BUDHEWAL COOP SUGAR MILLS vs. D.C.I.T.

Present appeal is filed under Section 260A of the Income Tax Act, 1961 (for brevity 'the Act'), assailing order dated 24.9.2002 passed by the Income Tax Appellate Tribunal, Chandigarh Bench, 'A', Chandigarh, whereby learned Tribunal has declined the prayer of the appellant to take two additional grounds before the Tribunal.

Present appeal was admitted on following substantial questions of law: - “1. Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified on facts and in law in not admitting first additional ground of appeal regarding a legal claim of deduction u/s 80-P (2) (a) (iii) of the Act, to which the appellant was also entitled wherein the appellant having inadvertently claimed deduction only u/s 80-P (2) (d)?

Whether the Income-Tax Appellate Tribunal was justified in no entertaining -2- the ground about the taxability of the extra money collected against levy of sugar in view of the incentive scheme of the Govt. of India which was claimed to be a capital receipt?”

Brief facts inter alia are that appellant is a co-operative sugar mill and is engaged in the business of manufacturing sugar and allied products from the sugarcane supplied to the mill by its member farmers (sugarcane growers). For the assessment year 1993-94 appellant-sugar mill has claimed deduction of ` 16,75,462/- under the provisions of Section 80-P (2) (d) of the Act. During the pendency of the appeal before the ITAT following two additional grounds were sought to be taken under Rule 11 of the Appellate Tribunal Rules, 1963: - “1. That the appellant was entitled to claim of deduction u/s 80P(2)(a)(iii) of the Act being co-operative society engaged in marketing of agriculture produce of its members. Hence its total income was not liable to be taxed.

That in the alternative, the appellant was entitled to be allowed claim for deduction amounting to ` 17464478/- representing benefit earned under the Sampath Incentive Scheme, 1997 being the capital receipt in contra-distinction to revenue receipt as wrongly returned while computing the total income.”

Learned Tribunal vide judgment dated 24.9.2002 has declined the request of the appellant to raise above-mentioned two additional grounds on the ground that entire material was not before the subordinate authorities and detailed investigation of facts for want of facts would not be possible.

We have heard Mr. S.K. Mukhi, learned counsel appearing for the assessee-appellant as well as Mr. Rajesh Katoch, learned counsel -3- appearing for the revenue-respondent, and have perused the record.

Bye-laws of Co-operative Society running sugar mill is produced before us which is taken on record. As per bye-laws of the appellant-sugar mill, appellant-sugar mill was established to promote economic interests of its members and for this purpose to carry on the manufacture of sugar, sugar products and other ancillary products from the sugarcane obtained from its members. We further find that as per bye-law No.8 members of the Co-operative Sugar Mill can only be those, who are the owners or tenants and are sugarcane or beet growers and are ordinary residents of the area. Therefore, we have no hesitation to hold that appellant-sugar mill is engaged in the manufacturing of sugar products from the sugarcane supplied by its members, who are admittedly sugarcane growers. Since appellant-sugar mill is engaged in marketing of agricultural produce of its members, therefore, is entitled for the exemption as provided under Section 80-P (2) (a) (iii) of the Act.

We find support from the Full Bench judgment of this Court in the case of The Budhewal Co-operative Sugar Mills Ltd. v. Commissioner of Income Tax, (2009) 28 DTR Judgments 88, wherein it was held that co-operative society engaged in the manufacturing and sale of sugar out of the sugarcane grown by its members is entitled for deduction under Section 80-P (2) (a) (iii) of the Act. Therefore, we hold that Income Tax Appellate Tribunal was not justified in not allowing additional ground No.

Hon'ble Apex Court in the case of Commissioner of Income Tax v. Ponni Sugars & Chemicals Ltd. and others, (2008) 13 DTR -4- Judgments 1, has held that keeping in mind the object behind the payment of the incentive subsidy, the payment received by the assessee under the Scheme was not in the course of a trade but was of capital nature. In the present case also, we are satisfied that grant was not for the purpose of bringing into existence new assets but was for the purpose of making payment to the sugarcane growers, therefore, same shall be treated as capital receipt. Accordingly, question No.2 also stands answered in favour of the assessee and against the revenue. Accordingly, appeal stands allowed. (M.M. Kumar) Judge (Alok Singh) Judge March 15, 2012 R.S.