MAHESANA DIST CO OP MILK PRODUCERS UNION LTD vs. COMMISSIONER OF INCOME TAX

ITR/290/1984HC GujaratGJHC24011955198424 December 1999Author: HONOURABLE MR. JUSTICE B.C.PATEL,HONOURABLE MR. JUSTICE K.M.MEHTA7 pages
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What did the High Court hold?

The High Court answered the questions as follows: 1. Question 1: In the negative, in favour of the assessee and against the revenue. The Court followed its previous decisions in Mehsana District Cooperative Milk Producers' Union vs. CIT (203 ITR 601) and CIT vs. Kaira District Cooperative Milk Producers' Union (203 ITR 898), holding that the contribution to the Gujarat Cooperative Federal Education Fund was allowable as business expenditure under Section 37 of the Act. The Court distinguished the Madras High Court's ruling, stating the Gujarat Act provisions were not in pari materia. 2. Question 2: In the affirmative, in favour of the assessee and against the revenue. The Court applied the Supreme Court's decision in CIT vs. P.J. Chemicals Limited (210 ITR 830), stating that subsidies intended as incentives do not reduce the 'actual cost' for depreciation purposes. The Tribunal's reasoning that the grant portion was met by another authority was found to be not in line with the liberal interpretation of 'actual cost'. 3. Question 3: In the affirmative, in favour of the revenue and against the assessee. Following the High Court's decision in Banaskantha Dist. Co.Op. Milk Producers' Union vs. CIT (210 ITR 962), the Court held that the amount received by way of grant (30% of the value of plant and machinery as per a Government resolution dated 16.2.1975) should not be taken into account for computing capital employed for Section 80-J relief. Only the loan amount is to be considered.

What were the facts?

The assessee, Mehsana District Cooperative Milk Producers' Union Limited, is a cooperative society registered under the Gujarat Cooperative Societies Act, 1961. The case concerns assessment years 1976-77 and 1978-79. The High Court of Gujarat is hearing a reference from the Income Tax Appellate Tribunal on three questions of law. The first question relates to the deductibility of a contribution made under Section 69 of the Gujarat Cooperative Societies Act, 1961. The second concerns depreciation on 30% of plant and machinery received from the Indian Dairy Corporation. The third question is about the inclusion of 30% of the value of plant and machinery from the Indian Dairy Corporation in the computation of capital employed for Section 80-J relief.

What were the issues?

The Tribunal had to decide the following questions: 1. Whether, on the facts and circumstances, the Appellate Tribunal was right in law in holding that the contribution paid as per Section 69 of the Gujarat Rajya Cooperative Societies Act, 1961, is not deductible in the computation of total income? - Assessee's contention: The contribution is an allowable deduction. The High Court in a previous case (Mehsana District Coop. Milk Producers' Union Ltd. vs. CIT, 203 ITR 601) held such a contribution to be an allowable deduction under Section 37 of the Act. - Revenue's contention: The Tribunal held it was not deductible as it was an application of income, not an expenditure, relying on Section 40(a)(ii) of the Income Tax Act, 1961, and CIT vs. South Arcot District Cooperative Supply and Marketing Society Ltd. (127 ITR 467). 2. Whether, on the facts and circumstances, the Appellate Tribunal was right in law in holding that depreciation was not admissible on 30% value of the Plant and Machinery received from Indian Dairy Corporation? - Assessee's contention: Depreciation should be admissible. The assessee relies on the Supreme Court's liberal interpretation of 'actual cost' in CIT vs. P.J. Chemicals Limited (210 ITR 830). - Revenue's contention: The Tribunal, following the CIT (Appeals), held that the grant portion of the assistance from Indian Dairy Corporation meant the cost was met by another authority, thus reducing the 'actual cost' for depreciation purposes. 3. Whether, on the facts, the Appellate Tribunal was right in law in holding that 30% of the value of the plant and machinery received from Indian Dairy Corporation was not to be included in the computation of capital employed for the purpose of granting relief under Section 80-J? - Assessee's contention: The entire value should be included in capital employed. - Revenue's contention: Only the loan portion, not the grant portion, should be included. The Tribunal relied on the High Court's decision in Banaskantha Dist. Co.Op. Milk Producers' Union vs. CIT (210 ITR 962).

Which sections of the Income-tax Act were involved?

Section 69,Section 40(a)(ii),Section 37,Section 43(1),Section 80-J

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 290 of 1984

For Approval and Signature:

Hon'ble MR.JUSTICE B.C.PATEL and Hon'ble MR.JUSTICE K.M.MEHTA

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO

The order continues below.

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