THE COMMISSIONER OF INCOME TAX, AURANGABAD. vs. KADA S S K LTD. ASHTI

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ITXA/268/2007HC Bombay17 September 2007Bench: HON'BLE SHRI JUSTICE F.I. REBELLO, HON'BLE SHRI JUSTICE J.P. DEVADHAR3 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court, by consent of both parties, decided all three questions of law in favour of the assessee and against the revenue. The Court held that the first two questions were covered by its earlier decision in CIT vs. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. (Income Tax Appeal No.318 of 2007, decided on August 14, 2007). The Court also held that the third question was covered by its decision in CIT vs. Samarth Sahakari Sakhar Karkhana Ltd. (Income Tax Appeal No.273 of 2007, decided on September 17, 2007). Consequently, the appeal filed by the Commissioner of Income-tax was disposed of in terms of these prior judgments, granting relief to the assessee on all grounds.

What were the facts?

The Commissioner of Income-tax (Revenue) filed an appeal under Section 260A of the Income Tax Act, 1961, against an order of the Income Tax Appellate Tribunal (ITAT) dated December 19, 2005. The appeal pertains to assessment year 1999-2000 and concerns Kada Sahakari Sakhar Karkhana Ltd. (Assessee), a co-operative society. The appeal was admitted on three reframed questions of law. The parties agreed that the first two questions were covered by a previous High Court decision in CIT vs. Manjara Shetkari Sahakari Sakhar Karkhana Ltd., and the third question was covered by another High Court decision in CIT vs. Samarth Sahakari Sakhar Karkhana Ltd. Both these decisions were in favour of the assessee.

What were the issues?

The Tribunal had to decide three questions of law. The first question was whether Section 40A(2)(a) of the Income Tax Act, 1961, is applicable to a co-operative society. The second question was whether additional payments over the statutory minimum price (SMP) made by the assessee were cane price, thus allowable as business expenditure under Section 37(1), or a diversion of profit. The third question was whether advances paid to harvesting and transporting contractors, made without specific contractual obligation and out of borrowings on which interest was paid, constituted a diversion of borrowed funds for non-business purposes, making the disallowance of the interest part justified. The assessee contended that Section 40A(2)(a) is not applicable to co-operative societies and that additional payments were cane price. The revenue contended that Section 40A(2)(a) is applicable and that additional payments were a diversion of profit. For the third issue, the revenue argued that the advances were not in the normal course of business and were a diversion of borrowed funds for non-business purposes, while the assessee argued it was in the business interest.

Which sections of the Income-tax Act were involved?

Section 260A,Section 40A(2)(a),Section 37(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.268 OF 2007 INCOME TAX APPEAL NO.268 OF 2007 INCOME TAX APPEAL NO.268 OF 2007 The Commissioner of Income-tax Aayakar Bhavan, Near Holi Cross High School, Cantonment,Aurangabad. ..Appellant. V/s. Kada Sahakari Sakhar Karkhana Ltd. Kada, Tal. Ashti, Dist. Beed. ..Respondent. Mr.B.M.Chatterjee with Mrs.P.P.Bhosale for appellant. Mr.S.N.Inamdar with A.K.Jasani for respondent. CORAM : F.I.REBELLO CORAM : F.I.REBELLO CORAM : F.I.REBELLO AND AND AND J.P.DEVADHAR, JJ. J.P.DEVADHAR, JJ. J.P.DEVADHAR, JJ. DATED : 17TH SEPTEMBER, 2007. DATED : 17TH SEPTEMBER, 2007. DATED : 17TH SEPTEMBER, 2007.

ORAL JUDGMENT (PER J.P.DEVADHAR, J.) ORAL JUDGMENT (PER J.P.DEVADHAR, J.) ORAL JUDGMENT (PER J.P.DEVADHAR, J.) 1. This appeal is filed by Commissioner of Income Tax under section 260 A of the Income Tax Act, 1961 against the order of the ITAT dated 19/12/2005 relating to the assessment year 1999-00. 2. By consent, the appeal is admitted on the following reframed questions of law:- 1. Whether the Appellate Tribunal was right in law in holding that provisions of Section 40A(2) (a) are not applicable to a co-operative Society ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the additional payment over and above the statutory minimum price (SMP) was cane price and not diversion of profit and as such allowable as business expenditure under section CNR No : HCBM020045852007 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:02:22

-= : 2 : =- 37(1) of the Income Tax Act, 1961 ? 3. Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that advances paid to harvesting and transporting contractors was in the nature of business interest of the assessee society and thereby deleting the disallowance of interest part, even though such advance was not made in the normal course of business and was made without any specific contractual obligation and out of borrowings on which assessee is giving huge interest to financial institutions. Thus, it was nothing but a diversion of borrowed funds for non business purpose ? 3. Counsel on both the sides agree that the first two questions of law are covered by the decision of this Court in the case of C.I.T. V/s. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. in Income Tax Appeal No.318 of 2007 decided on 14th August, 2007 in favour of the assessee and against the revenue. 4. Counsel on both the sides agree that the question No.3 is answered against the revenue and in favour of the assessee by the decision of this Court in the case of Commissioner of Income Tax V/s. Samarth Sahakari Sakhar Karkhana Ltd. in Income Tax Appeal No. 273 of 2007 decided on 17th September, 2007. Accordingly, all the questions are answered in favour of the assessee and against the revenue. 5. Appeal disposed of accordingly with no order as to costs. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:02:22

-= : 3 : =- (J.P.DEVADHAR, J.) (J.P.DEVADHAR, J.) (J.P.DEVADHAR, J.) (F.I.REBELLO, J.) (F.I.REBELLO, J.) (F.I.REBELLO, J.)

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