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

TAXAP/163/2003

AI Insights

The case involves the Gujarat Co-op. Milk Marketing Federation Ltd. appealing against the decision of the ITAT, which upheld the assessment order of the Dy. Commissioner of Income-Tax. The primary contention was regarding the deduction claimed for the amount transferred to the reserve fund account as per Section 57 of the Gujarat Co-operative Societies Act, 1967. The ITAT and subsequently the High Court found that this transfer did not constitute a diversion of income by overriding title and was not deductible as a business expenditure under the Income Tax Act.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 798821 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 07-11-2014
• Assessment Year: misc
• Other Referred Cases: Associated Power Co. Ltd. v/s Commissioner of Income-tax
• Laws Referred To: Income Tax Act, 1961, Gujarat Co-operative Societies Act, 1967
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K M PARIKH
• Assessee Lawyers: SAURABH SOPARKAR; B S SOPARKAR
• Keywords: Appeal; Assessment; Deduction; Income Tax; Reserve Fund
• Section: 143(3); 37; 28; 215; 57

Judgement Text

"O/TAXAP/161/2003 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 161 of 2003 With TAX APPEAL NO. 162 of 2003 With TAX APPEAL NO. 163 of 2003 With TAX APPEAL NO. 1913 of 2010 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 CO­OP. MILK MARKETING FEDERATION LTD.....Appellant Versus DY.C.I.T.(ASSTT)....Opponent ====================================== Appearance: MR. SAURABH N. SOPARKAR, SENIOR COUNSEL WITH MR. B. S. SOPARKAR FOR MRS SWATI SOPARKAR, ADVOCATE for the Appellant MR KM PARIKH, ADVOCATE for the Opponent ====================================== CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 6 O/TAXAP/161/2003 JUDGMENT Date : 07/11/2014 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. The brief facts of the appeals are as under :­ 1.2. The original return of income showing total income of Rs.85,43,024/­ was filed on 26th June 1984. A received return, showing total income of Rs.1,99,40,660/­ was filed on 26th July 1985. Original assessment order was passed u/s. 143(3) of the I.T. Act determining total income at Rs.1,99,56,440/­ on 27th March 1987. 1.3 The assessee preferred appeal against the said order passed u/s.143 (3) dated 27th March 1987. The appellant objected to the decision of the Assessing Officer of not granting deduction for the sum of Rs.4,32,975/­ being the amount transferred to receive fund account as per the provisions of Section­57 of the Gujarat Co­operative Society Act, 1967. The learned CIT (A)­II, Baroda vide its order No.CA8/I­139/87­ 88 dated 24th October 1989 dismissed the assessee's claim on the ground that as the assessee has not made such claim before the Assessing Officer and, therefore, he has not considered the claims now made before him. 1.4 Thereafter, an appeal was filed by the assessee before the I.T.A.T., Ahmedabad, Bench 'A' vide its order dated 27th January 1994, in I.T.A. No.160/AHd/1990 and remitted that matter to the files of the Assessing Officer with a direction to examine the provisions of Section 57 of the Gujarat State Co­op. Societies Act and to take the details of the sum of Rs.4,32,975/­ and any other relevant evidence or details. 1.5 Before the C.I.T. (A), the assessee society had claimed deduction of Rs.4,32,975/­ being 25% of profit earned to the reserve fund, it was stated on further inquiry that u/s. 57(2) of the Gujarat Co­ Page 2 of 6 O/TAXAP/161/2003 JUDGMENT operative Act, a reserve is required to be credited. It was accordingly contended that the reserve has been created as per the statutory requirement and, thus, the same is allowable deduction u/s. 37(1) or under Section­28 of the I.T. Act. 1.4 The Dy. Commissioner of Income­Tax (Asst.), had passed the order and issued demand notice and challan and in view of the order No.CAB/III­48/89­90 dated 24th October 1989 of CIT (A), Baroda, held that interest u/s.215 of the Act is not chargeable. 2. Being aggrieved by the order passed by the I.T.A.T., the appellant has preferred these appeals. 3. While admitting the appeals on 30th June 2003, the following substantial question of law came to be formulated in all these appeals. 1. “Whether, in the facts and circumstances of the case, the ITAT was right in law in holding that the amount transferred to reserve fund account as per the provisions of Sec.67 of Gujarat State Co­operative Societies Act was not a diversion of income at source by overriding title ? 2. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that the transfer to reserve fund cannot be treated as a business expenditure and allowed deduction u/s. 28/37 of the I.T. Act, 1961 ?” 4. The matter was ordered to be heard with I.T.R. No.86/96 and identical question of law came to be decided by Income Tax Reference No.65 of 1997. Page 3 of 6 O/TAXAP/161/2003 JUDGMENT 5. In that view of the matter, now the issues, which are raised are concluded by the decision of I.T.R. No.65 of 1997 and I.T.R. No.86 of 1996, wherein in I.T.R. No.65 of 1997 in paragraph nos.8 and 9 and in I.T.R. No.86 of 1996, in para no.2, it was held as under :­ Paragraph nos.8 and 9 of I.T.R. No.65 of 1997. “(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 of the Apex Court in the case of Associated Power Co. Ltd. V/s. Commissioner of Income­tax (supra). Furthermore, as can be seen from provisions of Section 67 (2) of the Co­operative 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 Co­operative Society 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 assessee­society. In fact, the profits at the specified Page 4 of 6 O/TAXAP/161/2003 JUDGMENT 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 Section­67 of the Gujarat Co­operative 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 Section­28 or Section­37 of the Act. 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.” Para­2 of I.T.R. No.86 of 1996. “(2) It is an admitted position between the parties that the issue raised by the two question is concluded by a judgment rendered today between the same parties in I.T.R. No.65 of 1997. Hence, for the reasons stated in the judgment of even date rendered in I.T.R. No.65 of 1997, 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. The reference stands disposed of accordingly. There shall be no order as to costs.” 6. Hence, all these appeals deserve to be dismissed and the Page 5 of 6 O/TAXAP/161/2003 JUDGMENT issues are answered in favour the department and against the assessee. The appeals are hereby dismissed. We are not giving elaborate reasons as the facts are identical and the law applied is also identical in these matters as in the appeals decided. (K.S.JHAVERI, J.) (K.J.THAKER, J) Rathod... Page 6 of 6 "