The Dharmapuri District Co-op. Milk Producers Union Ltd., Krishnagiri V. DCIT, Salem

ITA 3245/CHNY/2016

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 4688 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 12-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 28-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: T VASUDEVAN
• Keywords: Capital receipt
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , , $ BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NOS. 621 /CHNY/2015 & 3245/CHNY/2016 / ASSESSMENT YEARS : 2007-08 M/S. THE DHARMAPURI DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD., POST BOX NO. 13, SALEM MAIN ROAD, KRISHNAGIRI 635 001. [PAN: AAAAT 0542P] VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE -1, SALEM. ( / APPELLANT) ( %&' /RESPONDENT ) ASSESSEE BY : SHRI.T. VASUDEVAN, ADVOCATE REVENUE BY : SHRI CLEMENT RAMESH KUMAR, ADDL. CIT 0 /DATE OF HEARING : 24.10.2018 0 /DATE OF PRONOUNCEMENT : 24.10.2018 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THE ASSESSEE FILED THESE APPEALS AGAINST THE ORDER S OF THE COMMISSIONER OF INCOME TAX (APPEALS)- SALEM, IN ITA NO. 165/09-10 DATED 30.01.2015 & ITA NO. 104/13-14 DATED 27.09.20 16 AGAINST THE ASSESSMENT ORDERS PASSED U/S. 143 & U/S. 143(3) R.W . 147, RESPECTIVELY, FOR ASSESSMENT YEAR 2007-08. :-2-: ITA NOS. 621/CHNY/2015 & 3245/CHNY/2016 2. THE AR SUBMITTED THAT THE DHARMAPURI DISTRICT CO -OPERATIVE MILK PRODUCERS UNION LTD., THE ASSESSEE, IS A CO-OPERATI VE SOCIETY ENGAGED IN PROCUREMENT OF MILK, MANUFACTURING BY-PRODUCTS AND DISTRIBUTION OF MILK AND RELATED ITEMS. WHILE MAKING THE ASSESSMENT FOR ASSESSMENT YEAR 2007-08 U/S. 143(3), THE LD. ADDL. CIT(A) DISALLOWE D RS. 12,71,248/-U/S. 43B, THE EXCESS PROVISION OF BONUS. FURTHER, RS. 3,50,00,000/- RECEIVED AS GRANT IN AID WAS TREATED AS REVENUE RECEIPT. AG AINST WHICH THE ASSESSEE FILED AN APPEAL AND THE LD. CIT(A) UPHELD THEM AND HENCE THE ASSESSEE FILED THE APPEAL IN ITA NO. 621/2015. 3. THE AR SUBMITTED THAT THE ASSESSEE MADE A PROVIS IONS OF RS. 42,29,800/- TOWARDS BONUS TO STAFF. OUT OF WHICH, IT PAID RS. 29,58,602/. THE ASSESSING OFFICER DISALLOWED THE BALANCE PROVIS ION OF RS. 12,71,248/, WRONGLY U/S. 43B. WHEN THE BENCH RAISED A QUERY AS TO HOW PROVISIONS FOR THE NEXT YEAR CAN BE ALLOWED THIS YEAR, THE AR SUBMITTED THAT THE ASSESSEE WOULD NOT BE HAVING GRIEVANCES IF THE BONU S IS ALLOWED TO BE CLAIMED ON ACTUAL PAYMENTS IN THE YEAR OF PAYMENT. 4. WITH REGARD TO THE ADDITION OF RS. 3.15 CRORES A S REVENUE RECEIPTS, THE AR SUBMITTED THAT IT WAS RECEIVED AS SUBSIDY FR OM CENTRAL & STATE GOVERNMENT. IT IS IN THE NATURE OF REHABILITATION PLAN. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE GRAND IN AID RECEIVED BY THE ASSESSEE FROM :-3-: ITA NOS. 621/CHNY/2015 & 3245/CHNY/2016 THE GOVERNMENT WAS UNDER A SCHEME TO MAKE THE ENTIT Y AN ECONOMICALLY SUSTAINABLE ONE AND ENSURING THAT IT CONTINUES TO M ARKET THE MILK PRODUCED BY ITS MEMBER-FARMERS AND HENCE IT IS A CA PITAL RECEIPT, NOT LIABLE TO TAXED IN THE HANDS OF THE ASSESSEE. THE LD. CIT(A) FAILED TO APPRECIATE THAT APPLYING THE PURPOSIVE TEST, THE RE CEIPT OF SUBSIDY WAS CAPITAL IN NATURE, SINCE THE SUBSIDY GUARANTEED THE CONTINUED EXISTENCE OF ASSESSEE IN THE INTERESTS OF THE MILK PRODUCERS, TH E UTILISATION OF THE AMOUNT OF SUBSIDY FOR DISCHARGE OF THE OUTSTANDING DUES TO THE MILK FARMERS WAS AKIN TO THE PONNI SUGARS CASE WHERE THE SUBSIDY GRANTED FOR REPAYMENT OF LOANS, WHICH WAS HELD BY THE SUPREME C OURT TO BE A CAPITAL RECEIPT. THE LD. CIT(A) FAILED TO APPRECIA TE THAT IT IS WELL SETTLED THAT SUBSIDY FROM THE GOVERNMENT, INTENDED WITH THE SPECIFIC OBJECT OF BRINGING THE UNIT OUT OF FINANCIAL DOLDRUMS AND TO SERVE THE CAUSE FOR WHICH IT WAS FORMED IS ALWAYS ON CAPITAL FIELD AND HENCE CANNOT BE SUBJECT TO TAX IN THE ASSESSEES HANDS. HE OUGHT T O HAVE CONSIDERED THE CONTENTIONS OF THE ASSESSEE IN THE PROPER PERSPECTI VE AND SEEN THAT THE ISSUE STANDS COVERED IN A CATENA OF DECISIONS HOLDI NG SUCH RECEIPT AS OUTSIDE THE PURVIEW OF TAXABLE INCOME. PER CONTRA, THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HEARD THE RIVAL SUBMISSIONS. ON THE ISSUE OF DISALLOWANCE ON EXCESS PROVISION TOWARDS BONUS, WE ARE OF THE VIEW THAT THE ACTUAL BONUS :-4-: ITA NOS. 621/CHNY/2015 & 3245/CHNY/2016 PAID TO THE ASSESSEE SHOULD BE ALLOWED AS A DEDUCTI ON DURING THE YEAR IN WHICH IT IS ACTUALLY PAID. HENCE, WE DIRECT THE AS SESSING OFFICER TO VERIFY THIS ISSUE AND ALLOW THE ACTUAL BONUS PAID TO THE E MPLOYEES AS A DEDUCTION IN THE YEAR OF PAYMENT. WITH REGARD TO T HE SUBSIDY, THE LD. CIT(A) HAS HELD THAT GRANT HAS BEEN GIVEN TO CLEAR UP THE DUES OF THE MILK SUPPLIERS, SO AS TO ENABLE THE ASSESSEE TO RUN HIS BUSINESS MORE PROFITABLY AND HENCE HE SUSTAINED THE TAX. BEFORE US, THE ASSESSEE RELIES ON THE DECISION OF THE APEX COURT IN THE CASE OF CI T VS PONNI SUGARS AND CHEMICALS LTD., AND OTHERS REPORTED IN 306 ITR 392. THE HEAD NOTE IN 219 CTR 0105 IS EXTRACTED AS UNDER: INCOMECAPITAL OR REVENUE RECEIPTSUBSIDY FOR SETT ING UP OR EXPANSION OF SUGAR MILLSTEST TO BE APPLIED FOR DET ERMINING THE NATURE OF SUBSIDY IS PURPOSE TESTIF THE OBJECT OF THE SUBSID Y SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFIT ABLY THEN THE RECEIPT IS ON REVENUE ACCOUNTON THE OTHER HAND, IF THE OBJ ECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RECEIP T OF THE SUBSIDY WAS ON CAPITAL ACCOUNTFORM OR THE MECHANISM THROUGH WHICH THE SUBSIDY IS GIVEN IS IRRELEVANTAS PER INCENTIVE SCHEMES, BENEF IT WAS AVAILABLE ONLY TO NEW OR SUBSTANTIALLY EXPANDED SUGAR FACTORIES WH ICH BENEFIT HAD TO BE UTILISED FOR REPAYMENT OF TERM LOANS, AND FREE SALE SUGAR QUOTA DEPENDING ON INCREASE IN THE PRODUCTION CAPACITYAS THE ASSES SEE WAS OBLIGED TO UTILIZE THE SUBSIDY ONLY FOR REPAYMENT OF TERM LOAN S UNDERTAKEN BY THE ASSESSEE FOR SETTING UP NEW UNITS/EXPANSION OF EXIS TING BUSINESS, THE SAME WAS CAPITAL IN NATUREFACT THAT THE SUBSIDY WA S ROUTED THROUGH THE MECHANISM OF PRICE AND DUTY DIFFERENTIALS IS IMMATE RIAL :-5-: ITA NOS. 621/CHNY/2015 & 3245/CHNY/2016 6. FROM THE ABOVE, EVEN IF WE APPLY THE PURPOSE TE ST, THE OBJECT OF THE GRANT WAS TO ENABLE THE ASSESSEE TO RUN THE BUS INESS MORE PROFITABLY AND HENCE, IT IS FALLING IN THE REALM OF REVENUE. THEREFORE, THE RATIO OF THE PONNI SUGARS AND CHEMICALS LTD., SUPPORTS THE R EVENUE THAN THE ASSESSEE. HENCE, THE ASSESSEES GROUNDS OF APPEAL FAIL. IN THE RESULT, THE ASSESSEES APPEAL IN ITA NO. 621/CHNY/2015 FOR ASSESSMENT YEAR 2007-08 AGAINST ORDER U/S. 143(3) IS TREATED AS PAR TLY ALLOWED. ITA NO. 3245/CHNY/2016: 7. THIS APPEAL IS AGAINST THE ORDER PASSED U/S. 143 (3) R.W. 147 FOR ASSESSMENT YEAR 2007-08. ON AN APPEAL, THE LD. CIT (A) REFUSED TO CONDONATION THE DELAY IN FILING THE APPEAL FOR 76 D AYS AND DISMISSED THE APPEAL. BEFORE US, THE AR SUBMITTED THAT THE APPEL LANT BEING A CO- OPERATIVE SOCIETY OF THE STATE GOVERNMENT, THERE WE RE CHANGE IN ADMINISTRATIVE SET UP WHICH CAUSED THE DELAY IN FIL ING THE APPEAL. IT WAS PLEADED IN THAT THE INTERESTS OF JUSTICE, THE DELAY MAY BE CONDONED. 8. WE HEARD THE RIVAL SUBMISSIONS AND ON THE ABOVE PLEA AND IN THE INTERESTS OF JUSTICE, THE DELAY IS CONDONED. THE L D. CIT(A) IS DIRECTED TO DISPOSE THE IMPUGNED APPEAL ON MERITS AFTER AFFORDI NG DUE OPPORTUNITY TO THE ASSESSEE. :-6-: ITA NOS. 621/CHNY/2015 & 3245/CHNY/2016 9. IN THE RESULT, THE ASSESSEES APPEAL IN ITA NO. 621/CHNY/2015 & ITA NO. 3245/CHNY/2016 ARE TREATED AS PARTLY ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH OCTOBER, 2018 AT CHENNAI. SD/- ( ) (GEORGE MATHAN) ! /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ! /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 24 TH OCTOBER, 2018 JPV 0%7898 /COPY TO: 1. ' / APPELLANT 2. %&' /RESPONDENT 3. ; ) ( /CIT(A) 4. ; /CIT 5. 8% /DR 6. /GF