4 th sub-heading and bonus to paid employees is found in 6thsubheading. However, under the Income-tax Act, the bonus to employees wouldfigure as a proper deductible item in the computation of net profits and onlyafter the declaration of net profit, the dividend has to be declared dependingupon the net profits of the Co-operative Society. Hence, it is ex-facie clearthat the arrangement of disbursement out of net profits under the Co-operativeSocieties Act is not logical and it has no relevance to the determination oftaxable profits under the Income-tax Act. Though bonus to employees ischaracterised as a payment out of net profits, it would still be a deductibleexpenditure under the Income-tax Act in the computation of net profits of theCo-operative Society in the normal circumstances. Therefore, the placementregarding payment of bonus to members next to the placement of declaration ofdividend on shares, in our view, is not conclusive in determining the questionwhether the payment of bonus to members is deductible expenditure or not. Soalso, the fact that under the Cooperative Societies Act, the payment of bonusto members is required to be made out of net profits of the Co-operative Society is not conclusive in determining the question whether the said amountis a deductible expenditure in the computation of business income of theCooperative Society under the Income-tax Act. 12. As far as the decision of this Court in C.I.T. v. SOUTH Society is not conclusive in determining the question whether the said amountis a deductible expenditure in the computation of business income of theCooperative Society under the Income-tax Act. 12. As far as the decision of this Court in C.I.T. v. SOUTH ARCOT DISTRICT CO-OP. SOCIETY (127 ITR 467) is concerned, the decision has noapplication to the facts of the case as this Court was dealing with the caseof statutory contribution out of net profits of a cooperative society to aneducation fund. In such circumstances, this Court found no difficulty inholding that the amount paid to an education fund was not liable to beexcluded from the taxable profits as the contribution has no connection to theearning profit. This Court also held that there was no diversion byoverriding title by the creation of the education fund. This Court furtherfound that the payment was conditional on profits being earned and that wasthe reason for this Court to hold that the amount paid to the education fundwas not liable to be excluded from the taxable profits of the Co-operativeSociety. It is also relevant to mention here that in the South Arcot DistrictCo-op. Society's case (127 ITR 467) the argument that was advanced was on thequestion whether there was any diversion by overriding title. Further, thefollowing observation of this Court made in South Arcot District Co-op.Society's case is relevant for the purpose of this case:-" The payment is conditional on profits being earned. Though that part of the profits which may have to be paid for earning the income canbe allowed as deduction, this is not such a case. The nature of the liabilityis such that the amoun distribution out of the profits, and is not related tothe earning of profits." 13. In our view, the test laid down by this Court in SouthArcot District Co-operative Society's case really helps the assessee herein.The bonus to the members is paid, though after the determination of netprofits of the Co-operative Society, as a sort of encouragement to the membersof the Co-operative Society to purchase the goods from the Co-operativeSociety, and by such purchase, the income of the Co-operative Societycorrespondingly would correspondingly increase and the profits of theCo-operative Society would also be generated. It is given more as anincentive to the members to purchase goods from the Co-operative Society andultimately the Co-operative Society will be benefited by the sale of articles,that too, by the sale of more articles to the members. Though the amount isgiven after the determination of net profits of the Co-operative Society, itis really a discount to the purchase price given to the members of theCooperative Society for the purchases made by them. We are of the view thatthe fact that it is paid after the determination of the net profits under theCo-operative Societies Act is not relevant and what has to be seen is the realnature of the purchase bonus. We are of the view that the real nature andquality of the purchase bonus is really a deferred discount, that is paid tothe members after determination of the net profits of the Co-operativeSociety. Therefore this expenditure, in our opinion, was paid for thebusiness of the assessee and is a business expenditure and is allowable as abusiness deduction. 14. In C.I.T. v. T.T.D. CO-OPERATIVE STORES LTD. (232 ITR 109) wherein the Andhra Pradesh High Court considered a similar question andheld that where rebate is given at the end of the year, deduction would go tothe trading account and thereby the figure of sales would be reduced by the 14. In C.I.T. v. T.T.D. CO-OPERATIVE STORES LTD. (232 ITR 109) wherein the Andhra Pradesh High Court considered a similar question andheld that where rebate is given at the end of the year, deduction would go tothe trading account and thereby the figure of sales would be reduced by the amount of rebate given. Though the Court held that it was not a case wherethe deduction of business expenditure was made after ascertaining the grossprofit, if the rebate was given at the end of the year after ascertaining theprofit made during the year, the actual rebate would relate back to the da teof sale and the sale figure would be reduced in the trading account. We areof the view that the ratio of the decision of the Andhra Pradesh High Courtwould squarely apply to the facts of the case as the purchase bonus is grantedto the members of the Co-operative Society as an incentive for the purpose ofpurchase of the goods from the Co-operative Society and if the rebate is notgiven, the loser would be the Co-operative Society. Therefore the payment ofpurchase bonus to its members, we hold, is an expenditure incurred wholly andexclusively for the purpose of business of the Co-operative Society.15. The Supreme Court in POONA ELECTRIC SUPPLY CO. LTD. v.COMMR. OF INC.-TAX (56 ITR 521) laid down the law as under:-" Under section 10(1) of the Income-tax Act, tax shall bepayable by an assessee under the head "profits and gains of business" inrespect of profits and gains of any business carried on by him. The saidprofits and gains are not profits regulated by any statute, but profits in abusiness computed on business principles. They are business profits and notstatutory profits. They are real profits and not notional profits. The realprofit of a businessman under section 10(1) of the Income-tax Act cannotobviously include the amounts returned by him by way of rebate to theconsumers under statutory compulsion. It is as if he received only from theconsu mers the original amount minus the amount he returned to them. Insubstance there cannot be any difference between a businessman collecting fromhis constituents a sum of Rs.Y in addition to Rs.X by mistake and returningRs.Y to them and another businessman collecting Rs.X alone. The amountreturned is not a part of the profits at all." The decision of the Supreme Court makes it clear that there is a distinctionbetween the deduction made for ascertaining profits and the distribution outof net profits. The Supreme Court also held that though there may be somedifficulties in ascertaining in each case whether a particular payment fallswithin one or other kinds of categories, the Supreme Court noticed thedecision of the Privy Council in INDIAN RADIO AND CABLE COMMUNICATIONS CO.LTD. v. COMMISSIONER OF INCOME-TAX (5 ITR 270, 277) where Lord Maughampointed out the distinction as under:- "It may be admitted that as Mr.Latter contended, it is not universallytrue to say that a payment the making of which is conditional on profits beingearned cannot properly be described as an expenditure incurred for the purposeof earning such profits. The typical exception is that of a payment to adirector or a manager of a commission on the profits of a company". The Supreme Court also made the distinction between the real profit andstatutory profit, that is, between the statutory profit and commercial profitto be determined by applying the commercial principles under the Income-taxlaw. Under the Co-operative Societies Act the statutory profit is fixed for aspecified purpose and that cannot be imported for determination of commercialprofit by applying the commercial principles under the Income-tax Act.Further, it is a statutory payment and when the statute has directed that theamount is liable to be paid by way of purchase bonus, the expenditure would be The Supreme Court also made the distinction between the real profit andstatutory profit, that is, between the statutory profit and commercial profitto be determined by applying the commercial principles under the Income-taxlaw. Under the Co-operative Societies Act the statutory profit is fixed for aspecified purpose and that cannot be imported for determination of commercialprofit by applying the commercial principles under the Income-tax Act.Further, it is a statutory payment and when the statute has directed that theamount is liable to be paid by way of purchase bonus, the expenditure would be allowable even on the ground that the payments were required to be made underthe provisions of the statute. Though under the Co-operative Societies Actthe profit bonus is to be made after the determination of net profit, whenactually the payment was made for the purpose of business, it would constitutean allowable deduction under the Income-tax Act. 16. Learned counsel for the assessee also relied upon the decision of the Andhra Pradesh High Court in ARMOOR CO-OPERATIVE MARKETINGSOCIETY v. C.I.T. (167 ITR 565), but the decision has no application to thefacts of the case. It is also relevant to mention here that we have grantedsufficient time to the Commissioner of Income-tax, Tamil Nadu III, Chennai toinform the Court as to the reasons why the Commissioner accepted the order ofthe Appellate Tribunal rendered in the assessee's own case for the assessmentyear 1990-91 and in spite of opportunities granted to the Commissioner, theCommissioner of Income-tax, Tamil Nadu III, Chennai has not furnished anyinformation regarding the reasons for accepting the order for the subsequentassessment year. The Supreme Court in UNION OF INDIA v. SATISH PANALAL SHAH(249 ITR 221) has held that where the decision of the High Court in the caseof assessee against the department is accepted in the subsequent decision ofthe High Court in the cases of other assessees, the department is not entitledto challenge the correctness without just cause in the cases of otherassessees. The ratio laid down by the Supreme Court is apposite here as theCommissioner of Income-tax, Tamil Nadu III, Chennai has accepted the decisionof the Appellate Tribunal in the assessee's own case for a subsequentassessment year, but has not given any reason at all for not accepting theorder of the Appellate Tribunal for the earlier years, though it was decidedin favour of the Commissioner in the earlier years. 17. The Central Board of Direct Taxes in consultation with the Department of Community Development and Co-operation has issued theCircular to the effect that rebate or bonus would be in the nature of deferreddiscount passed on the consumer co-operative stores to their members and thereis an allowable deduction in the computation of income of the Co-operativeSociety though the Circular was issued in the case of Consumer Co-operativeStores, there are no reasons to take a different view that it would not be adeferred discount in the case of other co-operative societies where bonus ispaid to the members of the co-operative societies on the value of purchasemade by them during the year. 18. For the fore-going reasons, we are of the opinion that the conclusion of the Appellate Tribunal is incorrect. Hence the firstquestion has to be answered in the negative in favour of the assessee andagainst the Revenue and accordingly it is answered. 19. With regard to the second question referred to in T.C.No.413 of 1 999, 18. For the fore-going reasons, we are of the opinion that the conclusion of the Appellate Tribunal is incorrect. Hence the firstquestion has to be answered in the negative in favour of the assessee andagainst the Revenue and accordingly it is answered. 19. With regard to the second question referred to in T.C.No.413 of 1 999, the assessee claimed deduction in a sum of Rs.40,000/- under Section80P(2)(c)(i) of the Act. The lower authorities granted deduction of only asum of Rs.20,000/- under Section 80P(2)(c)(ii). On appeal, the Tribunal heldthat the assessee is not a consumer co-operative society and it is not engagedin the business of supplying essential commodities to the common and thusupheld the deduction of Rs.20,000/- only. No such argument was made inrespect of the above question. In order to answer the question, we will haveto refer the provision, Section 80(P)(2)(c) provides that in the case of aco-operative society engaged in activities other than those specified inclause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gainsattributable to such activities as does not exceed (i) where such cooperativesociety is a consumers' co-operative society, forty thousand rupees; and (ii)in any other case, twenty thousand rupees only shall be deducted. The"consumer society" as defined under Section 2(10) of the Co-operativeSocieties Act to mean a registered society which has its principal object thesupply of the requirements of its members for the consumption of such members.The activity of the assessee society cannot be considered as a consumersociety since the members of the society did not consume the articles suppliedby the society, but they used it for the manufacture of bricks and tiles.Explanation (i) to Rule 14 of the Co-operative Societies Rules defines "industrial society" to mean a society which has as its principal object theproduction of articles or finished goods through or with the help of itsmembers or the provision of service facilities to its members who areartisans, technicians or small producers who are its members and includes anysociety which has as its principal object the provision of facilities for theoperation of an industrial society. The Industrial society so defined hasbeen classified under serial No.10, the categories of artisans, technicians,producers and industrial service society. The petitioner Society, in ourview, would come within the second limb of explanation (i) to Rule 14.20. As stated already, the claim has been made on the ground that theassessee is a consumer co-operative society. Hence, as per the provisions ofthe Act, the deduction granted in a sum of Rs.20,000/- is very much inaccordance with law. Hence, the second question of law referred to inT.C.No.413 of 1999 is answered in affirmative in favour of the revenue andagainst the assessee.21. In the result, the questions of law referred to us are answeredas under:-I Question (common):- Answered in the negative, in favour of the assessee andagainst the Revenue.II Question:- Answered in the affirmative, in favour of the Revenue andagainst the assessee.In the circumstances there will be no order as to costs. Index: YesWebsite: Yes (N.V.B.,J.)(K.R.P.,J.)USK/na To:1.The Assistant RegistrarIncome-tax Appellate TribunalRajaji Bhavan, Besant NagarChennai-600 090 2.The SecretaryCentral Board of Direct TaxesNew Delhi3.The Commissioner of Income-taxTamil Nadu III Madras 4.The Commissioner of Income-tax(Appeals - iii),Madras-34,5.The Deputy Commissioner ofIncome-tax, Special Range IIIMadras.�