THE COMMISSIONER OF INCOME TAX, AURANGABAD. vs. AMBEJOGAI S.S.K. LTD. DEED

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ITXA/321/2007HC 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 held that all three questions of law were covered by its previous decisions. For the first two questions, the Court referred to its judgment in CIT vs. Manjara Shetkari Sahakari Sakhar Karkhana Ltd., which was decided in favour of the assessee. This implies the Tribunal was correct in holding that Section 40A(2)(a) is not applicable to a co-operative society and that the additional payment over SMP was allowable as business expenditure. For the third question, the Court referred to its judgment in CIT vs. Samarth Sahakari Sakhar Karkhana Ltd., which was also decided in favour of the assessee. This means the Tribunal was justified in holding that the advances paid to harvesting and transporting contractors were in the nature of business interest and not a diversion of borrowed funds for non-business purposes. Consequently, all questions were answered in favour 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 16, 2005. The appeal pertained to the assessment year 1999-2000 and concerned the assessee, Ambejogai Sahakari Sakhar Karkhana Ltd. The appeal was admitted on three reframed questions of law by consent of both parties. The High Court was informed that the first two questions were covered by a previous decision of the same court in CIT vs. Manjara Shetkari Sahakari Sakhar Karkhana Ltd., and the third question was covered by another decision in CIT vs. Samarth Sahakari Sakhar Karkhana Ltd. Both these decisions were 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. 2. Whether additional payment over the statutory minimum price (SMP) for sugarcane was cane price, not a diversion of profit, and thus allowable as business expenditure under Section 37(1) of the Income Tax Act, 1961. 3. Whether advances paid to harvesting and transporting contractors, made out of borrowings on which interest was paid, were in the nature of business interest or a diversion of borrowed funds for non-business purposes, thereby disallowing the interest component. Assessee's Contentions: The assessee argued that Section 40A(2)(a) is not applicable to co-operative societies. They also contended that the additional payment over SMP was indeed cane price and allowable as business expenditure. Regarding advances, they argued it was in the business interest of the society. Revenue's Contentions: The revenue contended that Section 40A(2)(a) should apply. They argued that the additional payment was a diversion of profit, not business expenditure. They also argued that the advances to contractors were not in the normal course of business, lacked contractual obligation, and represented a diversion of borrowed funds for non-business purposes.

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.321 OF 2007 INCOME TAX APPEAL NO.321 OF 2007 INCOME TAX APPEAL NO.321 OF 2007 The Commissioner of Income-tax Aayakar Bhavan, Cantonment, Near Holi Cross High School, Aurangabad. ..Appellant. V/s. Ambejogai Sahakari Sakhar Karkhana Ltd., Ambejogai 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 16/12/2005 relating to the assessment year 1999-2000. 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 CNR No : HCBM020046472007 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:02:36

-= : 2 : =- 37(1) of the Income Tax Act, 1961 ? 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 06:02:36

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

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