C I T vs. SHAHABAD COOP. SUGAR MILLS LTD.

ITA/104/2007HC Punjab & HaryanaPHHC01072774200717 December 2010Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL6 pages
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What were the facts?

The Revenue has appealed against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 1996-97. The assessee, Shahbad Co-op. Sugar Mills Ltd., claimed a deduction of Rs. 2,32,400 for annual subscription to its apex body. The Assessing Officer disallowed this, stating the payment related to the year 1994-95 and the assessee followed the mercantile system. The Assessing Officer also disallowed Rs. 13,00,000 claimed as a deduction for contribution towards the apex body's office building, deeming it capital expenditure. The CIT(A) upheld these disallowances. The ITAT, however, allowed both claims, holding the subscription demand crystalized in the year under consideration and the building contribution was revenue expenditure, citing the Supreme Court in CIT vs. Bombay Dyeing Manufacturing Co. Ltd.

What did the High Court hold?

The High Court decided Question No. 1 in favour of the Revenue and Question No. 2 in favour of the Assessee. Regarding Question No. 1, the Court found that the Tribunal had misread the letter dated 21.06.1995, which clearly indicated the outstanding demand related to the year 1994. Therefore, the deduction for the subscription for the year 1994, pertaining to Assessment Year 1995-96, was not allowable in Assessment Year 1996-97. For Question No. 2, the Court held that the assessee did not receive any enduring benefit from the payment for the apex body's building, and the building did not belong to the assessee. This situation was found to be similar to the facts in CIT vs. Bombay Dyeing Manufacturing Co. Ltd., and thus, the Tribunal rightly applied the principle laid down in that judgment. The appeal was partly allowed.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in allowing the assessee's claim of Rs. 2,32,400 on account of annual subscription to the sugar federation, ignoring that the assessee followed the mercantile system of accounting and the liability for the earlier assessment year was not allowable in Assessment Year 1996-97? - Assessee: Not recorded. - Revenue: Contended that the payment related to the year 1994-95 and, given the mercantile system, was not allowable in Assessment Year 1996-97. 2. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in allowing the claim of Rs. 13,00,000 on account of contribution made for the construction of the office building of the apex body, by following CIT vs. Bombay Dyeing Manufacturing Co. Ltd., ignoring that the assessee did not advance the amount for construction of houses under a subsidized Industrial Scheme for its employees and that the ratio of the Supreme Court decision was not applicable? - Assessee: Supported the ITAT's finding. - Revenue: Contended that the facts were different from the Bombay Dyeing case and the expenditure was capital in nature, not allowable under Section 37.

Which sections of the Income-tax Act were involved?

Section 37,Section 260-A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH.

Date of decision: 17.12.2010 The Commissioner of Income Tax -----Appellant. Vs. The Shahbad Co-op. Sugar Mills Ltd. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Mr. Yogesh Putney, Sr.Standing Counsel for the appellant. Mr. S.K. Mukhi, Advocate and Ms. Jyoti, Advocate for the respondent. --- ADARSH KUMAR GOEL, J.

1.

The revenue has preferred this appeal under Section 260-A of the Income Tax Act, 1961 (for short, “the Act”) against the order of the Income Tax Appellate Tribunal, New Delhi in I.T.A. No.4830/DEL/2002 for the assessment year 1996-97 which was admitted to consider following substantial questions of law claimed in the appeal:- “1. Whether on the facts and in the circumstances of the case, the Ld. ITAT was right in law in allowing the assessee’s claim of Rs.2,32,400/- on account of annual subscription of sugar federation, ignoring the fact that the assessee had been following the mercantile system of accounting and that the liability of the annual subscription for the earlier asstt. Year of which the as

The order continues below.

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