PRINCIPAL COMMISSIONER OF INCOME TAX, GANDHINAGAR vs. GUJARAT STATE CIVIL SUPPLIES CORPORATION LIMITED

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TAXAP/1059/2017HC GujaratGJHC24057266201726 February 2018Bench: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA4 pages

AI SummaryDismissed

What did the High Court hold?

The High Court agreed with the view of the CIT(A) and the Tribunal that the surplus of Rs. 67,16,76,274 was not taxable income. The reasoning was that the Gujarat State Civil Supplies Corporation Limited is essentially an arm of the State Government, carrying out an essential public distribution function. The surplus represented Government funds that the Corporation was permitted to retain under various Government Resolutions, representing a conscious decision by the Government. The Court also noted that in the past, the Assessing Officer had accepted the Corporation's accounting treatment. The Court focused on the first issue and did not decide the second issue concerning Rs. 2,87,265, stating it was of a small amount and could be considered in an appropriate case. The operative direction was to dismiss the appeal.

What were the facts?

The Revenue (Principal Commissioner of Income Tax, Gandhinagar) filed an appeal against the order of the Income Tax Appellate Tribunal (ITAT) dated 01.06.2017. The appeal concerned assessment year 2010-11 and challenged the deletion of an addition of Rs. 67,16,76,274 to the total income of the respondent assessee, Gujarat State Civil Supplies Corporation Limited. The assessee is a corporation constituted by the Government of Gujarat to carry out public distribution of commodities, particularly food grains. The Government permits the Corporation to retain a fixed commission for this function. The Assessing Officer had treated a net surplus of Rs. 67.16 crores as taxable profit. Both the CIT(A) and the ITAT had deleted this addition.

What were the issues?

1. Whether the Appellate Tribunal erred in law and facts by upholding the CIT(A)'s order which deleted the addition of Rs. 67,16,76,274 to the total income, holding it to be surplus from activities carried out on behalf of the Government of Gujarat. (This issue turns on the nature of the surplus and its taxability). 2. Whether the Appellate Tribunal erred in law and facts by deleting the sum of Rs. 2,87,265, treating it as "sales return" and not prior period expenditure. Assessee's Contentions: The judgment does not record specific contentions made by the assessee before the High Court. However, the reasoning of the CIT(A) and the Tribunal, which the High Court agreed with, indicates that the surplus was considered Government funds retained by the Corporation under Government Resolutions and not taxable income. Revenue's Contentions: The Revenue's appeal implicitly argues that the surplus of Rs. 67,16,76,274 represented profit generated by the Corporation and was therefore taxable. The judgment does not detail specific legal arguments or precedents cited by the Revenue.

AI-generated summary — verify with the full judgment below

C/TAXAP/1059/2017 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1059 of 2017 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX, GANDHINAGAR Versus GUJARAT STATE CIVIL SUPPLIES CORPORATION LIMITED ========================================================== Appearance: MRS MAUNA M BHATT for the PETITIONER(s) No. 1 MR MANISH J SHAH for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA

Date : 26/02/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The appeal is filed by the Revenue challenging the judgment of the Income Tax Appellate Tribunal dated 01.06.2017 raising following questions for our consideration: “[A] Whether the Appellate Tribunal has erred in law and on facts of the case in upholding the order of the CIT(A) wherein the CIT(A) deleted the addition of Rs.67,16,76,274/ to the total income by holding that it is surplus out of activities carried for and on behalf of Government of Gujarat? [B] Whether the Appellate Tribunal has erred in law and on facts of the case in deleting the sum of Rs.2,87,265/ treating it as “sales return” and not prior period expenditure?” 2. We have focused only on the first question since the second question is of only small amount and can Page 1 of 4

C/TAXAP/1059/2017 ORDER be considered in an appropriate case. The first issue pertains to addition of Rs.67,16,76,274/ made by the Assessing Officer with the net income of the respondent assessee. Respondent assessee is Gujarat State Civil Supplies Corporation Limited constituted specially by the Government of Gujarat for carrying out public distribution of various commodities, particularly the food grains. The Government of Gujarat permits a fixed commission to be retained by the Corporation in the course of carrying out this important function of public distribution which is of great importance for the citizens at large and in particular those belonging to lower income strata. 3. For the year under consideration i.e. assessment year 201011, the Assessing Officer noticed that the Corporation had a net surplus of Rs.67.16 crores after all the expenditures were accounted for. He therefore held that the said amount represented the profit generated by the Corporation and therefore, was required to be brought to tax. He accordingly framed the assessment. 4. Commissioner of Income Tax (Appeals) as well as Page 2 of 4

C/TAXAP/1059/2017 ORDER the Tribunal were of the opinion that the amount did not represent the income of the Corporation and therefore, could not be taxed. The order passed by the Commissioner of Income Tax (Appeals) is more elaborate. He has taken into account the precise nature of relationship between the Government of Gujarat and the Corporation and different Government Resolutions under which such commission was paid and surplus allowed to be retained. Essentially the Commissioner of Income Tax (Appeals) as well as the Tribunal both were of the opinion that the surplus was nothing but the Government fund which the Corporation was allowed retain by the Government under different Government Resolutions and conscious decision by the Government. 5. We are broadly in agreement with the view expressed. Essentially, Corporation is an arm of the State Government and carrying out an important and essential function of the State of public distribution of essential commodities. Additionally, the Assessing Officer in the past had accepted the accounting treatment given by the Corporation. Page 3 of 4

C/TAXAP/1059/2017 ORDER 6. Tax Appeal is dismissed. (AKIL KURESHI, J.) (B.N. KARIA, J.) ANKIT SHAH Page 4 of 4

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