THE COMMISSIONER OF INCOME TAX, AURANGABAD. vs. TERNA SHETKARI S S K LTD. DHOKI

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ITXA/281/2007HC Bombay17 September 2007Bench: HON'BLE SHRI JUSTICE F.I. REBELLO, HON'BLE SHRI JUSTICE J.P. DEVADHAR3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court, by consent of both parties, answered all three questions of law in favour of the assessee and against the revenue. The Court relied on its previous decisions in CIT vs. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. and CIT vs. Samarth Sahakari Sakhar Karkhana Ltd. For the first two issues, the Court affirmed that Section 40A(2)(a) is not applicable to co-operative societies and that additional payments over the SMP for sugarcane are to be treated as cane price, allowable as business expenditure under Section 37(1). Regarding the third issue, the Court held that advances paid to harvesting and transporting contractors were in the nature of business interest of the assessee society, justifying the deletion of the disallowance of interest. The appeal was disposed of accordingly, with no order as to costs.

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 17, 2006, pertaining to Assessment Year 1993-94. The assessee is Terna Shetkari Sahakari Sakhar Karkhana Ltd. The appeal was admitted on three reframed questions of law. The parties agreed that the first two questions were covered by a previous decision of the High Court in CIT vs. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. Similarly, the third question was agreed to be covered by another High Court decision in CIT vs. Samarth Sahakari Sakhar Karkhana Ltd. Consequently, all questions were answered in favour 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 assessee contended that Section 40A(2)(a) is not applicable to co-operative societies, a position supported by the High Court's decision in CIT vs. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. The revenue's contention is not explicitly recorded but implicitly challenged by the assessee's argument and the subsequent High Court ruling. 2. Whether additional payments over the Statutory Minimum Price (SMP) for sugarcane were cane price, allowable as business expenditure under Section 37(1), or a diversion of profit? The assessee argued, and the High Court in CIT vs. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. held, that such payments are cane price and thus allowable business expenditure. 3. Whether advances paid to harvesting and transporting contractors, made out of borrowings on which interest was paid, constituted a diversion of borrowed funds for non-business purposes, making the disallowance of interest part justified? The assessee contended, and the High Court in CIT vs. Samarth Sahakari Sakhar Karkhana Ltd. held, that these advances were in the nature of business interest of the society and therefore the disallowance was not justified.

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.281 OF 2007 INCOME TAX APPEAL NO.281 OF 2007 INCOME TAX APPEAL NO.281 OF 2007 The Commissioner of Income-tax Aayakar Bhavan, Near Holi Cross High School, Cantonment,Aurangabad. ..Appellant. V/s. Terna Shetkari Sahakari Sakhar Karkhana Ltd., Dhoki Taluka and District Osmanabad. ..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 17/2/2006 relating to the assessment year 1993-94. 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 : HCBM020045982007 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:02:31

-= : 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 06:02:31

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

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