GUJARAT CO-OP. MILK MARKETING FEDERATION LTD. vs. DY.COMMISSIONER OF INCOME-TAX (ASSESSMENT)

Facts

The appellant-assessee, Gujarat Co-op. Milk Marketing Federation Ltd., challenged two orders dated 04.07.2003 and 04.12.2003 passed by the Income Tax Appellate Tribunal (ITAT), Ahmedabad. The ITAT had partly allowed appeals filed by both the assessee and the respondent-revenue against the orders of the CIT(Appeal). The revenue had assessed the total income for Tax Appeal No. 73 of 2004 as Rs. 3,87,33,858 against a returned income of Rs. 2,74,43,450, and for Tax Appeal No. 212 of 2004 as Rs. 4,87,61,910 against a returned income of Rs. 47,35,673. The appeals before the High Court were admitted on substantial questions of law.

Held

The High Court held that the issues involved in these appeals were already concluded by this Court's decision in CIT vs. Mehsana District Co-Op. Milk Producers’ Union Ltd. [2008] 307 ITR 83 (Guj.). The Court referred to paragraphs 8 and 9 of that decision, which stated that amounts transferred to a reserve fund account as per Section 67 of the Gujarat Co-operative Societies Act, 1961, were not a diversion of income at source by overriding title, nor could such transfer be treated as a business expenditure deductible under Section 28 or Section 37 of the Income Tax Act. The Court found that the reserve fund could be used in the business of the society, and therefore, such profits were not kept out of the purview of taxation. Consequently, both questions were answered in the affirmative, in favour of the Revenue and against the assessee. The appeals were dismissed.

Key Issues

1. Whether, on the facts and in the circumstances of the case, it could be stated that the assessee was carrying on business in light of the fact that though the assessee was carrying on trading in goods its production unit known as “Mother Dairy Products” had not commenced production? (Question of mixed law and fact, concerning the definition of 'business' under the Income Tax Act, 1961). 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that interest amounting to Rs. 08,927/- payable on loan taken from National Dairy Development Board was not allowable as deduction under Section 36(1)(III) of the Income Tax Act, 1961? (Question of law, concerning allowability of interest as a deduction). Assessee's Contention: The issues involved are covered by this Court's decision in CIT vs. Mehsana District Co-Op. Milk Producers’ Union Ltd. [2008] 307 ITR 83 (Guj.). Revenue's Contention: No specific contentions are recorded for the revenue in the judgment.