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

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ITXA/322/2007HC 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 two questions of law were covered by its previous decision in CIT vs. Manjara Shetkari Sahakari Sakhar Karkhana Ltd., which was decided in favor of the assessee. This implies that the Tribunal's finding 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 under Section 37(1) was upheld. Furthermore, the Court held that the third question of law was answered against the revenue and in favor of the assessee by its decision in CIT vs. Samarth Sahakari Sakhar Karkhana Ltd. This means the Tribunal's view that 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, leading to the deletion of the disallowance of interest, was also upheld. Consequently, all questions were answered in favor of the assessee and against the revenue.

What were the facts?

The Commissioner of Income-tax (appellant) 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 pertains to the assessment year 1998-99 and concerns the respondent, 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 of law 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 the decision in CIT vs. 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. 2. Whether an additional payment over the statutory minimum price (SMP) for sugarcane constituted cane price and was allowable as business expenditure under Section 37(1) of the Income Tax Act, 1961, or was a diversion of profit. 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, thus disallowing the interest component. The assessee contended that Section 40A(2)(a) is not applicable to co-operative societies, the additional payment was cane price and allowable expenditure, and the advances to contractors were in the business interest of the society. The revenue contended that Section 40A(2)(a) should apply, the additional payment was a diversion of profit, and the advances were for non-business purposes, making the interest disallowable. The judgment notes that both sides agreed that the first two questions were covered by CIT vs. Manjara Shetkari Sahakari Sakhar Karkhana Ltd. and the third question was covered by CIT vs. Samarth Sahakari Sakhar Karkhana Ltd.

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.322 OF 2007 INCOME TAX APPEAL NO.322 OF 2007 INCOME TAX APPEAL NO.322 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 1998-99. 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 : HCBM020046482007 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:02:38

-= : 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 06:02:38

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

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