Gujarat Co-op. Milk Marketing Federation Ltd. V. Dy. Commissioner of Income-Tax (Assessment)

TAXAP/73/2004

AI Insights

The case involves the Gujarat Co-op. Milk Marketing Federation Ltd. appealing against the orders of the ITAT, which had partly allowed the appeals of both the appellant and the respondent, the Dy. Commissioner of Income-Tax (Assessment). The primary legal issues pertained to the deductibility of interest on a loan from the National Dairy Development Board and the interpretation of the assessee's business activities concerning the commencement of production at 'Mother Dairy Products'. The High Court referenced a previous decision by the Supreme Court and a similar case by this Court to conclude that the issues were already settled in favor of the Revenue.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 687926 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 13-11-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax Vs. Mehsana District Co.­Op. Milk Producers' Union Ltd., Associated Power Co. Ltd. Vs. Commissioner of Income­ tax
• Laws Referred To: Income Tax Act, 1961, Co-operative Societies Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K M PARIKH
• Assessee Lawyers: SWATI SOPARKAR
• Keywords: Assessment; Business income; Deduction; Income Tax; Loan Interest; Production Unit
• Section: 36 (1) (iii); 67(2)

Judgement Text

"O/TAXAP/73/2004 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 73 of 2004 With TAX APPEAL NO. 212 of 2004 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER =========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ GUJARAT CO-OP. MILK MARKETING FEDERATION LTD.....Appellant(s) Versus DY.COMMISSIONER OF INCOME-TAX (ASSESSMENT)....Opponent(s) ================================================================ Appearance: MRS SWATI SOPARKAR, ADVOCATE for the Appellant(s) No. 1 MR KM PARIKH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 13/11/2014 Page 1 of 5 O/TAXAP/73/2004 JUDGMENT ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of these appeals, the appellant­ asessee has challenged the orders dated 04.07.2003 and 04.12.2003 passed by the Income Tax Appellate Tribunal, Ahmedabad (for short “the ITAT”). 2. While admitting these appeals, the Court had formulated the following substantial questions of law:­ “1. Whether, on the facts and in the circumstances of the case, it could be stated that the assessee was carrying on business in light of the fact that though the assessee was carrying on trading in goods its production unit known as “Mother Dairy Products” had not commenced production ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that interest amounting to Rs.,08,927/­ payable on loan taken from National Dairy Development Board was not allowable as deduction under Section 36(1) (III) of the Income Tax Act, 1961 ?” 3. The facts in brief are that the respondent herein had assessed the total income of the appellant­ Page 2 of 5 O/TAXAP/73/2004 JUDGMENT assessee of Tax Appeal No.73 of 2004 as Rs.3,87,33,858/­ as against the returned income of Rs.2,74,43,450/­ and the total income of the appellant­assessee of Tax Appeal No.212 of 2004 as Rs.4,87,61,910/­ as against the return income of Rs.47,35,673/­. The appellants herein challenged the order of the respondent by filing Appeals before the CIT(Appeal), Baroda. The CIT(A) partly allowed the said appeals. The appellants as well as the respondent herein challenged the said order before the ITAT. The Tribunal vide orders dated 04.07.2003 and 04.12.2013 partly allowed both the appeals. Hence, these appeals. 4. Learned advocate for the appellants has contended that issues involved in these appeals are covered by the decision of this Court passed in the case of Commissioner of Income Tax Vs. Mehsana District Co.­Op. Milk Producers’ Union Ltd. reported in [2008] 307 ITR83(Guj.) 5. We have heard learned advocate for both the parties and perused the material on record as well as the decision relied upon by the learned advocate for the appellant and found that the issues involved in these appeals are already concluded by this Court. Paragraph Nos. 8 and 9 of the above decision reads as under:­ “8. Having heard the learned advocates it is apparent that the issue raised by the two questions, at the instance of the assessee, stands concluded by the aforesaid decision Page 3 of 5 O/TAXAP/73/2004 JUDGMENT of the Apex Court in the case of Associated Power Co. Ltd. Vs. Commissioner of Income­ tax (supra). Furthermore, as can be seen from provisions of Section 67(2) of the Co­ operative Societies Act the question of control of the State Government by specifying the mode of investment or the mode of use of the reserve fund can arise only in the eventuality when the society does not use the reserve fund in the business of the society. The opening portion of sub­section (2) of Section 67 of the Co­ operative Societies Act specifically provides ... and such reserve fund may be used in the business of the society or .....In other words, it is only in the event the society does not choose to use the reserve fund for the business of the society that the question about investing the reserve fund in the specified category of investments and thereafter utilizing the same for the objects specified by the State Government can arise. Hence, not only is there no diversion of income by overriding title but in fact there is no outgoing of funds from the domain of the assessee­ society. In fact, the profits at the specified percentage are set apart so as to be available to the society for use in the business of the society at a later point of time. Once the society is in a position to use the funds lying in the reserve fund for the business of the society as and when the society so chooses, there can be no question of keeping out such profits from the purview of taxation. 9. Accordingly, the Tribunal was right in law in holding that the amount transferred to the reserve fund account as per provisions of Section 67 of the Gujarat Co­ operative Societies Act, 1961 was not diversion of income at source by overriding title nor can such transfer be treated as a business expenditure deductible either under Section 28 or Section 37 of the Act. Page 4 of 5 O/TAXAP/73/2004 JUDGMENT Accordingly, both the questions at the instance of the assessee are answered in the affirmative i.e. in favour of the Revenue and against the assessee.” 6. In view of the above, we are of the considered opinion that the present appeals deserve to be dismissed and the same are accordingly dismissed. Accordingly, both the issues are answered in favour of the Revenue and against the assessee. Since the facts of these appeals and the facts of the decision relied upon by learned advocate for the appellants are identical, we do not give elaborate reasons. (K.S.JHAVERI, J.) (K.J.THAKER, J) pawan Page 5 of 5 "