COMMISSIONER OF INCOME TAX HYD V. A.P.STATE ESSENTIAL COMMODITIES CORPN.LTD.HYD

RC/63/1998

AI Insights

The cases involve the A.P. State Civil Supplies Corporation Limited, a public sector undertaking, which appealed against the disallowance of exemption claimed under Section 11 read with Section 2(15) of the Income Tax Act, 1961, for the assessment years 1988-89 and 1989-90. The core issue was whether the amounts transferred to the Price Equalisation/Stabilisation Fund constituted income from business. The Tribunal had to determine the legal standing of the Fund and its operations under the directives of the Government of Andhra Pradesh, which mandated the Corporation to set apart not less than 2% of its annual sales turnover for the Fund. The Tribunal's decisions in favor of the assessee were based on precedents and the interpretation of the Articles of Association and government directives.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 727521 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 29-12-2011
• Assessment Year: misc
• Other Referred Cases: C.I.T. v. K.C.P. Limited, CIT v. A.P. Civil Supplies Corporation
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Assessment Year; Income Tax; Legal liability; Public sector undertaking; Price Equalisation/Stabilisation Fund
• Section: 11; 2(15); 256(1)

Judgement Text

"THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA R.C.Nos.104 OF 1996 AND 63 OF 1998 COMMON ORDER: (Per the Hon’ble Sri Justice V.V.S.Rao) As the question referred in both the Referred Cases is common, they are being disposed of by this common order. But for the sake of convenience, the facts in RC.No.104 of 1996 are taken into consideration. The A.P. State Civil Supplies Corporation Limited (hereafter, the assessee) is a Public Sector undertaking wholly owned by the Government of Andhra Pradesh. They filed their return of income for the assessment year 1988-89. The Deputy Commissioner of Income Tax (Assts.) completed the assessment. The exemption claimed by the assessee under Section 11 read with Section 2(15) of the Income Tax Act, 1961 (“the Act” for brevity) was not allowed. Further, the amounts transferred by the assessee to the Price Equalisation/Stabilisation Fund (hereafter, the Fund) was disallowed to a tune of Rs.70,69,646/- and an addition was made to the income. Aggrieved, the assessee went in appeal before the CIT (A), Hyderabad. In their appeals before the CIT (A), Hyderabad, the assessee was partly successful. Insofar as the Fund is concerned, the Commissioner took the view that as per the Articles of Association, the assessee was bound by the directions issued by the Government of Andhra Pradesh; the Government had issued to set apart not less than 2% of the annual sales turnover for the maintenance of the Fund and therefore, the same cannot be treated as income from the business. The Revenue appealed to the Income Tax Appellate Tribunal. Following their decision in the assessee’s case for previous assessment years, Revenue’s appeal was dismissed when they sought reference under Section 256 (1) of the Act. The learned Tribunal referred the following two questions in R.C.No.104 of 1996 relating to the assessment year 1988-89 and the sole question in R.C.No.63 of 1998 relating to the assessment year 1989-90. R.C.No.104 of 1996 1. Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the Article-6 of the Articles of Association created a legal liability whereby all income vests in the Price Equalisation/Stabilisation Fund, even when no such fund ever existed? 2. Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that the Price Equalisation/Stabilisation Fund is required in holding the price line and that such an activity is an object of general public utility, particularly when the fund was not created and objects of the fund were not spelt out either by the Govt. or by the assessee company. R.C.No.63 of 1998 “Whether on the facts and in the circumstances of the case, the ITAT was correct in holding that the contribution made towards ‘Price Stabilisation and Equalisation Fund’ was an allowable revenue expenditure?” There is no dispute that the Government of Andhra Pradesh issued orders in G.O.Ms.No.361 dated 26.05.1989 directing the assessee to set apart not less than 2% of its annual sales turnover with effect from the financial year 1981-82 for the maintenance of Fund, as administered by the Government. There is also no dispute that the maintenance of the Fund is something analogous to the statutory liability. When an assessee under Statute is obliged to set apart certain amount from the gross receipts for maintenance of Fund like Liquidation Fund towards Stabilisation Fund etc., the same cannot be treated as profit or income from the business and an addition cannot be made in the return of income. The Senior Counsel for Income Tax, however, relied on the decision reported in C.I.T. v. K.C.P. Limited [1]. Therein, a finding was recorded that the assessees collected amount in excess, over and above the required amounts from the third parties and did not transfer to the statutory fund, it was treated as Revenue receipt. In the case on hand, there is no dispute that the transfer of 2% of the gross receipts by the assessee-Corporation was meant for maintenance of the Fund and it was controlled by the Government, although the funds were not transferred to the Government. During the course of the submissions, our attention has been invited to two unreported decisions in R.C.No.59 of 1992 dated 04.03.2003 and R.C.No.76 of 1994 dated 09.03.2006 (CIT v. A.P. Civil Supplies Corporation). In both the cases, the similar question was answered in favour of the assessee upholding the view of the appellate Tribunal. Following the same, these two references are disposed of in the following manner. The questions in both the Referred Cases are answered in affirmative in favour of the assessee and against the Revenue and both the Referred Cases shall stand disposed of accordingly, without any order as to costs. _______________ (V.V.S.RAO, J) ____________________ (B.N.RAO NALLA, J) 29th December 2011 RRB [1] (1995) 216 ITR 602 "