GUJARAT COOPERATIVE MILK MARKETING FEDERATION LTD. vs. INCOME TAX OFFICER, TDS

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TAXAP/1794/2008HC GujaratGJHC24026083200825 March 2015Bench: HONOURABLE MR. JUSTICE M.R. SHAH,HONOURABLE MR. JUSTICE S.H.VORA5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the ITAT was correct in its findings. The Court relied on its previous decision in ITR No.65 of 1997, which dealt with identical substantial questions of law for the same assessee. The Court reasoned that Section 67(2) of the Gujarat Cooperative Societies Act, 1957, permits the reserve fund to be used in the business of the society. Therefore, there is no diversion of income by overriding title, nor is there an outgoing of funds from the assessee's domain. The profits set apart are available for the society's business use. Consequently, these profits cannot be kept out of the purview of taxation. The Tribunal was right in holding that the amount transferred to the reserve fund was not a diversion of income by overriding title and could not be treated as a business expenditure deductible under Section 28 or Section 37 of the Act. The substantial questions of law were answered in favour of the revenue and against the assessee.

What were the facts?

The appeals were filed by Gujarat Co-operative Milk Marketing Federation Limited (the assessee) against the orders of the Income Tax Appellate Tribunal (ITAT) for various assessment years. The appeals involved common questions of law and facts concerning the tax treatment of amounts transferred to a reserve fund as per Section 67 of the Gujarat State Cooperative Societies Act, 1957. The assessee challenged the ITAT's decision that this transfer was not a diversion of income at source by overriding title and could not be treated as business expenditure deductible under Sections 28/37 of the Income Tax Act, 1961. The revenue supported the ITAT's findings.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether, in the facts and circumstances, the ITAT was right in holding that the amount transferred to a reserve fund account as per Section 67 of the Gujarat State Cooperative Societies Act, 1957, was not a diversion of income at source by overriding title? 2. Whether, in the facts and circumstances, the ITAT was right in holding that the transfer to a reserve fund cannot be treated as business expenditure and allowed deduction under Sections 28/37 of the Income Tax Act, 1961? The assessee contended that the transfer to the reserve fund was a diversion of income by overriding title and should be allowed as a deduction. The revenue argued that the transfer was not a diversion of income and not a business expenditure, and therefore, not deductible. The judgment notes that these issues were squarely decided against the assessee in prior decisions of the High Court.

Which sections of the Income-tax Act were involved?

Section 67,Section 28,Section 37

AI-generated summary — verify with the full judgment below

O/TAXAP/657/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 657 of 2007 With TAX APPEAL NO. 324 of 2008 With TAX APPEAL NO. 1791 of 2008 TO TAX APPEAL NO. 1794 of 2008

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE M.R. SHAH

and HONOURABLE MR.JUSTICE S.H.VORA ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ================================================================ GUJARAT CO-OPERATIVE MILK MARKETING FEDERATION LIMITED.....Appellant(s) Versus ASST. COMMISSIONER OF INCOME TAX....Opponent(s) ================================================================ Appearance: Tax Appeal No.657/2007 MRS SWATI SOPARKAR, ADVOCATE for the Appellant MR KM PARIKH, ADVOCATE for the Respondent Tax Appeal No.324/2008 Page 1 of 5

O/TAXAP/657/2007 JUDGMENT MRS SWATI SOPARKAR, ADVOCATE for the Appellant MR KM PARIKH, ADVOCATE for the Respondent Tax Appeal Nos.1791/2008 to 1794/2008 MRS SWATI SOPARKAR, ADVOCATE for the Appellant RULE SERVED for the Respondent ================================================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE S.H.VORA

Date : 25/03/2015

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1. As common questions of law and facts arise in all this group of appeals, but with respect to different assessment years and with respect to common assessee, - Gujarat Cooperative Milk Marketing Federation Limited, all these appeals are decided and disposed of by this common order. In all these appeals, following substantial questions of law arise. “i) Whether, in the facts and under the circumstances of the case, the ITAT was right in holding that the amount transferred to reserve fund account as per provisions of Sec. 67 of the Gujarat State Cooperative Societies Act, 1957 was not a diversion of income at source by overriding title? (ii) Whether in the facts and under the circumstances of the case, the ITAT was right in holding that transfer to reserve fund cannot be treated as business expenditure and allowed deduction u/s 28/37 of the Income Tax Act, 1961?” 2. Today, when all these appeals are taken up for final Page 2 of 5

O/TAXAP/657/2007 JUDGMENT hearing, it is reported that the issues/questions of law raised in the present appeals are squarely decided and covered against the appellant – assessee in view of the order passed by the Division Bench of this Court in ITR No.65 of 1997 as well as Tax Appeal No.72 of 2004 with Tax Appeal No.211 of 2004 (with respect to earlier assessment orders). Identical substantial questions of law in the case of very assessee came to be considered, dealt with and answered by this Court in ITR No.65 of 1997. In para 8 and 9 of the above decision, the Division Bench has observed and held as under: “8. Having heard the learned advocates it is apparent that the issue raised by the two questions, at the instance of the assessee, stands concluded by the aforesaid decision of the Apex Court in the case of Associated Power Co. Ltd. Vs. Commissioner

Income

tax

(supra). Furthermore, as can be seen from provisions of Section 67(2) of the Cooperative Societies Act the question of control of the State Government by specifying the mode of investment or the mode of use of the reserve fund can arise only in the eventuality when the society does not use the reserve fund in the business of the society. The opening portion of subsection (2) of Section 67 of the Cooperative Societies Act specifically provides ...and such reserve fund may be used in the business of the society or ..... In other words, it is only in the event the society does not choose to use the reserve fund for the business of the society that the question about investing the reserve fund in the specified category of investments and thereafter utilizing the same for the objects specified by the State Government can arise. Hence, not only is there no diversion of income by overriding title but in fact there is no outgoing of funds from the domain of the assessee society. In fact, the profits at the specified percentage are set apart so as to be available to the society for use in the business of the society at a later point of time. Once the Page 3 of 5

O/TAXAP/657/2007 JUDGMENT society is in a position to use the funds lying in the reserve fund for the business of the society as and when the society so chooses, there can be no question of keeping out such profits from the purview of taxation. 9. Accordingly, the Tribunal was right in law in holding that the amount transferred to the reserve fund account as per provisions of Section 67 of the Gujarat Cooperative Societies Act, 1961 was not diversion of income at source by overriding title nor can such transfer be treated as a business expenditure deductible either under Section 28 or Section 37 of the Act. Accordingly, both the questions at the instance of the assessee are answered in the affirmative i.e. in favour of the Revenue and against the assessee.” 3. It is required to be noted that even other tax appeals being Tax Appeal No.74 of 2004 with Tax Appeal No. 211 of 2004 raising the similar questions of law in the case of the very assessee or with respect to different assessment years are dismissed and the substantial questions of law are answered against the assessee considering the decision of the Division Bench of this Court in ITR No.65 of 1997. 4. We have gone through and considered the decision of the Division Bench of this Court in ITR No.65 of 1997 dated 10.3.2008 and for the reasons stated in the said decision, we answer the aforesaid substantial questions of law raised in the present tax appeals against the assessee and in favour of the revenue and we confirm the respective judgments and orders passed by the learned Tribunal impugned in the present tax appeals. Consequently, all these appeals are dismissed. (M.R.SHAH, J.) Page 4 of 5

O/TAXAP/657/2007 JUDGMENT (S.H.VORA, J.) shekhar Page 5 of 5

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