THE COMMISSIONER OF INCOME TAX, AURANGABAD. vs. SIDDHESHWAR SAHAKARI SAKHAR KARKHANA LTD.

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ITXA/312/2007HC Bombay17 September 2007Bench: HON'BLE SHRI JUSTICE F.I. REBELLO, HON'BLE SHRI JUSTICE J.P. DEVADHAR3 pages
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What did the High Court hold?

The High Court, by consent of both parties, held that the first three questions of law were covered by its earlier decision in CIT V/s. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. (Income Tax Appeal No.318 of 2007, decided on 14th August, 2007), which was in favour of the assessee. Similarly, questions 4 and 5 were held to be covered by the High Court's decision in Commissioner of Income Tax V/s. Samarth Sahakari Sakhar Karkhana Ltd. (Income Tax Appeal No.273 of 2007, decided on 17th September, 2007), also in favour of the assessee. Consequently, 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 question from the cited judgments was not detailed in this order, but the outcome was a clear victory for the assessee on all points.

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 21, 2004. The appeal pertains to assessment year 1993-94 and concerns the assessee, Siddheshwar Sahakari Sakhar Karkhana Ltd. The High Court admitted the appeal on five reframed questions of law. The parties agreed that the first three questions were covered by a previous High Court decision in CIT V/s. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. Similarly, questions 4 and 5 were agreed to be covered by another High Court decision in Commissioner of Income Tax V/s. Samarth Sahakari Sakhar Karkhana Ltd. The High Court disposed of the appeal based on these agreements.

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? The assessee contended that it is not applicable, while the revenue argued for its applicability. 2. Whether additional payment over the statutory minimum price (SMP) was cane price, allowable as business expenditure under Section 37(1), or a diversion of profit? The assessee argued it was business expenditure, and the revenue contended it was a diversion of profit. 3. Whether cane price/Khodki charges paid by the assessee was 'Bonus' under Section 2(4) of the Maharashtra Co-operative Societies Act, 1960, and thus allowable as business expenditure? The assessee argued it was allowable business expenditure, not bonus. 4. Whether Bakshish payment made by the assessee society was out of commercial expediency, or purely voluntary and in addition to H & T charges? The assessee argued it was out of commercial expediency, while the revenue contended it was voluntary. 5. Whether advances paid to H & T contractors were trade advances, justifying deletion of interest disallowance, despite no specific contractual obligation and being funded by borrowings attracting interest? The assessee argued they were trade advances, while the revenue argued against this, highlighting the interest cost on borrowings.

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.312 OF 2007 INCOME TAX APPEAL NO.312 OF 2007 INCOME TAX APPEAL NO.312 OF 2007 The Commissioner of Income-tax Aayakar Bhavan, Cantonment, Aurangabad. ..Appellant. V/s. Siddheshwar Sahakari Sakhar Karkhana Ltd., Maniknagar, Billod, Dist. Aurangabad. ..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 21/12/2004 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 CNR No : HCBM020046332007 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:02:33

-= : 2 : =- 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 justified in holding that Bakshish payment made by the assessee society was out of commercial expediency, whereas such payment is purely voluntary and sweet will of assessee and in addition to the H & T charges paid ? 5. Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that advances paid to H & T contractors is in the nature of trade advances and thereby deleting the disallowance of interest part, even though such advance was made without any specific contractual obligation and out of borrowings on which assessee is giving huge interest to financial institutions ? 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. Counsel on both the sides agree that the question Nos.4 & 5 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 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:02:33

-= : 3 : =- 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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