THE COMMISSIONER OF INCOME TAX-I, NASHIK-2 vs. NIPHAD SAKHAKARI SAKHAR KARKHANA LTD.

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ITXA/2785/2010HC Bombay17 September 2007Bench: HON'BLE SMT. JUSTICE RANJANA DESAI, HON'BLE SHRI JUSTICE J.P. DEVADHAR3 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court held that all four questions of law were answered in favour of the assessee and against the revenue. This decision was based on the consensus between the counsels for both parties. The first three questions were decided in line with the High Court's ruling in CIT v. Manjara Shetkari Sahakari Sakhar Karkhana Ltd., implying that Section 40A(2)(a) was not applicable to co-operative societies, and additional payments over SMP were considered cane price and allowable business expenditure. The fourth question was decided based on the High Court's judgment in CIT v. Samarth Sahakari Sakhar Karkhana Ltd., indicating that Bakshish paid to contractors and labourers was considered an expenditure incurred on account of commercial expediency, even if no specific evidence was furnished. The appeal was disposed of accordingly, with no order as to costs.

What were the facts?

The Commissioner of Income-tax-1, Nashik (the 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 2, 2004. The appeal pertains to assessment year 1992-93 and concerns Niphad Sahakari Sakhar Karkhana Ltd. (the assessee). The High Court admitted the appeal on four questions of law. Both parties agreed that the first three questions were covered by a previous High Court decision in CIT v. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. Similarly, the fourth question was agreed to be covered by another High Court decision in CIT v. Samarth Sahakari Sakhar Karkhana Ltd. The High Court disposed of the appeal based on these agreed positions.

What were the issues?

The Tribunal had to decide four 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 payment over the statutory minimum price (SMP) for cane was a diversion of profit or allowable business expenditure under Section 37(1). 3. Whether cane price/Khodki charges paid by the assessee constituted 'Bonus' under Section 2(4) of the Maharashtra Co-operative Societies Act, 1960, or was allowable as business expenditure. 4. Whether 'Bakshish' (reward) paid to harvesting and transport contractors and labourers was an expenditure incurred on account of commercial expediency, especially when no evidence was furnished. The assessee contended that the additional payment was cane price and not a diversion of profit, and that Bakshish was a commercially expedient expenditure. The revenue contended that Section 40A(2)(a) was applicable, the additional payment was a diversion of profit, and Bakshish was not substantiated. The judgment records agreement between both sides that the first three questions were covered by CIT v. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. and the fourth by CIT v. Samarth Sahakari Sakhar Karkhana Ltd.

Which sections of the Income-tax Act were involved?

Section 260A,Section 40A(2)(a),Section 37(1),Section 2(4)

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 (LOD) NO.714 OF 2005 INCOME TAX APPEAL (LOD) NO.714 OF 2005 INCOME TAX APPEAL (LOD) NO.714 OF 2005 The Commissioner of Income-tax-1, Kendrya Rajaswa Bhawan, 2nd floor, Gadkari Chowk, Old Agra Road, Nashik - 2. ..Appellant. V/s. Niphad Sahakari Sakhar Karkhana Ltd. Bhausaheb Nagar, Tal. Niphad, Dist. Nashik. ..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. Matter not on board. Appeal is taken up for admission by consent of parties. 2. 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 2/12/2004 relating to the assessment year 1992-93. 3. Appeal is admitted on the following questions of law:- CNR No : HCBM020109622005 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:01:59

-= : 2 : =- 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 ? 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 right in holding that Bakshish (reward) paid to harvesting and transport contractors, labourers is expenditure incurred by assessee on account of commercial expediency more so when no evidence is furnished in respect of such expenses ? 4. 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. 5. As regards the question No.4 is concerned, counsel on both the sides agree that the said question 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 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:01:59

-= : 3 : =- 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. 6. 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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