PRINCIPAL COMMISSIONER OF INCOME TAX 2, VADODARA vs. GUJARAT CO. OP. MILK MARKETING FEDERATION LTD.

C/TAXAP/1266/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1266 of 2018 With R/TAX APPEAL NO. 1267 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX 2, VADODARA Versus GUJARAT CO. OP. MILK MARKETING FEDARATION LTD. ========================================================== Appearance: MR.VARUN K.PATEL(3802) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 MR B S SOPARKAR(6851) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE UMESH TRIVEDI

Date : 22/10/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These Tax Appeals arise in common back-ground. We may notice facts as emerging from the record of Tax Appeal No. 1266 of 2018. 2. Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 05.07.2017 raising following questions for our consideration: “1. Whether on the facts and in circumstances of the case, the Hon'ble ITAT was justified in law and on facts in deleting the disallowance of expenses of 399.54 lakhs incurred towards fertility improvement program treating the same as revenue in nature instead of capital in nature? Page 1 of 8

C/TAXAP/1266/2018 ORDER 2. Whether on the facts and in circumstances of the case, the Hon'ble ITAT was justified in deleting the Traveling and Conveyance Expenditure of Rs. 7.04 lakhs treating the same as revenue in nature instead of capital in nature? 3. Whether on the facts and in circumstances of the case, the Hon'ble ITAT was justified in deleting the Lodging and Boarding Expenditure of Rs. 9.33 Lakhs treating the same was revenue in nature instead of capital in nature?” 3. Questions B and C proposed relate to expenditures which are very small in value keeping the questions open. These questions are not considered in these Tax Appeals. 4. Sole surviving question is in connection with the Revenue's objection in allowing the expenditure of Rs. 399.54 lacs to the assessee by way of revenue expenditure. 5. Brief facts are as under: The respondent assessee is Gujarat Co-operative Milk Marketing Federation Ltd. ['GCMMF' for short]. For the assessment year 2008-09, the assessee had filed return for income. Such return was taken in scrutiny. During the assessment, the Assessing Officer objected to the assessee's claim of expenditure of Rs. 399.54 lacs incurred towards “federation improvement programme”. Objections of the Assessing Officer were two fold. Firstly, he believed that the expenditure was not meant exclusively for the purpose of business and secondly, that in any case, it was in the nature of capital expenditure. Page 2 of 8

C/TAXAP/1266/2018 ORDER 6. The assesee opposed the proposal for disallowing the expenditure pointing out that the GCMMF is the federal co- operative with the structure. There are 13,000 and odd milk producers co-operative societies at village level. In each society, there are at least 200 milk producers. The training and education programme undertaken by the GCMMF thus would have massive reach. This would ultimately result in increasing the milk production and therefore collection and marketing by the federation. One of the programmes undertaken by GCMMF was fertility improvement programme. The objectives and the nature of activities undertaken in this programme were explained by the assessee in following manner: “11. With reference to expenditure against fertility improvement programme, it is submitted that Gujarat Co- operative Milk Marketing Federation Ltd had decided to run Fertility Improvement Programme in all associate unions. There had been inclusion of milch cattle not yielding milk along with adult underproductive cow/buffalow heifers. The objective of this programme was to organize Infertility Prevention Camps every 45 days interval in every village selected underneath this programme. The expenditure is therefore related to the business of the assessee and has been incurred wholly and exclusively for the purpose of business. • Objectives of Fertility Improvement Programme [FIP] Major reasons for infertility in animals of Gujarat includes improper calf rearing, low body weight of animals, lack of important nutrition/mineral to animals, Low priority of animals for breeding activity, poor health of animals and lack Page 3 of 8

C/TAXAP/1266/2018 ORDER of awareness among farmers regarding improved breeding practices. Considering these aspects FIR's major objectives are as under: 1. To reduce Non-Pregnant Not Even Calved Once (NPG NECO) and Non-Pregnant Dry (NPG Dry animal population from the selected villages 2. To generate database of NPG NECO animals by tagging and registration process 3. To establish information network for animal breeding activities 4. To improve overall health condition of milch animals • Cooperative Society Selection criteria: During the year 2007-08 FIP has been implemented in 892 DCSs having highest NPG NECO animal population as per animal survey 2005. • Activities carried out under FIP: a) Village Awareness Programme (VAP) has been carried out at each of the selected villages to increase involvement of members in various activities of the project and achieve desired results for reduction of NPG NECO animals. b) Revisit of AI Module has been carried out at each of selected DCS to improve AI quality at DCS. c) Baseline survey has been carried out to know the current status of animals, AH activities in villages. d) Tagging and registration of animals has been carried out to provide unique identity to all NPG NECO animals and Page 4 of 8

C/TAXAP/1266/2018 ORDER facilitate data analysis. e) Fertility camps: in each of selected villages at least for fertility camp has been carried out to treat NPG NECO animals. f) Mass deworming has been carried out to reduce worm load and improve over all health condition of animals. g) Mineral Mixture has been provided to milch animals to reduce mineral deficiency. h) Mass Vaccination particularly for FMD and HS has been carried out to reduce chance of out break of diseases. I) Balanced cattle feed: Two bags of cattle feed (140 kg) has been provided to each NPG NECO animals free of cost to improve body weight and health of milch animals. j) Urea Straw Treatment demonstration has been carried out in each selected DCS to encourage farmers to provide nutritive feed to animals. k) AI refresher training has been provided to all AI workers www. Amul.org.in website for FIP activities. 12. The expenditure on travelling and conveyance and on lodging and boarding relate to the aforesaid activities and therefore, have been incurred wholly and exclusively for the purposes of business of the federation. 13. In the earlier years, the issue was raised and detailed submissions have been made by the Federation and then after scrutinizing, the expenditure was allowed as business revenue expenditure. Page 5 of 8

C/TAXAP/1266/2018 ORDER 14. To substantiate incurrence of similar business expense as regular business expenses, in all the earlier assessment years, after detail scrutiny, the then assessing officer has allowed the co-operative development expenses. 15. Further, we have to submit that the Board of GCMMF Ltd has passed the resolution in earlier years for the Co- operative Development exp. (Internal Consultant Development Program-ICD and Village Leadership Improvement Programme-VLIP) vide no. 4.1 dated November 9,1998, copy of the same is enclosed here with as Annexure 1. We are also enclosing here with copy of resolution of Fertility Improvement Programme-FIP vide no.7 dated November 27, 2007 Annexure 2.” 7. The Assessing Officer discarded such representation and came to the conclusion that the expenditure cannot be stated to have been incurred exclusively for the purpose of business and that the advantage likely to result from implementation of the programme would be of enduring nature and therefore if at all the expenditure was capital expenditure. 8. The assessee carried the matter in appeal. CIT(A) allowed appeal and deleted the disallowance holding that the expenditure was solely and exclusively for the purpose of business. Revenue carried the matter in appeal. Tribunal dismissed the appeal. Hence, the present Tax Appeals. 9. Unfortunately, neither Commissioner of Income Tax (Appeals) nor the Tribunal addressed the question of Page 6 of 8

C/TAXAP/1266/2018 ORDER expenditure being capital in nature and focused entire attention on the allowability of the expenditure as business expenditure. With respect to these findings, we have no hesitation in concurring. Nevertheless, since the authorities below have not in detail examined the nature of the expenditure, we have taken note of the details of the programme and the nature of activities undertaken by GCMMF through such programme. We may note that even the Assessing Officer has not cited detailed reasons as to why in his opinion the expenditure was capital in nature. We may note that the activities carried on by GCMMF under the said programme were all aimed at fertility improvement amongst milk animals. As part of the programme, the GCMMF would address the typical reasons for infertility such as improper practice in calf rearing, low body weight of animals, lack of nutrition/mineral, poor health condition, lack of awareness amongst farmers about improved breeding practices etc. In furtherance of such objectives, the GCMMF would hold camps for village awareness, in select villages would carry out tagging and registration of animals, would hold fertility camps, would carry out mass deworming programmes, would distribute mineral mixture, carry out vaccination at mass scale, provide balanced cattle feed etc. 10. It can thus be seen that the expenditure was general in nature and aimed at improving the practices for better fertility amongst milk animals by addressing the issues which caused infertility. The expenditure therefore was for the purpose of its Page 7 of 8

C/TAXAP/1266/2018 ORDER business and would not be co-relatable to any tangible returns which can be expected out of such expenditure. 11. There is therefore no reason to believe that such expenditure was revenue in nature. Tax Appeals are dismissed. (AKIL KURESHI, J) (UMESH TRIVEDI, J) JYOTI V. JANI Page 8 of 8