Shirpur Shetkari SSK Ltd., Dhule V. ACIT, Cir. 3(1), Dhule

ITA 14/PUN/2011

• Counselvise Citation: 1424514 RSA 2011
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-03-2011
• Assessment Year: 1992-1993
• Appeal Filed On: 05-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: H C LEUVA
• Keywords: Business expenditure; Diversion of income
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI I.C. SU DHIR JUDICIAL MEMBE R AND SHRI G.S. PANNU ACCOUNTANT MEMBER ITA NO S . 09, 13, 14 & 15 /PN/20 11 ( ASSTT. YEAR S : 19 89 - 90, 1991 - 92, 1992 - 93 & 1993 - 94 ) SHIRPUR SHETKARI SA HAKARI SAKHAR KARKHANA LTD., APPELLANT A/P SHIVAJINAGAR, TAL SHIRPUR DIST. DHULE PAN : NOT AVAILABLE VS. ACIT, CIRCLE 3(1), DHULE RESPONDENT APPELLANT BY : NONE RESPONDENT BY : SHRI H.C. LEUVA ORDER P ER BENCH : ALL THESE APPEAL S HAVE BEEN PREFERRED BY THE ASSESSEE . T HE FIRST APPELLATE ORDER HAS BEEN QUESTIONNED BY THE ASSESSEE ON THE SOLE GROUND THAT THE LD CIT(A) HAS ERRED IN DISALLOWING AND ADDING BACK THE AMOUNT ON ACCOUNT OF AREA DEVELOPMENT FUND. 2. AT THE OUTSET OF HEARING, THE LD. D .R. POINTED OUT THAT THE ISSUE RAISED IN THE GROUND IS FULLY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SIDDHESWAR SAHAKARI SAKHAR KARKHANA LTD. V/S. CIT & OTHERS (2004),270 ITR 1 (SC). THE LD CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE REVENUE RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT ON THE ISSUE. SHIRPUR SHETK ARI S.S.K. LTD. A.YS. 1989 - 90,1991 - 92, 1992 - 93 &1993 - 94 2 3. HAVING GONE THROUGH THE ORDERS OF THE LOWER AUTHORITY AND THE ABOVE CITED DECISION OF HONBLE SUPREME COURT, WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE SUPREME COURT. RESPECTFULLY FOLLOWING THE SAME, THE LD CIT(A) HAS DISMISSED THE APPEAL RESULTING IN UPHOLDING THE ADDITION MADE ON ACCOUNT OF AREA DEVELOPMENT FUND . 4. THE RELE VANT FACTS ARE THAT GOVERNMENT OF MAHARASHTRA HAS ISSUED AN ORDER DATED 18 TH SEPTEMBER 1989 BY WHICH THE CO - OPERATIVE SUGAR FACTORIES ARE ALLOWED TO DEDUCT AREA DEVELOPMENT FUND FROM THE CANE PRICE PAYABLE TO CAN E GROWERS . THE CO - ORDINATE COMMITTEE, IN THE INTEREST OF THE COMMUNITY AT LARGE, HAS DIRECTED TO DEDUCT AREA DEVELOPMENT FUND AT THE RATE UPTO 3% OF THE CANE PRICE FIXED WITH SPECIFIED PURPOSES FOR WHICH AREA DEVELOPMENT FUND IS EXPECTED TO BE UTILIZED BY THE CO - OPERATIVE SUGAR FACTORIES. THE A.O FOLLOWING THE ABOVE CITED DECISION OF HONBLE SUPREME COURT TREATED THE FUND AS INCOME OF THE ASSESSEE AND ADDED INCOME FOR THE A.YS UNDER CONSIDERATION. HE ADDED RS. 3,60,904/ - FOR A.Y. 1989 - 90, RS.4,71,054/ - FOR A.Y. 1991 - 92, RS. 1,09,767/ - FOR A. Y. 1992 - 93 AND RS.2, 49 ,086/ - FOR A.Y. 1993 - 94 RESPECTIVELY. THE LD CIT(A) HAS UPHELD THE SAME. THE RELEVANT PARA NO. 3.4 TO 3.7 OF THE FIRST APPELLATE ORDER ARE BEING REPRODUCED HEREUNDER FOR A READY REFERENCE : SHIRPUR SHETK ARI S.S.K. LTD. A.YS. 1989 - 90,1991 - 92, 1992 - 93 &1993 - 94 3 3.4 THE HONBLE SUPREME COURT HAS EXAMI NED THE ISSUE OF TAXABILITY OF AREA DEVELOPMENT FUND IN THE CASE OF SIDDHESHWAR SAH. SSK LTD. VS. CIT(2004) 270 ITR 1 AND HAS HELD THAT AMOUNT COLLECTED TOWARDS AREA DEVELOPMENT FUND CANNOT BE SAID TO BE A COLLECTION MADE BY THE SOCIETY AS AN AGENT OF THE GOVT. OR THAT PROPRIETARY INTEREST ON THE COLLECTION IS VESTED WITH THE GOVERNMENT. THE HONBLE COURT HAS FURTHER CLARIFIED THAT RESTRICTION IMPOSED BY WAY OF SANCTION OF DIRECTOR OF SUGAR IN INCURRING THE EXPENDITURE IN THE LARGER INTEREST OF THE SOCIET Y ITSELF DOES NOT DETRACT FROM THE FACT THAT THE SOCIETIES CONCERNED, DO EXERCISE DOMINION OVER THE FUND AND DEALT WITH THE MONEY SUBJECT OF COURSE TO THE GUIDELINES AND RESTRICTIONS EVOLVED BY THE GOVERNMENT. THE HONBLE APEX COURT ALSO OBSERVED THAT THE RE WAS NO DIVERSION OF INCOME TO A THIRD PARTY IN THE CASE OF AREA DEVELOPMENT FUND BEFORE IT REACHED TO THE ASSESSEE. THE RELEVANT OBSERVATION OF THE SUPREME COURT IS REPRODUCED AS UNDER FOR THE SAKE OF CLARITY. IT IS DIFFICULT TO EQUATE THIS FUND TO TH E OTHER CATEGORIES OF FUNDS, AS HAS BEEN DONE BY THE TRIBUNAL AND AFFIRMED BY THE HIGH COURT. UNLIKE THE OTHER FUNDS LIKE CHIEF MINISTERS RELIEF FUND, THE AMOUNT COLLECTED TOWARDS AREA DEVELOPMENT FUND IS RETAINED BY THE SUGAR FACTORY ITSELF AND UTILIZED AS PER THE GUIDELINES ISSUED BY THE GOVERNMENT OR THE NATIONAL COOPERATIVES DEVELOPMENT CORPORATION. THE COLLECTIVE BODY OF THE SOCIETY AND ITS ELECTED REPRESENTATIVES TAKE THE DECISION AS TO HOW MUCH AMOUNT HAS TO BE SPENT AND FOR WHAT PURPOSES. THE DIR ECTOR OF SUGARS OR OTHER DESIGNATION OFFICIAL, NO DOUBT ACTS IN A SUPERVISORY CAPACITY TO OVERSEE THAT THE FUNDS ARE PROPERLY UTILIZED. ON THAT ACCOUNT, IT CANNOT BE SAID THAT THE COLLECTION IS MADE BY THE SOCIETY AS AN AGENT OF THE GOVERNMENT OR THE PROP RIETORY INTEREST IN THE FUNDS IS VESTED WITH THE GOVERNMENT. THE CONCLUSION HAS BEEN REACHED BY THE TRIBUNAL MAINLY ON THE BASIS OF REQUIREMENT OF PRIOR SANCTION OF THE DIRECTOR OF SUGARS FOR SHIRPUR SHETK ARI S.S.K. LTD. A.YS. 1989 - 90,1991 - 92, 1992 - 93 &1993 - 94 4 INCURRING THE EXPENDITURE. SUCH RESTRICTION PRESCRIBED IN THE LARGER INTEREST OF THE SOCIETY ITSELF DOES NOT IN ANY WAY DETRACT FROM THE FCT THAT THE SOCIETIES CONCERNED DO EXERCISE DOMINION OVER THE FUND AND DEAL WITH THE MONEY SUBJECT OF COURSE TO THE GUIDELINES AND RESTRICTIONS EVOLVED BY THE GOVERNMENT. THE TRI BUNAL FAILED TO APPROACH THE QUESTION IN PROPER PERSPECTIVE ON AN ANALYSIS OF THE RELEVANT CIRCULARS AND ORDERS. THE HIGH COURT TOO FELL INTO AN ERROR IN INVOKING THE THEORY OF DIVERSION OF INCOME AT SOURCE. THE CRUX OF THE MATTER IS THAT THERE HAS NEVER BEEN A DIVERSION OF INCOME TO A THIRD PARTY (GOVERNMENT) BEFORE IT REACHED THE ASSESSEE. THE RECEIPTS IN THE FORM OF AREA DEVELOPMENT FUND ALWAYS REMAINED WITH THE ASSESSEE.( EMPHASIS SUPPLIED). 3.5 KEEPING IN VIEW THE OBSERVATION OF THE HONBLE SUPREM E COURT IT IS HELD THAT AREA DEVELOPMENT FUND IS TAXABLE INCOME OF THE APPELLANT. THE APEX COURT FURTHER OBSERVED AS UNDER : - IT COULD STILL BE CONTENDED, AS HAS BEEN CONTENDED BY THE LEARNED SENIOR COUNSEL APPEARING FOR THE ASSESSEE, THAT THE REALIZATION S MADE BY THE ASSESSEE TOWARDS AREA DEVELOPMENT FUND ARE IMPRESSED WITH A SPECIFIC LEGAL OBLIGATION TO SPEND THE MONIES FOR SPECIFIED PURPOSES WHICH ARE UNRELATED TO THE BUSINESS OF THE SUGAR FACTORY AND THEREFORE SUCH RECEIPTS CANNOT BE TREATED AS INCOM E OF THE ASSESSEE. THE ANALOGY OF COLLECTION OF AMOUNTS TOWARDS CHARITY, AS IN THE CASE OF CIT VS. BIJLEE COTTON MILLS (1979) 1 SCC 496, HAS BEEN INVOKED TO SUBSTANTIATE THE ARGUMENT. IT IS CONTENDED THAT THE REALIZATIONS TOWARDS AREA DEVELOPMENT FUND WO ULD MORE OR LESS STAND ON THE SAME FOOTING AS DEPOSITS. THE CONTROVERSY HAS NOT BEEN APPROACHED IN THE LIGHT OF THE ABOVE ABOVE AGUMENTS. WE DO NOT CONSIDER IT SHIRPUR SHETK ARI S.S.K. LTD. A.YS. 1989 - 90,1991 - 92, 1992 - 93 &1993 - 94 5 APPROPRIATE TO EXPRESS OUR VIEW FOR THE FIRST TIME, ESPECIALLY WHEN THE DETERMINATION THEREOF MAY DEPEND ON THE CONSIDERATION OF CERTAIN FACTS. WE THEREFORE LEAVE THIS POINT FOR FRESH DETERMINATION. 3.6 THE HONBLE COURT OBSERVED THAT THE COLLECTIONS MADE ARE COMBINED WITH AN OBLIGATION TO SPEND THE AMOUNTS FOR SPECIFIC PURPOSES. IT LOGICALLY FOLLOWS THAT IF THE AMOUNTS COLLECTED ARE TAXED AS INCOME, THE EXPENSES MADE OUT OF THESE FUNDS FORAUTHORIZED PURPOSES SHOULD BE ALLOWED AND ONLY THE NET AMOUNTS COLLECTED AND RETAINED BY THE APPELLANT TAXED AS INCOME. THIS ALSO PRESUPPOSES THAT SUCH EX PENSES MADE FOR PURPOSES NOT COVERED BY GUIDELINES AND SPECIFICALLY AUTHORIZED ARE NOT DEDUCTIBLE UNLESS THESE EXPENSES FALL UNDER THE AMBIT OF RESIDUARY BUSINESS EXPENSES UNDER SECTION 37(1) OR ANY OTHER SPECIFIC PROVISION OF THE ACT. 3.7 THUS, KEEPING IN VIEW THE HONBLE SUPREME COURTS DECISION, THE AMOUNT COLLECTED ON ACCOUNT OF AREA DEVELOPMENT FUND IS TAXABLE INCOME OF THE APPELLANT SOCIETY. IN VIEW OF THE ABOVE DISCUSSION, THE ADDITIONS OF RS. 3,60,904/ - , RS.4 ,71,054/ - , RS.1,09,767/ - & RS.2,49,08 6/ - FOR A.YRS. 1989 - 90, 1991 - 92, 1992 - 93 & 1993 - 94 RESPECTIVELY ON ACCOUNT OF AREA DEVELOPMENT FUND ARE CONFIRMED. SINCE THE ISSUE HAS ALREADY BEEN SETTLED BY THE HONBLE SUPREME COURT IN THE ABOVE CITED CASE, THERE IS NO REASON TO INTERFERE WITH THE FI RST APPELLATE ORDER WHEREIN THE LD CIT(A) HAS RESPECTFULLY SHIRPUR SHETK ARI S.S.K. LTD. A.YS. 1989 - 90,1991 - 92, 1992 - 93 &1993 - 94 6 FOLLOWED THE RECENT DECISION OF HONBLE SUPREME COURT. THE SAME IS UPHELD. 5. IN RESULT, APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MAY , 2011 SD/ - SD/ - ( G.S. PANNU ) ACCOUNTANT MEMBER (I.C. SUDHIR) JUDICIAL MEMBER PUNE: DATED: 11 TH MAY , 2011 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APP ELLA NT 2. THE RESPONDENT 3. THE CIT - 1, NASHIK 4 . THE CIT - (A) - I , NASHIK 5. THE D.R. ITAT, B BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE