The deduction under section 80p of the Income-tax Act, 1961 is to be computed from the gross total income as defined in section 80b (5), which means that it is the total income computed in accordance with the provisions of the Act, but before making any deductions under Chapter VI-A or section 280-O.

B. P. JEEVAN REDDY J.

( 1 ) ONLY one question has been referred by the Income-tax Appellate Tribunal, Hyderabad, under section 256 (1) of the Income-tax Act, 1961, though the Revenue had asked for referring as many as four questions. The question referred runs as follows :"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 ?"

( 2 ) THE facts relevant to the above question are : The Anakapalli Co-operative Marketing Society is engaged in, inter alia, (1) providing credit facilities to its members; and (2) marketing of agricultural produce of its members. For the assessment year 1979-80, the assessee claimed that two amounts, viz. , Rs. 2,84,438 and Rs. 87,600 (the total comes to Rs. 3,72,038), should be deducted under section 80p out of its gross total income. The said two amounts represented the gross commission income relating to marketing of agricultural produce of its members and the gross interest income received on loans given to its members. The Income-tax Officer, however, did not accede to the assessees claim. He granted deduction only for the proportionate net profit referable to the said two activities. On appeal, the Commissioner of Income-tax (Appeals) held, agreeing with the Income-tax officer, that it is illogical to allow a deduction from the total income of the amounts which represent the gross receipts from activity when only the net income from that activity is included in the total income. He expressed the view that the deductions under Chapter VI-A of the Act are to be allowed from the total income computed in accordance with the provisions of the Act except Chapter VI-A and that the income from the profits and gains of a business has to be computed under section 29 of the Act after allowing for the deductions provided for in sections 30 to 43a. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the assessee preferred a further appeal to the Income-tax Appellate Tribunal. The Tribunal allowed the appeal filed by the assessee, drawing inspiration from the decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243. The Tribunal held that the gross income of Rs. 3,72,038 should be deducted while computing taxable income under section 80p of the Act. Thereupon, the Revenue applied for and obtained this reference.

( 3 ) SUB-SECTIONS (1) and (2) of section 80p, in so far as they are relevant, read as follows :"80p (1) Where, in the case of an assessee being a co-operative 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 : - (a) in the case of a co-operative society engaged in - (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of the agricultural produce of its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the wh

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