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

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ITXA/272/2007HC 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 all three questions of law were covered by its previous decisions. For the first two questions, the Court referred to its ruling in CIT v. Manjara Shetkari Sahakari Sakhar Karkhana Ltd., which was decided in favor of the assessee. This implies the Tribunal's finding that Section 40A(2)(a) is not applicable to a co-operative society and that additional payments over SMP were allowable as business expenditure was upheld. For the third question, the Court referred to its decision in CIT v. Samarth Sahakari Sakhar Karkhana Ltd., which also favored the assessee. This means the Tribunal's view that advances to contractors were in the business interest of the society and the disallowance of interest was rightly deleted was affirmed. Consequently, all questions were answered in favor of the assessee and against the revenue.

What were the facts?

The Commissioner of Income-tax (Revenue) filed an appeal under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (ITAT) dated December 19, 2005. The appeal pertains to assessment year 1995-96 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 v. Manjara Shetkari Sahakari Sakhar Karkhana Ltd., and the third question was covered by CIT v. Samarth Sahakari Sakhar Karkhana Ltd. Both these decisions were in favor of the assessee.

What were the issues?

The Tribunal had to decide three questions of law. 1. Whether Section 40A(2)(a) of the Income Tax Act, 1961, is applicable to a co-operative society. The Revenue contended that the provision applies, while the Assessee likely argued it does not. 2. Whether additional payments over the statutory minimum price (SMP) for sugarcane were cane price, allowable as business expenditure under Section 37(1) of the Income Tax Act, 1961, or a diversion of profit. The Revenue likely argued it was a diversion of profit, whereas the Assessee would have argued it was legitimate business expenditure. 3. Whether advances paid to harvesting and transporting contractors were in the nature of business interest, allowing deletion of disallowance of interest, despite being made out of borrowings on which interest was paid and without specific contractual obligation. The Revenue contended these were diversions of borrowed funds for non-business purposes, while the Assessee argued they were 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.272 OF 2007 INCOME TAX APPEAL NO.272 OF 2007 INCOME TAX APPEAL NO.272 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 1995-96. 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 37(1) of the Income Tax Act, 1961 ? CNR No : HCBM020045892007 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:02:26

-= : 2 : =- 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. (F.I.REBELLO, J.) (F.I.REBELLO, J.) (F.I.REBELLO, J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:02:26

-= : 3 : =- (J.P.DEVADHAR, J.) (J.P.DEVADHAR, J.) (J.P.DEVADHAR, J.)

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