the commissioner of income-tax-aurangabad vs. SETKARI S.S.K. LTD

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ITXA/269/2007HC 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 held that the first three questions of law were covered by its earlier decision in C.I.T. V/s. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. (Income Tax Appeal No.318 of 2007, decided on August 14, 2007), which was in favour of the assessee and against the revenue. Consequently, the Tribunal's findings on these issues were upheld. For questions 4 and 5, the Court noted that both parties agreed these questions were answered against the revenue and in favour of the assessee by its decision in C.I.T. V/s. Samarth Sahakari Sakhar Karkhana Ltd. (Income Tax Appeal No. 273 of 2007, decided on September 17, 2007). Therefore, all five questions were answered in favour of the assessee and against the revenue. The appeal was disposed of accordingly, with no order as to costs. The specific reasoning for each of the cited judgments is not detailed in this order, but the outcome of those judgments forms the basis of this decision.

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 February 10, 2005. The appeal pertains to Assessment Year 1994-95 and concerns the assessee, Shetkari Sahakari Sakhar Karkhana Ltd. The appeal was admitted on five reframed questions of law. The procedural history indicates that the parties agreed to have the questions decided based on previous High Court judgments. The appeal was disposed of by the High Court on September 17, 2007.

What were the issues?

The Tribunal had to decide five questions of law. 1. Whether Section 40A(2)(a) of the Income Tax Act, 1961, is applicable to a co-operative society? 2. Whether additional payments over the statutory minimum price (SMP) for sugarcane were cane price or a diversion of profit, and thus allowable as business expenditure under Section 37(1)? 3. Whether cane price/Khodki charges paid by the assessee were not 'Bonus' under Section 2(4) of the Maharashtra Co-operative Societies Act, 1960, and were allowable as business expenditure? 4. Whether advances paid to harvesting and transporting contractors were in the nature of business interest, not made in the normal course of business, without specific contractual obligation, and out of borrowings, thus constituting a diversion of borrowed funds for non-business purposes, justifying the disallowance of the interest part? 5. Whether 'Bakshish' payments made to harvesting and transport contractor's labourers were out of commercial expediency, or purely voluntary and over and above the agreed price, thus not forming part of business expenditure? The Revenue contended that Section 40A(2)(a) should apply, the additional payments were a diversion of profit, the payments were 'Bonus', the advances were for non-business purposes, and the 'Bakshish' payments were voluntary. The Assessee contended that Section 40A(2)(a) is not applicable, the payments were legitimate business expenditure, and the advances were for business purposes. The judgment notes agreement by both sides that issues 1-3 are covered by C.I.T. V/s. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. and issues 4-5 by C.I.T. V/s. Samarth Sahakari Sakhar Karkhana Ltd.

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.269 OF 2007 INCOME TAX APPEAL NO.269 OF 2007 INCOME TAX APPEAL NO.269 OF 2007 The Commissioner of Income-tax Aayakar Bhavan, Near Holi Cross High School, Cantonment,Aurangabad. ..Appellant. V/s. Shetkari Sahakari Sakhar Karkhana Ltd. Tal. Ausa, Dist. Latur. ..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 10/2/2005 relating to the assessment year 1994-95. 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 CNR No : HCBM020045862007 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:02:23

-= : 2 : =- price and not diversion of profit and as such allowable as business expenditure under section 37(1) of the Income Tax Act, 1961 ? 3. Whether on the facts and in the circumstances of the case cane price / Khodki charges paid by the assessee was not "Bonus" within the meaning of 2(4) of the Maharashtra Co-op. Societies Act, 1960 and it was allowable as business expenditure ? 4. 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 ? 5. Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that Bakshish payment made by the assessee to harvesting and transport contractor’s labourers was out of commercial expediency, whereas such payments are purely voluntary, based on sweet will of assessee society and being over and above the agreed price of contracts, do not form the part of business expenditure ? 3. Counsel on both the sides agree that the first three 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. As regards the question Nos.4 & 5, counsel on Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:02:23

-= : 3 : =- both the sides agree that the questions are 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. (F.I.REBELLO, J.) (F.I.REBELLO, J.) (F.I.REBELLO, J.) (J.P.DEVADHAR, J.) (J.P.DEVADHAR, J.) (J.P.DEVADHAR, J.)

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