Punjab State Co-op. Milk Producer Vs. Income-tax Officer - Court Judgment

Excerpt:
1. appeal of the assessee for assessment year 2002-03 is directed against the order dated 31^stoct., 2005 of the cit(a), chandigarh. we have heard the parties and perused the records.2. the relevant facts briefly stated are that the assessee is a co-operative society primarily engaged in procurement, processing and marketing of milk and milk products. the assessee had filed return of income on 29^thoct., 2002 for assessment year under appeal declaring nil income. the said return had been processed under section 143(3) accepting the returned income. the computation of nil income was arrived at by the assessee as under- as per the note given on the computation of income chart, it was claimed by the assessee that the interest income earned from cooperative societies amounting to rs. 7,95,37,490 was eligible for deduction under section 80p(2)(d) but the claim was restricted to the net income determined above at rs. 4,98,64,196. on scrutiny of accounts, the ao was of the view that interest earned by the assessee from the cooperative societies was not on account of investment by way of debentures/securities or shares in another cooperative society but was business receipt arising out of business transactions of advancing funds for day-to-day running of the business activities of the district milk unions. the assessing officer accordingly held that assessee was not entitled to deduction under section 80p(2)(d).3. the assessing officer further proceeded to hold that even if the assessee is presumed to be entitled to deduction under section 80p(2)(d), the same is permissible on the income to be determined after deduction of expenses a.p.ovided under section 14a of the income-tax act, 1961. according to the ao, the financial expenses incurred by the assessee at rs. 5,00,27,855 were directly attributable to earning of interest income of rs. 7,95,37,490. the ao accordingly made an assessment at an income of rs. 4,98,84,200 after denying deduction under section 80p(2)(d) to the assossee.4. the assessee appealed to the cit(a) but did not succeed. hence this appeal.5. the id. counsel for the assossee contended that assessee had provided financial assistance by way of loans to the cooperative societies in the course of carrying on the business activities. the interest earned on such investments qualified for deduction under section 80p(2)(d). reliance was placed on the decision of the punjab & haryana high court in the case of cit v. haryana co-op. sugar mills ltd.180 itr 631 (p&h), wherein the hon'ble high court held that saving bank account and call deposit bank account are investments for the purpose of section 80p(2)(d). reliance was also placed on the decision of supreme court in the case of cit, lucknow v. u.p. co-operative federation ltd. 176 itr 435 (sc) to support the contention that even the amounts advanced to the members of cooperative societies for lifting and distribution of sugar are investments and the interest derived therefrom is entitled to deduction under the provisions of section 14(3)(1)(iii) of the indian income-tax act, 1922. the id.counsel for the assesses further relied upon the decision of the punjab & haryana high court in the case of cit v. doaba co-operative sugar mills ltd.230 itr 774(p&h), where the hon'ble high court has held that deduction under section 80p(2)(d) was permissible on the interest received from the cooperative societies without deducting the interest paid to such societies or to the bank.6. the ld. counsel further contended that section 14a inserted with retrospective effect is inapplicable in the present case insofar as the said section is applicable in respect of the income which is exempt from taxation. according to the counsel, in the present case, the assessee is not claiming exemption in respect of any income. deduction under section 80p(2)(d) is claimed by the assessee out of the income included in the gross total income. reliance was placed on the decision of supreme court in the case of rajasthan state warehousing corporation v. cit 242 itr 450(sc), in which their lordships have held that where a part of income is exempt and if the business of the assessee is one and indivisible expenditure cannot be apportioned and the part relating to income which is exempt cannot be disallowed. it was accordingly pleaded that deduction may be allowed under section 80p(2)(d) to the assessee in respect of the gross receipts of interest.7. the ld. d.r., on the other hand, contended that assessee is not entitled to deduction under section 80p(2)(d) insofar as deduction is permissible under the said section in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other cooperative society. according to the id.d.r., the assessee had provided advances to the cooperative societies in the normal course of business and no investment was made in such societies the income wherefrom would qualify for deduction under section 80p(2)(d). the ld. d.r. further contended that section 14a having been inserted with retrospective effect, the decision of the hon'ble supreme court in the case of rajasthan state warehousing corporation. v. cit (supra) stands superseded. the ld. d.r. further contended that section 14a is applicable in such cases where part of the income is not included in the total income. according to the ld.dr., section 14a does not speak of income which is exempt from taxation. on the other hand, it speaks of income which is not included in the total income. according to him, the total income is defined under section 2(45) of the act and there is distinction between the gross total income and the total income. according to the ld. d.r., gross total income is defined under section 80b of the act to mean the income as computed in accordance with the provisions of the act before making any deductions under chapter via. on the other hand, total income means the total amount of income referred to in section 5 computed in the manner laid down in the act. according to the ld. d.r., since the deduction under section 80p is made out of the gross total income, the quantum of deduction is not included in the total income as defined under section 2(45). therefore, provisions of section 14a are clearly attracted in this case. it was accordingly pleaded that the order of the ao may be upheld and in the alternative, deduction permissible to the assessee may be held to be on the net interest after deducting the proportionate expenses. the ld. d.r. also invited our attention to the return of income to support his contention with particular reference to sl.nos. 18,19 & 20 of the return of income.reliance was also paced on the decision of kolkata bench of the itat in the case of dcit v. s.g.investments & industries ltd. 89 itd 44, to support the contention that deduction was permissible to the assessee after deducting proportionate expenses. reliance was also placed on the decision of the supreme court in the case of sabarkantha zilla kharid vechan v. cit 203 itr 1027, in support of the contention. reliance was also placed on the following decisions: iii) karnataka forest plantations corporation. ltd. v. cit 156 itr 275(kar.).8. in counter reply, the id. counsel for the assessee relied upon the following decisions in support of the contention that proportionate expenses are not to be deducted in computing the deduction permissible under chapter via- ito wd. 4(1), chandigarh v. punjab state federation of coop. sugar mills chandigarh & ita no. 307chandi/03, a.y.92-93punjab state federation of coop. sugar mills, chandigarh v. ito wd.4 ii) ita no. 79/chandi/04, a.y. 2000-01, punjab state co-operative supply & marketing federation ltd., chandigarh. v. acit cir.4(1), chandigarh.it was accordingly pleaded that appeal of the assessee may be dismissed.9. we have given our careful consideration to the rival contentions.there are two issues involved in this appeal - first issue is as to whether the assessee is entitled to deduction under section 80p(2)(d) in respect of interest on advances to the cooperative societies in the course of its business and the second issue is in regard to quantum of such deduction.so far as first issue is concerned, the same is covered in favour of the assessee by the decision of the hon'ble supreme court in the case of cit, lucknow v. u.p.co-operative federation ltd. (supra). in the said case, their lordships of the supreme court held that the amounts advanced to the members of a cooperative societies for lifting and distribution of sugar are investments and the interest derived therefrom is entitled to deduction under the provisions of section 14(3)(1)(iii) of the indian income-tax act, 1922. admittedly, the decision of hon'ble supreme court is with reference to section 14(3)(1)(iii) of the 1922 act. it is, therefore, necessary to consider as to whether the said decision also applies with reference to the provisions of section 80p(2)(d). in our considered view, it would be necessary to compare the relevant provisions of the act under the income-tax act, 1922.10. section 14(3) of the indian income-tax act, 1922 provided that tax shall not be payable by a cooperative society in certain situations.clause (i) of section 14(3) refers to specific classes of cooperative societies in whose cases there is no exemption. clause (ii) exempts income in respect of profits and gains of business of cooperative societies not covered by clause (i) upto rs. 15,000. clause (iii) exempts interest and dividends and income derived from investments with any other cooperative society. clause (iv) exempts income derived from letting out of godowns or warehouses for storage, processing or facilitating the marketing of commodities. clause (v) exempts interest from securities chargeable under section 8 or any income from property chargeable under section 9 of the act, where the total income of the cooperative society of specific types mentioned therein does not exceed rs, 20,000/-.11. section 80p(d) of the income-tax act, 1961 provides deduction in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other cooperative society to the extent of whole of such income. it is, therefore, evident that clause (iii) of section 14(3) of 1922 act is pari materia with clause (d) of section 80p. therefore, the decision of the hon'ble supreme court in the case of cit, lucknow v. u.p. co-operative federation ltd. (supra), in our view, is applicable to section 80(2)(d) on all-fours. in the said decision, their lordships of the supreme court explaining the meaning of the word "investments" a.p.r section 14(3)(iii), held as under "investment" has not been defined in the act. p. ramanatha aiyar's law lexicon (reprint edition 1987) states: the term 'invest' is used in a sense broad enough to cover the loaning of the money but is not restricted to that mode of 'investment' or loans made on commercial paper. the word 'invest' has been judicially defined a follows: to place property in business; to place so that it will be safe and yield a profit. it is also commonly understood as giving money for some other property (as) investing funds on lands and houses. investment" means, in common parlance, putting out money on interest, either by way of loan, or by purchase of income producing property....it is thus evident that on the basis of the decision of the hon'ble supreme court, the advances made by the assessee to the member cooperative societies for the purpose of procurement of milk etc. in the course of its business falls within the category of 'investments' and interest thereon accordingly qualifies for deduction under section 80p(2)(d). we may also usefully refer to the decision of the punjab & haryana high court in the case of cit v. haryana co-operative sugar milk ltd. (supra). in this case it was held by the hon'ble high court that the amount deposited by one co-operative society with another, whether for long term or short term would be an investment within the meaning of section 80p(2)(d). we are, therefore, of the considered view that the interest earned by the assessee on the advances given to the member cooperative societies for procurement of milk qualifies for decision under section 80p(2)(d) of the income-tax act, 1961. we hold accordingly.12. now we proceed to consider the second issue involved in this appeal i.e. relating to the quantum of deduction under section 80p(2)(d) of the act. the precise issue involved in this appeal is as to whether the deduction is to be computed with reference to the gross interest received from the member cooperative societies or the net interest as included in the gross total income of the assessee. it is not disputed that the money has been advanced to the member cooperative societies in the course of business of the assessee. the id. counsel for the assessee insisted before us that the issue was covered in favour of the assessee by the decision of the punjab & haryana high court cit jalandhar v. janta co-operative sugar mills ltd., bhopur, i.t. ref. no.29 of 1984 dated 23.2.1998 and in the case of cit v. doaba sugar mills ltd. (1998) 96 taxman 506 (p&h). on a perusal of the decisions relied upon by the id. counsel for the assessee, we are of the view that the aforementioned decisions are not relating to the issue involved in this appeal. the issue before the hon'ble high court was whether interest received by the cooperative society on any investment in another cooperative society qualifies for deduction and such investment need not necessarily be surplus funds. another issue involved before the hon'ble high court in the case of doaba cooperative sugar mills' ltd. was as to whether interest paid by the assessee to the bank was to be adjusted against the interest received for the purpose of allowing deduction. the issue before the hon'ble high court in the case of cit, jalandhar v. janta cooperative sugar mills ltd., bhopur, (supra) was whether on the facts and in the circumstances of the case, the itat is right in law in upholding the cit(a)'s order allowing deduction under section 80p(2)(d) of the income-tax act, 1961 in respect of interest of rs. 1,40,203 from jalandhar central co-operative bank without setting off interest of rs. 6,72,776/- paid to the same bank.13. the issue involved in the present appeal is as to whether deduction under section 80p(2)(d) of the income-tax act, 1961 is permissible to the assessee in respect of the gross interest received from member cooperative societies or net interest computed in accordance with the provisions of the act this issue was neither raised nor decided by the hon'ble high court. we will therefore consider this issue in the light of the provisions of the act.14. it will be pertinent to mention that the deduction claimed by the assessee under section 80p(2)(d) falls under chapter via of the income-tax act, 1961 dealing with deductions to be made in computing the total income. section 80p(2)(d) reads as under: 80p.(1) where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) the sums referred to in sub-section (1) shall be the following, namely: (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income; 80a.(1) in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this chapter, the deductions specified in sections 80c to 80u. (2) the aggregate amount of the deductions ^29under this chapter shall not, in any case, exceed the gross total income of the assessee. (3) where, in computing the total income of an association of persons or a body of individuals, any deduction is admissible under section 80g or section 80gga or section 80ggc or section 80hh or section 80hha or section 80hhb or section 80hhc or section 80hhd or section 80-1 or section 80-ia^32[or section 80-ib] or section 80j^33or section 80jj, no deduction under the same section shall be made in computing the total income of a member of the association of persons or body of individuals in relation to the share of such member in the income of the association of persons or body of individuals.] (5) "gross total income" means the total income computed in accordance with the provisions of this act, before making any deduction under this chapter." a combined reading of the aforesaid provisions of the act clearly indicate that deductions under any of the provisions contained in chapter via are permissible with reference to the amount of income of that nature as computed in accordance with the provisions of the act.their lordships of the supreme court in the case of distributors (broada) p. ltd. v. union of india and anr. 155 itr 120 (sc), also laid down the following principle of law in respect of the deductions permissible under chapter via: the opening words of section 80m, viz., "where the gross total income of an assessee ...includes any income by way of dividends from a domestic company" describe the condition which must be fulfilled in order to attract the applicability of the provision contained in section 80m. the condition is that the gross total income of the assessee must include income by way of dividends from a domestic company. "gross total income" is defined in section 80b, clause (v), to mean "total income computed in accordance with the provisions of the act before making any deduction under chapter vl-a or section 280-o". income by way of dividends from a domestic company included in the gross total income would, therefore, obviously be income computed in accordance with the provisions of the act, that is, after deducing interest on monies borrowed for earning such income. if income by way of dividends from a domestic company computed in accordance with the provisions of the act is included in the gross total income, or in other words, forms part of the gross total income, the condition specified in the opening part of sub-section (1) of section 80m would be fulfilled and the provision enacted in that sub-section would be attracted. what is included in the gross total income in such a case is a particular quantum of income belonging to the specified category. therefore, the words "such income by way of dividends" must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. it is obvious, as a matter of plain grammar, that the words "such income by way of dividends" must have reference to the income by way of dividends mentioned earlier and that would be income by way of dividends from a domestic company which is included in the gross total income. that would obviously be the income by way of dividends computed in accordance with the provisions of the act.it is, therefore, well settled principle of law that deduction under chapter via is permissible with reference to the net income computed in accordance with the provisions of the act as included in the gross total income which is permissible as a deduction under the respective provisions of the act.15. it is, therefore, necessary to find out as to what is the component of income by way of interest received from the member societies which is included in the gross total income. it is an admitted position before us that the assessee has earned interest from member co-operative societies in the course of business. it is evident from the facts on record that assessee has incurred expenses in the course of earning business income which includes the receipts by way of interest from member cooperative society. therefore, if one has to consider the component of interest included in the course of total income, the expenses incurred by the assessee for earning such income are bound to be taken into account in working out the net total income including the gross total income. itat, chandigarh bench in the case of ito, wd. 4(1), chandigarh v. punjab state federation of co-operative sugar mills, chandigarh (supra) and punjab state co-operative supply & marketing federation ltd., chandigarh v. acit, cir.4(1), chandigarh (supra), has held that deduction under section 80p has got to be computed with reference to the net income after deducting expenses and in the event of expenses being, indivisible, the same has got to be deducted on proportionate basis. reference may also be usefully made to the decision pf the hon'ble supreme court in the case of sabarkantha zilla kharid vechan v. cit 203 itr 1027. in the said case, the assessee, a cooperative society, engaged in the business of purchase of agricultural implements, seeds, livestock and other articles, intended for supply to members as well as to non-members. for assessment year 64-65, 65-66 and 66-67, the assessee claimed exemption from income tax under section 80(i)(d) of the income-tax act, 1961 on the gross profits and gains of business with its members. but the ito granted relief only on the net amount as was includible in the computation of total income under section 110, since the income exempted under section 81(i)(d) was to be included in its total income as required by section 66. for the first two years, the appellate tribunal accepted the claim of the assessee but for the third year the tribunal rejected the claim and upheld the ito' order. on reference, the high court held, rejecting the claim of the assessee, that the only way of working out the scheme of provisions of section 81(i)(d) in the light of sections 66 and 110 was first to calculate the total income and the income tax thereon and secondly to ascertain the net profits in respect of activities on which income tax was not payable by setting off against the gross profits the proportionate amount of expenditure and then to determine the profits and gains from the taxable activities and thereafter from the income tax on the total income grant a rebate at the average rate of income tax on the amount on which no tax was payable. on appeal to the supreme court, the hon'ble supreme court held as under: (i) affirming the decision of the high court, that since section 66 required the computation of the total income by including all income on which no income-tax was payable under chapter vii, the income on which no income-tax was payable by a co-operative society under section 81(i)(d) falling in chapter vii had to be necessarily included in its total income. section 110 was then attracted. hence, when the income of the co-operative society on which no tax was payable was included in its total income, it became entitled to a deduction from the amount of income-tax chargeable on its total income. that meant that the co-operative society became entitled to deduction or exemption of income-tax payable by it only on the net amount of profits and gains, i.e. on the income of its business otherwise computable in accordance with the provisions of the income-tax act, 1961, for the purpose of charging income-tax thereon and which was included in its total income, and not on the amount of its gross profits and gains of business on which no income-tax was payable.at page 1031 of the report, their lordships have reproduced section 81 and held as under: 81. income of co-operative societies. - income-tax shall not be payable by a co-operative society. - (i) in respect of the profits and gains of business carried on by it, if it is .... (d) a society engaged in the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members." the said provision, as seen therefrom, undoubtedly exempts an assessee-cooperative society, which carries on the business envisaged therein, from payment of income-tax on profits and gains of such business. but the controversy which relates to the said provision is, whether the income-tax not payable thereunder, falls to be calculated either with reference to the full amount of profits and gains of the cooperative society's business, as contended on behalf of the assesee or with reference to the net amount of profits and gains of the co-operative society's business, as otherwise computable under the provisions of the income-tax act for the purpose of charging income-tax thereon, as contended on behalf of the revenue. if the relevant provisions of the income-tax act providing for charging a person including a co-operative society with income-tax on "profit and gains" of such person's business show that it is the net profits and gains, i.e., income of such business computed in accordance with the provisions of the income-tax act, it must flow therefrom, as a necessary corollary thereof, that the "profits and gains" for which exemption from income-tax is envisaged under section 81(i)(d) of the income-tax act, ought to be net profits an gains, i.e. income of business computed in accordance with the provisions of the income-tax act which is includible in such person's total income for charging income-tax thereon. this situation requires us to advert to such of the relevant provisions of the income-tax act, which could be of assistance to us in resolving the controversy.the hon'ble supreme court has referred to various provisions of the act relevant to computation of income from profits and gains of business.at page 1033, their lordships further held as under: thus, the said provisions of the income-tax act, in our view, clearly envisage a legislative scheme of giving income-tax exemption to a cooperative society carrying on its business contemplated in section 81(i)(d) of the income-tax act, not with respect to the amount of gross profits and gains of its business but only with respect to the amount of net profits and gains, i.e., income of its business otherwise computable according to the provisions of the income-tax act for the purpose of charging income-tax as a part of the total income of the assessee, as required under section 110 of the income-lax act, at page 1034, their lordships of the supreme court referred to the decision of the andhra pradesh high court in the case of anakapalli co-operative marketing society's case 175 itr 584 (ap), which relates to section 80p, and held as under: in anakapalli co-operative marketing society's case , the question referred for the decision of the andhra pradesh high court under section 256(1) of the income-tax act was (at page 585): whether, on the facts and in the circumstances of the case, the appellate tribunal was justified in holding that the entire amount of rs. 3,72,038 relating to marketing of agricultural produce of its members and interest on loans given to its members should be allowed as deduction under section 80p(2)(a) of the income-tax act, and not rs. 73,720 with reference to the proportionate net profit referable to those activities only?" section 80p, which provided for exemption to a cooperative society from payment of income-tax, was incorporated in the income-tax act with effect from april 1, 1968, by deletion of section 81, with which we have dealt. jeevan reddy j. (one of us), who spoke then for the division bench of that high court, answered the aforesaid question in the negative, taking the view that what was deductible under sub-section (1) of section 80p was only that portion of the said amount as can be called total income attributable to activities defined in clause (5) of section 80b. section 10ab introduced in the income-tax act by the finance (no. 2) act, 1980, with effect from april 1, 1981, was adverted to by his lordship to buttress the view so taken, in that it read (at page 588 of 175 itr): hence, the view taken by the andhra pradesh high court on the scope of section 80p: of the income-tax act which had replaced section 81 of the income-tax act, fully supports the view we have already expressed on the "income exemption" of profits and gains of a business of a co-operative society as envisaged under section 81 of the income-tax act read in conjunction with sections 66 and 110 thereof.it is, therefore, evident that the issue relating to deduction under section 80p is also covered by the aforementioned decision of the hon'ble supreme court. we respectfully applying the above principle of law hold that deduction under section 80p(2)(d) is permissible to the assessee on the net component of interest computed in accordance with the provisions of the act.16. it is also pertinent to mention that section 14a has been incorporated in the income-tax act, 1961 by the finance act, 2001 with retrospective effect from 1.4.72. the said section reads as under: 14a.for the purposes of computing the total income under this chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this act: provided that nothing contained in this section shall empower the assessing officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of april, 2001.the question that assumes importance in the light of the contentions advanced on behalf of the parties is as to whether section 14a is applicable only in respect of income which is not included in the total income by virtue of provisions of section 10 and is inapplicable in respect of deductions provided under chapter via. in order to consider this issue, it would be necessary to keep in mind the language of section 14a. a plain reading of section 14a reveals that any expenditurewhich is related to the income which does not form part of total incomeunder the act will not be allowed as a deduction. total income is defined under section 2(45) of the income-tax act as under: (45) "total income" means the total amount of income referred to in section 5, computed in the manner laid down in this act; in order to consider what is the total income of the assessee, effect has got to be given to all the provisions of the act including the deductions permissible under chapter via. it may be pertinent to mention that the first step for computation of total income is to determine the income under various heads of income as specified under section 14 of the act. after working out the gross total income, deductions as permissible under chapter vi are to be made which gives the total income. there is distinction between gross total income and total income. gross total income is defined under section 80b as under: 80b(5) - "gross total income" means the total income computed in accordance with the provisions of this act, before making any deduction under this chapter." (i.e. chapter via).in other words, the gross total income is the income as computed under the provisions of the act before deductions under chapter via. the legislature has consciously used the words total income' in contrast to 'gross total income' in section 14a. therefore, for the purpose of attracting provisions of section 14a, one will naive to consider as to whether the income specified under section 80p2(d) is included in the "total income" or not. admittedly, the income referred to in section 80p(2)(d) is included in the gross total income but once the said income is excluded by virtue of section 80p(2)(d) it no longer can be said to be included in the total income. since deduction under section 80p(2)(d) is allowed to the assessee out of the gross total income, the income described in section 80p(2)(d) no longer is included in the total income notwithstanding the fact that the said income is included in the gross total income. we accordingly hold that section 14a is applicable even in respect of the incomes which are excluded from the total income by virtue of deductions under chapter via. this view gets further support from the prescribed form of return of income. sl.no. 18 provides for the gross total income, si.no. 19 provides for deductions under chapter via and si.no. 20 provides for the total income. it is therefore, evident that total income as per the return does not include the income referred to in section 80p(2)(d). therefore, the provisions of section 14a inserted w.e.f. 1.4.1962 are clearly attracted in this case. we are, therefore, of the considered view that deductions permissible to the assessee under section 80p(2)(d) is in respect of the net income after excluding the expenses attributable to the income referred to in section 80p(2)(d). in case some expenditure is indivisible, visa other receipts of business, the same shall have to be apportioned between the various types of receipts and deductions under section 80p(2)(d) computed accordingly.17. in the final analysis, we hold that assessee is entitled to deduction under section 80p(2)(d) in respect of interest received on advances provided to the member co-operative societies. so, however, the deduction permissible to the assessee is in respect of the net income after deduction of expenses attributable to the earning of such income. we hold accordingly.18. before parting, we would like to clarify that after the insertion of section 14a, any decision to the contrary is inapplicable to the proposition involved in this appeal.

Judgment:
1. Appeal of the assessee for assessment year 2002-03 is directed against the order dated 31^stOct., 2005 of the CIT(A), Chandigarh. We have heard the parties and perused the records.

2. The relevant facts briefly stated are that the assessee is a co-operative society primarily engaged in procurement, processing and marketing of milk and milk products. The assessee had filed return of income on 29^thOct., 2002 for assessment year under appeal declaring nil income. The said return had been processed Under Section 143(3) accepting the returned income. The computation of nil income was arrived at by the assessee as under- As per the note given on the computation of income chart, it was claimed by the assessee that the interest income earned from cooperative societies amounting to Rs. 7,95,37,490 was eligible for deduction Under Section 80P(2)(d) but the claim was restricted to the net income determined above at Rs. 4,98,64,196. On scrutiny of accounts, the AO was of the view that interest earned by the assessee from the cooperative societies was not on account of investment by way of debentures/securities or shares in another cooperative society but was business receipt arising out of business transactions of advancing funds for day-to-day running of the business activities of the District Milk Unions. The Assessing Officer accordingly held that assessee was not entitled to deduction Under Section 80P(2)(d).

3. The Assessing Officer further proceeded to hold that even if the assessee is presumed to be entitled to deduction Under Section 80P(2)(d), the same is permissible on the income to be determined after deduction of expenses A.P.ovided Under Section 14A of the income-tax Act, 1961. According to the AO, the financial expenses incurred by the assessee at Rs. 5,00,27,855 were directly attributable to earning of interest income of Rs. 7,95,37,490. The AO accordingly made an assessment at an income of Rs. 4,98,84,200 after denying deduction Under Section 80P(2)(d) to the assossee.

4. The assessee appealed to the CIT(A) but did not succeed. Hence this appeal.

5. The Id. Counsel for the assossee contended that assessee had provided financial assistance by way of loans to the cooperative societies in the course of carrying on the business activities. The interest earned on such investments qualified for deduction Under Section 80P(2)(d). Reliance was placed on the decision of the Punjab & Haryana High Court in the case of CIT v. Haryana Co-op. Sugar Mills Ltd.180 ITR 631 (P&H), wherein the Hon'ble High Court held that saving bank account and call deposit bank account are investments for the purpose of Section 80P(2)(d). Reliance was also placed on the decision of Supreme Court in the case of CIT, Lucknow v. U.P. Co-operative Federation Ltd. 176 ITR 435 (SC) to support the contention that even the amounts advanced to the members of cooperative societies for lifting and distribution of sugar are investments and the interest derived therefrom is entitled to deduction under the provisions of Section 14(3)(1)(iii) of the Indian Income-tax Act, 1922. The Id.

Counsel for the assesses further relied upon the decision of the Punjab & Haryana High Court in the case of CIT v. Doaba Co-operative Sugar Mills Ltd.230 ITR 774(P&H), where the Hon'ble High Court has held that deduction Under Section 80P(2)(d) was permissible on the interest received from the cooperative societies without deducting the interest paid to such societies or to the bank.

6. The ld. Counsel further contended that Section 14A inserted with retrospective effect is inapplicable in the present case insofar as the said section is applicable in respect of the income which is exempt from taxation. According to the Counsel, in the present case, the assessee is not claiming exemption in respect of any income. Deduction Under Section 80P(2)(d) is claimed by the assessee out of the income included in the gross total income. Reliance was placed on the decision of Supreme Court in the case of Rajasthan State Warehousing Corporation v. CIT 242 ITR 450(SC), in which their Lordships have held that where a part of income is exempt and if the business of the assessee is one and indivisible expenditure cannot be apportioned and the part relating to income which is exempt cannot be disallowed. It was accordingly pleaded that deduction may be allowed Under Section 80P(2)(d) to the assessee in respect of the gross receipts of interest.

7. The ld. D.R., on the other hand, contended that assessee is not entitled to deduction Under Section 80P(2)(d) insofar as deduction is permissible under the said section in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other cooperative society. According to the Id.

D.R., the assessee had provided advances to the cooperative societies in the normal course of business and no investment was made in such societies the income wherefrom would qualify for deduction Under Section 80P(2)(d). The ld. D.R. further contended that Section 14A having been inserted with retrospective effect, the decision of the Hon'ble Supreme Court in the case of Rajasthan State Warehousing Corporation. v. CIT (supra) stands superseded. The ld. D.R. further contended that Section 14A is applicable in such cases where part of the income is not included in the total income. According to the ld.DR., Section 14A does not speak of income which is exempt from taxation. On the other hand, it speaks of income which is not included in the total income. According to him, the total income is defined Under Section 2(45) of the Act and there is distinction between the gross total income and the total income. According to the ld. D.R., gross total income is defined Under Section 80B of the Act to mean the income as computed in accordance with the provisions of the Act before making any deductions under Chapter VIA. On the other hand, total income means the total amount of income referred to in Section 5 computed in the manner laid down in the Act. According to the ld. D.R., since the deduction Under Section 80P is made out of the gross total income, the quantum of deduction is not included in the total income as defined Under Section 2(45). Therefore, provisions of Section 14A are clearly attracted in this case. It was accordingly pleaded that the order of the AO may be upheld and in the alternative, deduction permissible to the assessee may be held to be on the net interest after deducting the proportionate expenses. The ld. D.R. also invited our attention to the return of income to support his contention with particular reference to Sl.Nos. 18,19 & 20 of the return of income.

Reliance was also paced on the decision of Kolkata Bench of the ITAT in the case of DCIT v. S.G.Investments & Industries Ltd. 89 ITD 44, to support the contention that deduction was permissible to the assessee after deducting proportionate expenses. Reliance was also placed on the decision of the Supreme Court in the case of Sabarkantha Zilla Kharid Vechan v. CIT 203 ITR 1027, in support of the contention. Reliance was also placed on the following decisions: iii) Karnataka Forest Plantations Corporation. Ltd. v. CIT 156 ITR 275(Kar.).

8. In counter reply, the Id. Counsel for the assessee relied upon the following decisions in support of the contention that proportionate expenses are not to be deducted in computing the deduction permissible under Chapter VIA- ITO Wd. 4(1), Chandigarh v. Punjab State Federation of Coop. Sugar Mills Chandigarh & ITA No. 307Chandi/03, a.y.92-93Punjab State Federation of Coop. Sugar Mills, Chandigarh v. ITO Wd.4 ii) ITA No. 79/Chandi/04, a.y. 2000-01, Punjab State Co-operative Supply & Marketing Federation Ltd., chandigarh. v. ACIT Cir.4(1), Chandigarh.

It was accordingly pleaded that appeal of the assessee may be dismissed.

9. We have given our careful consideration to the rival contentions.

There are two issues involved in this appeal - first issue is as to whether the assessee is entitled to deduction Under Section 80P(2)(d) in respect of interest on advances to the cooperative societies in the course of its business and the second issue is in regard to quantum of such deduction.

So far as first issue is concerned, the same is covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of CIT, Lucknow v. U.P.Co-operative Federation Ltd. (supra). In the said case, their Lordships of the Supreme Court held that the amounts advanced to the members of a cooperative societies for lifting and distribution of sugar are investments and the interest derived therefrom is entitled to deduction under the provisions of Section 14(3)(1)(iii) of the Indian Income-tax Act, 1922. Admittedly, the decision of Hon'ble Supreme Court is with reference to Section 14(3)(1)(iii) of the 1922 Act. It is, therefore, necessary to consider as to whether the said decision also applies with reference to the provisions of Section 80P(2)(d). In our considered view, it would be necessary to compare the relevant provisions of the Act under the Income-tax Act, 1922.

10. Section 14(3) of the Indian Income-tax Act, 1922 provided that tax shall not be payable by a cooperative society in certain situations.

Clause (i) of Section 14(3) refers to specific classes of cooperative societies in whose cases there is no exemption. Clause (ii) exempts income in respect of profits and gains of business of cooperative societies not covered by Clause (i) upto Rs. 15,000. Clause (iii) exempts interest and dividends and income derived from investments with any other cooperative society. Clause (iv) exempts income derived from letting out of godowns or warehouses for storage, processing or facilitating the marketing of commodities. Clause (v) exempts interest from securities chargeable Under Section 8 or any income from property chargeable Under Section 9 of the Act, where the total income of the cooperative society of specific types mentioned therein does not exceed Rs, 20,000/-.

11. Section 80P(d) of the Income-tax Act, 1961 provides deduction in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other cooperative society to the extent of whole of such income. It is, therefore, evident that Clause (iii) of Section 14(3) of 1922 Act is pari materia with Clause (d) of Section 80P. Therefore, the decision of the Hon'ble Supreme Court in the case of CIT, Lucknow v. U.P. Co-operative Federation Ltd. (supra), in our view, is applicable to Section 80(2)(d) on all-fours. In the said decision, their Lordships of the Supreme Court explaining the meaning of the word "investments" A.P.r Section 14(3)(iii), held as under "Investment" has not been defined in the Act. P. Ramanatha Aiyar's Law Lexicon (Reprint Edition 1987) states: The term 'invest' is used in a sense broad enough to cover the loaning of the money but is not restricted to that mode of 'investment' or loans made on commercial paper. The word 'invest' has been judicially defined a follows: To place property in business; to place so that it will be Safe and yield a profit. It is also commonly understood as giving money for some other property (as) investing funds on lands and houses.

Investment" means, in common parlance, putting out money on interest, either by way of loan, or by purchase of income producing property....

It is thus evident that on the basis of the decision of the Hon'ble Supreme Court, the advances made by the assessee to the member cooperative societies for the purpose of procurement of milk etc. in the course of its business falls within the category of 'investments' and interest thereon accordingly qualifies for deduction Under Section 80P(2)(d). We may also usefully refer to the decision of the Punjab & Haryana High Court in the case of CIT v. Haryana Co-operative Sugar Milk Ltd. (supra). In this case it was held by the Hon'ble High Court that the amount deposited by one co-operative society with another, whether for long term or short term would be an investment within the meaning of Section 80P(2)(d). We are, therefore, of the considered view that the interest earned by the assessee on the advances given to the member cooperative societies for procurement of milk qualifies for decision Under Section 80P(2)(d) of the Income-tax Act, 1961. We hold accordingly.

12. Now we proceed to consider the second issue involved in this appeal i.e. relating to the quantum of deduction under Section 80P(2)(d) of the Act. The precise issue involved in this appeal is as to whether the deduction is to be computed with reference to the gross interest received from the member cooperative societies or the net interest as included in the gross total Income of the assessee. It is not disputed that the money has been advanced to the member cooperative societies in the course of business of the assessee. The Id. Counsel for the assessee insisted before us that the issue was covered in favour of the assessee by the decision of the Punjab & Haryana High Court CIT Jalandhar v. Janta Co-operative Sugar Mills Ltd., Bhopur, I.T. Ref. No.29 of 1984 dated 23.2.1998 and in the case of CIT v. Doaba Sugar Mills Ltd. (1998) 96 Taxman 506 (P&H). On a perusal of the decisions relied upon by the Id. Counsel for the assessee, we are of the view that the aforementioned decisions are not relating to the issue involved in this appeal. The issue before the Hon'ble High Court was whether interest received by the cooperative society on any investment in another cooperative society qualifies for deduction and such investment need not necessarily be surplus funds. Another issue involved before the Hon'ble High Court in the case of Doaba Cooperative Sugar Mills' Ltd. was as to whether interest paid by the assessee to the bank was to be adjusted against the interest received for the purpose of allowing deduction. The issue before the Hon'ble High Court in the case of CIT, Jalandhar v. Janta Cooperative Sugar Mills Ltd., Bhopur, (supra) was whether on the facts and in the circumstances of the case, the ITAT is right in law in upholding the CIT(A)'s order allowing deduction Under Section 80P(2)(d) of the Income-tax Act, 1961 in respect of interest of Rs. 1,40,203 from Jalandhar Central Co-operative Bank without setting off interest of Rs. 6,72,776/- paid to the same bank.

13. The issue involved in the present appeal is as to whether deduction Under Section 80P(2)(d) of the Income-tax Act, 1961 is permissible to the assessee in respect of the gross interest received from member cooperative societies or net interest computed in accordance with the provisions of the Act This issue was neither raised nor decided by the Hon'ble High Court. We will therefore consider this issue in the light of the provisions of the Act.

14. It will be pertinent to mention that the deduction claimed by the assessee Under Section 80P(2)(d) falls under Chapter VIA of the Income-tax Act, 1961 dealing with deductions to be made in computing the total income. Section 80P(2)(d) reads as under: 80P.(1) Where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in Sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in Sub-section (2), in computing the total income of the assessee.

(2) The sums referred to in Sub-section (1) shall be the following, namely: (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income; 80A.(1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in Sections 80C to 80U. (2) The aggregate amount of the deductions ^29under this Chapter shall not, in any case, exceed the gross total income of the assessee.

(3) Where, in computing the total income of an association of persons or a body of individuals, any deduction is admissible under Section 80G or Section 80GGA or Section 80GGC or Section 80HH or Section 80HHA or Section 80HHB or Section 80HHC or Section 80HHD or Section 80-1 or Section 80-IA^32[or Section 80-IB] or Section 80J^33or Section 80JJ, no deduction under the same section shall be made in computing the total income of a member of the association of persons or body of individuals in relation to the share of such member in the income of the association of persons or body of individuals.] (5) "gross total income" means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter." A combined reading of the aforesaid provisions of the Act clearly indicate that deductions under any of the provisions contained in Chapter VIA are permissible with reference to the amount of income of that nature as computed in accordance with the provisions of the Act.

Their Lordships of the Supreme Court in the case of Distributors (Broada) P. Ltd. v. Union of India and Anr. 155 ITR 120 (SC), also laid down the following principle of law in respect of the deductions permissible under Chapter VIA: The opening words of Section 80M, viz., "Where the gross total income of an assessee ...includes any income by way of dividends from a domestic company" describe the condition which must be fulfilled in order to attract the applicability of the provision contained in Section 80M. The condition is that the gross total income of the assessee must include income by way of dividends from a domestic company. "Gross total income" is defined in Section 80B, Clause (v), to mean "total income computed in accordance with the provisions of the Act before making any deduction under Chapter Vl-A or Section 280-O". Income by way of dividends from a domestic company included in the gross total income would, therefore, obviously be income computed in accordance with the provisions of the Act, that is, after deducing interest on monies borrowed for earning such income. If income by way of dividends from a domestic company computed in accordance with the provisions of the Act is included in the gross total income, or in other words, forms part of the gross total income, the condition specified in the opening part of Sub-section (1) of Section 80M would be fulfilled and the provision enacted in that sub-section would be attracted. What is included in the gross total income in such a case is a particular quantum of income belonging to the specified category. Therefore, the words "such income by way of dividends" must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. It is obvious, as a matter of plain grammar, that the words "such income by way of dividends" must have reference to the income by way of dividends mentioned earlier and that would be income by way of dividends from a domestic company which is included in the gross total income. That would obviously be the income by way of dividends computed in accordance with the provisions of the Act.

It is, therefore, well settled principle of law that deduction under Chapter VIA is permissible with reference to the net income computed in accordance with the provisions of the Act as included in the gross total income which is permissible as a deduction under the respective provisions of the Act.

15. It is, therefore, necessary to find out as to what is the component of income by way of interest received from the member societies which is included in the gross total income. It is an admitted position before us that the assessee has earned interest from member co-operative societies in the course of business. It is evident from the facts on record that assessee has incurred expenses in the course of earning business income which includes the receipts by way of interest from member cooperative society. Therefore, if one has to consider the component of interest included in the course of total income, the expenses incurred by the assessee for earning such income are bound to be taken into account in working out the net total income including the gross total income. ITAT, Chandigarh Bench in the case of ITO, Wd. 4(1), Chandigarh v. Punjab State Federation of Co-operative Sugar Mills, Chandigarh (supra) and Punjab State Co-operative Supply & Marketing Federation Ltd., Chandigarh v. ACIT, Cir.4(1), Chandigarh (supra), has held that deduction Under Section 80P has got to be computed with reference to the net income after deducting expenses and in the event of expenses being, indivisible, the same has got to be deducted on proportionate basis. Reference may also be usefully made to the decision pf the Hon'ble Supreme Court in the case of Sabarkantha Zilla Kharid Vechan v. CIT 203 ITR 1027. In the said case, the assessee, a cooperative society, engaged in the business of purchase of agricultural implements, seeds, livestock and other articles, intended for supply to members as well as to non-members. For assessment year 64-65, 65-66 and 66-67, the assessee Claimed exemption from income tax Under Section 80(i)(d) of the Income-tax Act, 1961 on the gross profits and gains of business with its members. But the ITO granted relief only on the net amount as was includible in the computation of total income Under Section 110, since the income exempted Under Section 81(i)(d) was to be included in its total income as required by Section 66. For the first two years, the Appellate Tribunal accepted the claim of the assessee but for the third year the Tribunal rejected the claim and upheld the ITO' order. On reference, the High Court held, rejecting the claim of the assessee, that the only way of working out the scheme of provisions of Section 81(i)(d) in the light of Sections 66 and 110 was first to calculate the total income and the income tax thereon and secondly to ascertain the net profits in respect of activities on which income tax was not payable by setting off against the gross profits the proportionate amount of expenditure and then to determine the profits and gains from the taxable activities and thereafter from the income tax on the total income grant a rebate at the average rate of income tax on the amount on which no tax was payable. On appeal to the Supreme Court, the Hon'ble Supreme Court held as under: (i) Affirming the decision of the High Court, that since Section 66 required the computation of the total income by including all income on which no income-tax was payable under Chapter VII, the income on which no income-tax was payable by a co-operative society under Section 81(i)(d) falling in Chapter VII had to be necessarily included in its total income. Section 110 was then attracted. Hence, when the income of the co-operative society on which no tax was payable was included in its total income, it became entitled to a deduction from the amount of income-tax chargeable on its total income. That meant that the co-operative society became entitled to deduction or exemption of income-tax payable by it only on the net amount of profits and gains, i.e. on the income of its business otherwise computable in accordance with the provisions of the Income-tax Act, 1961, for the purpose of charging income-tax thereon and which was included in its total income, and not on the amount of its gross profits and gains of business on which no income-tax was payable.

At page 1031 of the report, their Lordships have reproduced Section 81 and held as under: 81. Income of co-operative societies. - Income-tax shall not be payable by a co-operative society. - (i) in respect of the profits and gains of business carried on by it, if it is ....

(d) a society engaged in the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members." The said provision, as seen therefrom, undoubtedly exempts an assessee-cooperative society, which carries on the business envisaged therein, from payment of income-tax on profits and gains of such business. But the controversy which relates to the said provision is, whether the income-tax not payable thereunder, falls to be calculated either with reference to the full amount of profits and gains of the cooperative society's business, as contended on behalf of the assesee or with reference to the net amount of profits and gains of the co-operative society's business, as otherwise computable under the provisions of the Income-tax Act for the purpose of charging income-tax thereon, as contended on behalf of the Revenue. If the relevant provisions of the Income-tax act providing for charging a person including a co-operative society with income-tax on "profit and gains" of such person's business show that it is the net profits and gains, i.e., income of such business computed in accordance with the provisions of the Income-tax Act, it must flow therefrom, as a necessary corollary thereof, that the "profits and gains" for which exemption from income-tax is envisaged under Section 81(i)(d) of the Income-tax Act, ought to be net profits an gains, i.e. income of business computed in accordance with the provisions of the Income-tax act which is includible in such person's total income for charging income-tax thereon. This situation requires us to advert to such of the relevant provisions of the Income-tax Act, which could be of assistance to us in resolving the controversy.

The Hon'ble Supreme Court has referred to various provisions of the Act relevant to computation of income from profits and gains of business.

At page 1033, their Lordships further held as under: Thus, the said provisions of the Income-tax Act, in our view, clearly envisage a legislative scheme of giving income-tax exemption to a cooperative society carrying on its business contemplated in Section 81(i)(d) of the Income-tax Act, not with respect to the amount of gross profits and gains of its business but only with respect to the amount of net profits and gains, i.e., income of its business otherwise computable according to the provisions of the Income-tax Act for the purpose of charging income-tax as a part of the total income of the assessee, as required under Section 110 of the Income-lax Act, At page 1034, their Lordships of the Supreme Court referred to the decision of the Andhra Pradesh High Court in the case of Anakapalli Co-operative Marketing Society's case 175 ITR 584 (AP), which relates to Section 80P, and held as under: In Anakapalli Co-operative Marketing Society's case , the question referred for the decision of the Andhra Pradesh High Court under Section 256(1) of the Income-tax Act was (at page 585): Whether, on the facts and in the circumstances of the case, the Appellate tribunal was justified in holding that the entire amount of Rs. 3,72,038 relating to marketing of agricultural produce of its members and interest on loans given to its members should be allowed as deduction under Section 80P(2)(a) of the Income-tax Act, and not Rs. 73,720 with reference to the proportionate net profit referable to those activities only?" Section 80P, which provided for exemption to a cooperative society from payment of income-tax, was incorporated in the Income-tax Act with effect from April 1, 1968, by deletion of Section 81, with which we have dealt.

Jeevan Reddy J. (one of us), who spoke then for the Division Bench of that High Court, answered the aforesaid question in the negative, taking the view that what was deductible under Sub-section (1) of Section 80P was only that portion of the said amount as can be called total income attributable to activities defined in Clause (5) of Section 80B. Section 10AB introduced in the Income-tax Act by the Finance (No. 2) Act, 1980, with effect from April 1, 1981, was adverted to by his Lordship to buttress the view so taken, in that it read (at page 588 of 175 ITR): Hence, the view taken by the Andhra Pradesh High Court on the scope of Section 80P: of the Income-tax Act which had replaced Section 81 of the Income-tax Act, fully supports the view we have already expressed on the "income exemption" of profits and gains of a business of a co-operative society as envisaged under Section 81 of the Income-tax Act read in conjunction with Sections 66 and 110 thereof.

It is, therefore, evident that the issue relating to deduction Under Section 80P is also covered by the aforementioned decision of the Hon'ble Supreme Court. We respectfully applying the above principle of law hold that deduction Under Section 80P(2)(d) is permissible to the assessee on the net component of interest computed in accordance with the provisions of the Act.

16. It is also pertinent to mention that Section 14A has been incorporated in the Income-tax Act, 1961 by the Finance Act, 2001 with retrospective effect from 1.4.72. The said section reads as under: 14A.For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154, for any assessment year beginning on or before the 1st day of April, 2001.

The question that assumes importance in the light of the contentions advanced on behalf of the parties is as to whether Section 14A is applicable only in respect of income which is not included in the total income by virtue of provisions of Section 10 and is inapplicable in respect of deductions provided under Chapter VIA. In order to consider this issue, it would be necessary to keep in mind the language of Section 14A. A plain reading of Section 14A reveals that any expenditurewhich is related to the income which does not form part of total incomeunder the Act will not be allowed as a deduction. Total income is defined Under Section 2(45) of the Income-tax Act as under: (45) "total income" means the total amount of income referred to in Section 5, computed in the manner laid down in this Act; In order to consider what is the total income of the assessee, effect has got to be given to all the provisions of the Act including the deductions permissible under Chapter VIA. It may be pertinent to mention that the first step for computation of total income is to determine the income under various heads of income as specified Under Section 14 of the Act. After working out the gross total income, deductions as permissible under Chapter VI are to be made which gives the total income. There is distinction between gross total income and total income. Gross total income is defined Under Section 80B as under: 80B(5) - "gross total income" means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter." (i.e. Chapter VIA).

In other words, the gross total income is the income as computed under the provisions of the Act before deductions under Chapter VIA. The Legislature has consciously used the words total income' in contrast to 'gross total income' in Section 14A. Therefore, for the purpose of attracting provisions of Section 14A, one will naive to consider as to whether the income specified Under Section 80P2(d) is included in the "total income" or not. Admittedly, the income referred to in Section 80P(2)(d) is included in the gross total income but once the said income is excluded by virtue of Section 80p(2)(d) it no longer can be said to be included in the total income. Since deduction Under Section 80P(2)(d) is allowed to the assessee out of the gross total income, the income described in Section 80P(2)(d) no longer is included in the total income notwithstanding the fact that the said income is included in the gross total income. We accordingly hold that Section 14A is applicable even in respect of the incomes which are excluded from the total income by virtue of deductions under Chapter VIA. This view gets further support from the prescribed form of return of income. Sl.No. 18 provides for the gross total income, SI.No. 19 provides for deductions under Chapter VIA and SI.No. 20 provides for the total income. It is therefore, evident that total income as per the return does not include the income referred to in Section 80P(2)(d). Therefore, the provisions of Section 14A inserted w.e.f. 1.4.1962 are clearly attracted in this case. We are, therefore, of the considered view that deductions permissible to the assessee Under Section 80P(2)(d) is in respect of the net income after excluding the expenses attributable to the income referred to in Section 80P(2)(d). In case some expenditure is indivisible, visa other receipts of business, the same shall have to be apportioned between the various types of receipts and deductions Under Section 80P(2)(d) computed accordingly.

17. In the final analysis, we hold that assessee is entitled to deduction Under Section 80P(2)(d) in respect of interest received on advances provided to the member co-operative societies. So, however, the deduction permissible to the assessee is in respect of the net income after deduction of expenses attributable to the earning of such income. We hold accordingly.

18. Before parting, we would like to clarify that after the insertion of Section 14A, any decision to the contrary is inapplicable to the proposition involved in this appeal.