GUJARAT CO-OP. MILK MARKETING FEDERATION LTD. vs. DY.C.I.T. (ASSESSMENT)

O/TAXAP/73/2004 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 73 of 2004 With TAX APPEAL NO. 212 of 2004 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER =========================================================== 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, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ GUJARAT CO-OP. MILK MARKETING FEDERATION LTD.....Appellant(s) Versus DY.COMMISSIONER OF INCOME-TAX (ASSESSMENT)....Opponent(s) ================================================================ Appearance: MRS SWATI SOPARKAR, ADVOCATE for the Appellant(s) No. 1 MR KM PARIKH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 13/11/2014 Page 1 of 5

O/TAXAP/73/2004 JUDGMENT ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By   way   of   these   appeals,   the   appellant­ asessee has challenged the orders dated 04.07.2003 and 04.12.2003   passed   by   the   Income   Tax   Appellate Tribunal, Ahmedabad (for short “the ITAT”). 2. While admitting these appeals, the Court had formulated   the   following   substantial   questions   of law:­ “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 ? 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 ?” 3. The facts in brief are that the respondent herein had assessed the total income of the appellant­ Page 2 of 5

O/TAXAP/73/2004 JUDGMENT assessee   of   Tax   Appeal   No.73   of   2004   as Rs.3,87,33,858/­   as   against   the   returned   income   of Rs.2,74,43,450/­   and   the   total   income   of   the appellant­assessee   of   Tax   Appeal   No.212   of   2004   as Rs.4,87,61,910/­   as   against   the   return   income   of Rs.47,35,673/­. The appellants herein challenged the order of the respondent by filing Appeals before the CIT(Appeal),   Baroda.   The   CIT(A)   partly   allowed   the said appeals. The appellants as well as the respondent herein challenged the said order before the ITAT. The Tribunal vide orders dated 04.07.2003 and 04.12.2013 partly allowed both the appeals. Hence, these appeals. 4. Learned   advocate   for   the   appellants   has contended that issues involved in these appeals are covered by the decision of this Court passed in the case   of  Commissioner   of   Income   Tax   Vs.   Mehsana District Co.­Op. Milk Producers’ Union Ltd. reported in [2008] 307 ITR83(Guj.) 5. We have heard learned advocate for both the parties and perused the material on record as well as the decision relied upon by the learned advocate for the appellant and found that the issues involved in these   appeals   are   already   concluded   by   this   Court. Paragraph Nos. 8 and 9 of the above decision reads 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 Page 3 of 5

O/TAXAP/73/2004 JUDGMENT of the Apex Court in the case of Associated Power Co. Ltd. Vs. Commissioner of Income­ tax   (supra).   Furthermore,   as   can   be   seen from provisions of Section 67(2) of the Co­ operative   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 Co­ operative

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 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 Co­ operative   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. Page 4 of 5

O/TAXAP/73/2004 JUDGMENT 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.” 6. In   view   of   the   above,   we   are   of   the considered opinion that the present appeals deserve to be dismissed and the same are accordingly dismissed. Accordingly, both the issues are answered in favour of the Revenue and against the assessee.  Since the facts of these appeals and the facts of the decision relied upon   by   learned   advocate   for   the   appellants   are identical, we do not give elaborate reasons. (K.S.JHAVERI, J.) (K.J.THAKER, J)

pawan Page 5 of 5