This appeal by assessee is directed against order of Commissioner (Appeals) and relates to assessment year 1978-79. assessee is apex co-operative society engaged mainly in marketing of agricultural produce of its members and some other activities as well. accounting year ended on 30-6-1977. 2. first ground is that deduction under section 80P(2)(a)(iii) of Income-tax Act, 1961 (' Act '), should have been allowed on gross profit and not on processed income under Act. IAC, who completed assessment, had allowed deduction of Rs. 68,97,076 under above provision. This amount was shown by assessee as net income attributable to activity of marketing agricultural produce of society's members. bifurcation between activities, vis-a-vis, members and non-members, was made by assessee and there is no dispute about it. However, assessee claimed before Commissioner (Appeals) that deduction to be allowed under section 80P(2)(a)(iii) should be on whole of gross profit attributable to marketing of agricultural produce of its members. This plea was, however, rejected by learned Commissioner (Appeals), who relied upon decision of Supreme Court in case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. assessee is in appeal before us. 3. learned counsel for assessee submitted before us that provision of section 80P(2) refers to deduction of whole of amount of profits and gains of business attributable to marketing of agricultural produce of members of co-operative society. He laid emphasis on words ' whole of ' and submitted that it could only mean gross profit. In this connection, he referred to decision of Supreme Court in case of Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243. That was case for deciding scope of section 80M of Act and their Lordships considered meaning of ' any income by way of dividends '. It was held that if gross total income included dividends, whatever was quantum of such income, it would be eligible for deduction. It was contended by learned counsel that reliance placed by Commissioner (Appeals) on decision of Supreme Court in case of Cambay Electric Supply Industrial Co. Ltd. is misplaced, as that was case for deciding scope of section 80E of Act, as it stood prior to 1967, and their Lordships held that when Legislature uses words ' attributable to ', it has wider import than expression ' derived from '. He also pointed out that in that provision, specific words used were ' as computed in accordance with other provisions of Act '. Their Lordships have further held that section 72(1) of Act regarding carry forward of losses has direct impact upon computation under head ' Profits and gains of business or profession '. In this connection, learned counsel drew our attention to certain decisions of Calcutta High Court. He first referred to decision in case of CIT v. Belliss & Morcom (I.) Ltd. [1982] 136 ITR 481, where Calcutta High Court had considered scope of provisions of section 80-I of Act. Their Lordships held that expression ' where gross total income includes any profits and gains attributable to any priority industry ' is descriptive of types of income or profits which will be entitled to relief and such profits must relate to profits of priority industry. In this case, question which was referred to their Lordships was whether profits and gains attributable to any priority industry were to ' be arrived at without deducting therefrom any loss arising in any other business and their Lordships, after considering various decisions of High Courts and Supreme Court, held that such profits and gains had to be taken without deducting therefrom any loss arising in any other business. other case to which reference was made was decision of Calcutta High Court in case of CIT v. Orient Paper Mills Ltd. [1983] 139 ITR 763 in which it was held that profit of priority industry was to be taken before setting off unabsorbed development rebate of priority industry itself. In this decision, their Lordships dissented from decisions of Madras High Court in cases of CIT v. English Electric Co. Ltd. [1981] 131 ITR 277 and CIT v. Standard Motor Products of India Ltd. [1981] 131 ITR 300. In this decision, their Lordships had also considered decisions in case of Cloth Traders (P.) Ltd. and Cambay Electric Supply Industrial Co. Ltd. and without holding that there was any contradiction between two, they followed ratio of decision in case of Cloth Traders (P.) Ltd., which was decision given by larger Bench. learned counsel has further relied on another decision in case of CIT v. Oil India Ltd. [1983] 143 ITR 848 (Cal.), but we need not go into details of that decision as it merely follows earlier decisions already referred to in this order. departmental representative on this point has mainly relied on decision of Supreme Court in case of Cambay Electric Supply Industrial Co. Ltd., to which reference has already been made. He submitted that plea of assessee that gross profit should be considered as profits and gains of business is not acceptable on any principle and he further submitted that profits and gains should always be as computed according to provisions of Act. 4. In this case, as already stated above, we have to determine scope of words ' whole of amount of profits and gains of business attributable to any one or more of such activities ', which are mentioned in section 80P(2). Sub-section (1) of section 80P provides that income in question, which is entitled to be deducted, should be included in gross total income of co- operative society. What is included in gross total income is particular nature of income and what is to be deducted is given only in sub-section (2). Now question for consideration is as to what has to be deducted in case of such co-operative society, which is engaged in marketing of agricultural produce of its members. plea advanced by assessee is that, it should be gross profit, i.e., profit before allowance of any expenses which are normally debited in profit and loss account as against trading account. On other hand, stand of department is that whatever is included in gross total income and is in nature of income from business in marketing of agricultural produce of its members, same should be deducted. revenue also emphasises words ' whole of amount of profits and gains or business '. In present case, there is no dispute as to what is attributable to this particular activity. dispute is on question of principle. We may now proceed to consider correctness of claim of assessee. 5. As section speaks of ' amount of profits and gains of business ', we have to see as to what is meaning of these words. There is no definition of these terms in Act and we have, therefore, to consider import of these terms by looking to common usage as well as in commercial sense. When we speak of profits and gains of business, we always speak of net profit and not of gross profit. gross profit is arrived at before considering legitimate not of gross profit. gross profit is arrived at before considering legitimate business expenses which person earning income has to incur in order to carry on that business and to earn profit. Only what remains after considering such legitimate business expenses, can be considered as profits and gains. Profits and gains are resultant from carrying on of business or exercise of profession and this expression cannot be used for any other head of income. other section where this expression finds place is section 28 of Act. This section deals with profits and gains of business or profession and they must be understood in their natural and proper sense as referring to profits and gains ascertained on ordinary principles of commercial trading. profits or gains of trade or business are surplus by which receipts from trade or business exceed expenditure necessary for purpose of earning such profits or gains. ' Profit ' implies comparison between state of business at two specific dates usually separated by interval of year. This expression means net profits of business after deducting necessary outgoings without which those proceeds could not be earned. 6. While this is normal position, Act has provided for certain deductions and allowances to which reference has been made in section 29 of Act. There are also various provisions allowing weighted deductions and allowances like development rebate, investment allowance, etc., in order to encourage one activity or other. On other hand, there are provisions disallowing certain expenses or expenses of particular nature to certain extent. For purpose of levying income-tax, these provisions have to be taken into consideration and taxable income or loss has to be determined. Besides what is provided in various sections, there can be certain allowances under section 28 itself which may be in nature of business loss or trading loss. 7. Now we have to determine whether profits and gains of business for t h e purposes of section 80P should be taken as profits and gains in commercial sense or it should be only gross profit without taking into consideration any expenses or, on other hand, it can be only profit arrived at according to provisions of Act. In our opinion, it cannot be gross profit of trade as that would create anomalous situation and in any sense, gross profit could not be considered as profits and gains of business. There can be cases where there is gross profit after taking into consideration purchase and sale of commodity and yet there is loss in business as assessee has to incur certain expenses in order to carry on that business. plea of learned counsel for assessee that profits and gains should be taken as gross profit has, therefore, to be rejected. 8. Commissioner (Appeals), on other hand, has held that profits and gains should have same meaning as profits and gains as computed according to provisions of Act. For this, he has mainly relied on decision of Supreme Court in case of Cambay Electric Supply Industrial Co. Ltd. If we consider that decision of Supreme Court, we find that it was decided on basis of language of section 80E, as it stood at relevant time. That section spoke of total income as computed in accordance with other provisions of Act. Their Lordships had to decide as to whether for determining profits and gains attributable to business of generation or distribution of electricity, profit under section 41(2) of Act should be considered or not. Their Lordships held that such profit has to be taken into consideration as it was attributable to business of generation or distribution of electricity. Their Lordships had also held that profits can also be ascertained after adjusting carry forward of losses of that business. This decision, in our opinion, cannot be invoked to interpret expression ' profits and gains of business ' as profit computed under provisions of Act, as there are certain deductions and disallowances which are specially allowed under provisions of Act but are not otherwise taken for determining profits of business in commercial sense. We are, therefore, of view that for ascertaining amount of profits and gains of business attributable to marketing of agricultural produce of members of society, we must first consider all business expenses which have been incurred by assessee for earning such profit and such deduction would also include normal depreciation which is allowed even under general principles of accountancy. We do not have complete details of break up of deductions and we, therefore, cannot indicate as to how much deduction should actually be allowed in this case. We would, therefore, direct ITO to deduct profits and gains arrived at on basis of principles laid down above. 9. Before parting with this ground, we may refer to certain arguments advanced before us with reference to provisions of section 80AB of Act. This provision was inserted by Finance (No. 2) Act, 1980, and came into force on 1-4-1981. As result of this provision, deductions under sections 80HH to 80TT of Act (except section 80M) should be computed with reference to net income under respective sections which had formed part of gross total income. This net income has to be computed in accordance with provisions of Act. Though this provision is effective from assessment year 1981-82, departmental representative submitted that this was merely clarifying intention and same position should hold good for earlier years as well. On other hand, learned counsel for assessee submitted that income could be taken in accordance with provisions of this Act, only from assessment year 1981-82 and not for earlier years. We are of view that by giving effect to this provision from 1-4-1981 Legislature has not extended this provision to earlier years. Therefore, for year under consideration, we will have to consider other provisions and requirements of law. That, however, does not mean that gross profit should be considered as profits and gains of business. As already discussed, that expression has to be interpreted in its common commercial sense and only such profits and gains would be entitled to deduction under section 80P. 10 to 19. [These paras are not reproduced here as they involve minor issues.] *** NATIONAL AGRICULTURAL CO-OPERATIVE MARKETING FEDERATION OF INDIA LTD. v. INSPECTING ASSISTANT COMMISSIONER