M/s Naval Singh Sahakari Shakkar Karkhana Ltd., V. The ITO,

ITA 628/IND/2007

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6056 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 07-11-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Assessee Lawyers: T N UNNI
• Keywords: Business expenditure; Revenue expenditure
• Section: 37(1)

Judgement Text

PAGE 1 OF 13 - I.T.A.NOS. 628/IND/2007 & 239/IND/0 8 NAVAL SINGH SAHKARI SHAKKAR KARKHANA LTD.,BURHANPUR IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER PAN NO. : AAAAN5294N I.T.A.NO.628/IND/2007 & 239/IND/2008 A.Y. : 2003-04 & 2005-06 M/S. NAVAL SINGH SAHKARI SHAKKAR KARKHANA LIMITED, ITO, BURHANPUR BURHANPUR VS APPELLANT RESPONDENT APPELLANT BY : SHRI T.N.UNNI, C.A. RESPONDENT BY : SMT.APARNA KARAN, SR. DR DATE OF HEARING : 08/03/2010 O R D E R PER V.K. GUPTA, A.M. THESE APPEALS HAVE BEEN FILED BY THE SAME ASSESSEE AND INVOLVE COMMON ISSUE, HENCE, THESE WERE HEARD TOGETHER AND THESE ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSE D THE MATERIAL AVAILABLE ON RECORD. 3. FIRST, WE SHALL TAKE UP ASSESSEES APPEAL IN I.T.A. NO. 628/IND/2007. PAGE 2 OF 13 - I.T.A.NOS. 628/IND/2007 & 239/IND/0 8 NAVAL SINGH SAHKARI SHAKKAR KARKHANA LTD.,BURHANPUR 4. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE DE CISION OF THE LD. CIT(A) IN HOLDING THAT THE ASSESSEE SOCIETY WAS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) ON THE INTEREST INCOME E ARNED BY THE ASSESSEE ON LOANS AND ADVANCES GIVEN TO ITS MEMBERS AND ALSO HOLDING THAT THE EXPENSES OF THE SOCIETY HAD TO BE PROPORTIONATELY A TTRIBUTED TOWARDS SUCH INTEREST INCOME. 5. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A COO PERATIVE SOCIETY AND IS MAINLY ENGAGED IN MANUFACTURE AND SALE OF SU GAR. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTED THAT THE ASS ESSEE SOCIETY HAD CLAIMED DEDUCTION ON INTEREST EARNED ON SUGARCANE S EED LOAN GIVEN TO ITS MEMBERS. THE A.O. ANALYZED THE PROVISIONS OF SECTIO N 80P(2)(A)(I) AND HELD THAT MAIN INCOME OF THE SOCIETY WAS NOT ELIGIB LE FOR DEDUCTION IN THIS SECTION AND SUCH ADVANCES WERE INEXTRICABLY CONNECT ED WITH THE MAIN ACTIVITIES OF THE ASSESSEE SOCIETY, HENCE, INTEREST EARNED ON THESE ADVANCES WAS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. THE A.O., THEREAFTER, ANALYZED THE INTEREST EXPENDITURE INCUR RED BY THE ASSESSEE AND FOUND THAT INTEREST OF RS. 1,82,82,949/- WAS FAR MO RE THAN THE INTEREST OF RS. 24,46,624/- EARNED ON LOANS TO SUCH MEMBERS. HE NCE, FOR THIS REASON ALSO, THE ASSESSEE WAS HAVING NO MERITS IN ITS CLAI M FOR DEDUCTION U/S 80P(2)(A)(I) ON SUCH INTEREST. AGGRIEVED BY THIS, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHEREIN IT WAS EMPHAS IZED THAT GIVING PAGE 3 OF 13 - I.T.A.NOS. 628/IND/2007 & 239/IND/0 8 NAVAL SINGH SAHKARI SHAKKAR KARKHANA LTD.,BURHANPUR LOANS AND CREDIT FACILITIES TO THE SUGAR CANE GROWE RS WAS A SEPARATE AND SPECIFIC ACTIVITY OF THE SOCIETY DULY AUTHORIZED VI DE ARTICLE 5 OF OBJECT CLAUSE OF BY-LAWS OF THE SOCIETY IN ADDITION TO THE MAIN ACTIVITY OF MANUFACTURING AND SALE OF SUGAR. IT WAS ALSO CONTEN DED THAT THE ASSESSEE WAS MAINTAINING SEPARATE SET OF FINANCIAL RECORDS F OR THE SAID ACTIVITIES AND THE EXPENDITURE FOR THESE BUSINESS ACTIVITIES W AS NEGLIGIBLE. HENCE, THE ASSESSEE WAS ENTITLED FOR DEDUCTION U/S 80P(2)( A)(I) ON THE WHOLE AMOUNT. THE LD. CIT(A), HOWEVER, HAVING REGARD TO T HE MAIN OBJECTS OF THE ASSESSEE SOCIETY AND RELYING ON THE DECISION OF THE HON'BLE A.P.HIGH COURT IN THE CASE OF CIT VS. ANAKAPALLI COOP. MARKE TING SOCIETY PRIVATE LIMITED AS REPORTED IN 245 ITR 616, HELD THAT THE A SSESSEE SOCIETY WAS NOT ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILIT IES TO ITS MEMBERS. HENCE, IT WAS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2) (A)(I) OF THE ACT ON THE INTEREST SO EARNED. THE LD. CIT(A) FURTHER DREW SUP PORT FROM THE COMMENTARY ON LAW OF INCOME-TAX BY SAMPATH & IYENGA R, WHEREIN IT HAS BEEN MENTIONED THAT IN CASE OF A COOPERATIVE SO CIETY NOT BEING A BANKING SOCIETY, INTEREST EARNED WOULD FALL UNDER T HE HEAD INCOME FROM OTHER SOURCES AND IN THAT EVEN THE EXEMPTION 80P(2 )(A)(I) WOULD NOT BE AVAILABLE THEREON. THE LD. CIT(A) ALSO DISTINGUISHE D THE DECISIONS RELIED ON BY THE ASSESSEE. AS REGARDS TO THE OTHER ASPECT OF INTEREST EXPENDITURE BEING MORE THAN THE INTEREST INCOME EARNED, THE ASS ESSEE SUBMITTED THAT PAGE 4 OF 13 - I.T.A.NOS. 628/IND/2007 & 239/IND/0 8 NAVAL SINGH SAHKARI SHAKKAR KARKHANA LTD.,BURHANPUR THE ASSESSEE SOCIETY CHARGED RS. 17/- FROM BORROWER S, WHICH HAD BEEN CREDITED IN PROFIT AND LOSS ACCOUNT OF THE SOCIETY AND NO OTHER EXPENDITURE HAD BEEN INCURRED TO EARN SUCH INTEREST INCOME. HEN CE, THE WHOLE OF THE AMOUNT OF SUCH INTEREST WAS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. THE LD. CIT(A), HOWEVER, HELD THAT IN THE ABSE NCE OF EVIDENCE REGARDING THE SOURCE OF ADVANCE/LOANS GIVEN TO ITS MEMBERS, THE A.OS ACTION WAS CORRECT IN PRINCIPLE AND SINCE THE ASSES SEE WAS HELD AS NOT ELIGIBLE FOR DEDUCTION ON SUCH INTEREST INCOME OUT- RIGHTLY, HENCE, THIS GROUND WAS INFRUCTUOUS. AGGRIEVED BY THIS, THE ASSE SSEE IS IN APPEAL BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE NARRATED THE F ACTS, REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES AND PLACED HEAVY RELIANCE ON THE ORDER OF THE HON'BLE A LLAHBAD HIGH COURT IN THE CASE OF CIT VS. KRISHAK SAHKARI GANNA SAMITI LI MITED AS REPORTED IN 258 ITR 594, WHEREIN THE HON'BLE ALLAHABAD HIGH COU RT HAD HELD HAT INTEREST REALIZED BY THE ASSESSEE SOCIETY FROM ITS MEMBERS ON AMOUNT ADVANCED/LOANED TO THEM WAS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT, ALTHOUGH THE ASSESSEE SOCIETY HAD BEEN FORMED WITH THE MAIN OBJECT OF THE ORGANIZING INCREASE IN SUGAR CULTIVATION/PRO CUREMENT. THE LEARNED COUNSEL FURTHER PLACED RELIANCE ON THE DECISION OF THE INDORE BENCH OF THE TRIBUNAL IN THE CASE OF M.P. STATE COOP. SOCIETY FE DERATION LIMITED VS. PAGE 5 OF 13 - I.T.A.NOS. 628/IND/2007 & 239/IND/0 8 NAVAL SINGH SAHKARI SHAKKAR KARKHANA LTD.,BURHANPUR ACIT, BHOPAL, AS REPORTED IN 11 ITJ 643, WHEREIN TH E TRIBUNAL AFTER CONSIDERING VARIOUS JUDICIAL DECISIONS HELD THAT IN TEREST ON ADVANCES TO EMPLOYEES/MEMBERS BY THE FEDERATION HAVING MAIN OB JECT AS TO PROVIDE RESIDENTIAL FACILITIES TO THEM THROUGH THE JURISDIC TION WAS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. THEREAFTER, THE LEARNED COUNSEL REFERRED TO THE DECISION OF THE HON'BLE SUPREME COU RT IN THE CASE OF CIT VS. PONNY SUGARS AND CHEMICALS LIMITED VS. OTHERS, AS REPORTED IN 219 CTR 105, WHEREIN THE HON'BLE SUPREME COURT REMANDED THE MATTER BACK TO THE TRIBUNAL TO EXAMINE THE MEMORANDUM OF ASSOCI ATION/ARTICLES OF ASSOCIATION SO AS TO FIND OUT THE FACT WHETHER THE ASSESSEE WAS ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CR EDIT FACILITIES TO ITS MEMBERS TO GET EXEMPTION U/S 80P(2)(A)(I). HOWEVER, IN THE PRESENT CASE, IT WAS EVIDENT FROM THE ANCILLARY CLAUSES OF THE OB JECT/BY-LAWS OF THE ASSESSEE SOCIETY THAT SUCH ACTIVITY WAS DULY AUTHOR IZED AND IT WAS ONE OF THE ACTIVITIES OF THE ASSESSEE SOCIETY. IN THIS REG ARD, THE LEARNED COUNSEL FURTHER EMPHASIZED ON THE FACT THAT IT WAS NOT THE INTENTION OF THE LEGISLATURE NOR ANY SPECIFIC PROVISION WAS MADE THA T TO AVAIL DEDUCTION U/S 80P(2)(A)(I), THE ASSESSEE MUST EXCLUSIVELY BE ENGA GED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE LEARNED COUNSEL, THE REAFTER, INITIATED HIS ARGUMENTS ON THE SECOND ASPECT AND CONTENDED THAT I N THE PRESENT CASE, SEPARATE RECORDS OF SUCH LOANS/ADVANCES HAD BEEN MA INTAINED AND SOURCE PAGE 6 OF 13 - I.T.A.NOS. 628/IND/2007 & 239/IND/0 8 NAVAL SINGH SAHKARI SHAKKAR KARKHANA LTD.,BURHANPUR OF SUCH FUNDS WAS NECESSARILY CURRENT ACCOUNT OF TH E ASSESSEE SOCIETY, WHEREIN SALE PROCEEDS HAD BEEN CREDITED AND REPAYME NT OF EARLIER LOANS BY THE FARMERS. HENCE, THERE WAS NO QUESTION OF NE TTING/SET OFF OF SUCH INCOME WITH THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE SOCIETY, WHICH WAS PAID ON LOANS BORROWED FOR PURCHASE OF SU GAR CANE/ STORES/CONSUMABLES BILLS ONLY. THE LEARNED COUNSEL FURTHER SUBMITTED THAT THE DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. RAJASTHAN RAJYA SAHKARI UPBHOKTA SANGH LIMITED RELI ED ON BY THE ASSESSING OFFICER WAS NOT APPLICABLE FOR THE REASON S MENTIONED HEREINABOVE AS WELL AS FOR THE REASON THAT IT WAS N OT A CASE OF COMPOSITE ACCOUNT. 7. THE LD. SENIOR A.R. REPRESENTED THE DEPARTMENT, NAR RATED THE FACTS AND PLACED STRONG RELIANCE ON THE ORDERS OF T HE REVENUE AUTHORITIES. 8. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 9. IT IS NOTED THAT THE ASSESSEE IS A COOPERATIVE SOC IETY HAVING MAIN OBJECT OF MANUFACTURING AND SALE OF SUGAR. AS PER THE BYLAWS OF THE ASSESSEE SOCIETY, IT ALSO GIVES LOAN/ADVANCE TO FAR MERS, WHEREON IT CAN CHARGE INTEREST. THOUGH SUCH ACTIVITY STATED TO BE INCIDENTAL OR ANCILLARY TO THE MAIN OBJECT OF THE SOCIETY, IN OUR VIEW, THE SA ME IN ITSELF IS A BUSINESS ACTIVITY AS IT HAS BEEN DONE IN A REGULAR MANNER. H ENCE, WE HOLD THAT THE PAGE 7 OF 13 - I.T.A.NOS. 628/IND/2007 & 239/IND/0 8 NAVAL SINGH SAHKARI SHAKKAR KARKHANA LTD.,BURHANPUR LD. CIT(A)S ACTION OF ONLY REFERRING TO THE MAIN O BJECTS OF THE SOCIETY IN DETERMINING THE NATURE OF INTEREST INCOME AND HEAD OF ASSESSABILITY THEREOF IS NOT CORRECT IN LAW. WE ALSO FIND IN THE CASE OF PONNY SUGARS AND CHEMICALS LIMITED & OTHERS (SUPRA), THE HON'BLE SUP REME COURT REMANDED THE MATTER BACK TO THE TRIBUNAL TO EXAMINE WHETHER THE SAID COOP. SOCIETY HAD ENGAGED ITSELF IN CARRYING ON ANY OF THE SEVERAL BUSINESSES, REFERRED TO IN SUB SECTION (2) OF SECTI ON 80P AND FOR THAT PURPOSE, THE TRIBUNAL WAS REQUIRED TO EXAMINE THE M EMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION. THE ABOVE OBSERVATIONS OF HON'BLE SUPREME COURT CLEARLY INDICATE THAT IF AN A CTIVITY IS MENTIONED IN MEMORANDUM OF ASSOCIATION OR ARTICLES OF ASSOCIATIO N OR IN THE TRUST DEED AS AN ACTIVITY OF PROVIDING CREDIT FACILITY TO ITS MEMBERS BY WAY OF LOANS/ADVANCES, THEN THE SAID SOCIETY WOULD HAVE TO BE CONSIDERED AS A SOCIETY ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. WE ARE FURTHER OF THE VIEW THAT U/S 80P(2) , THE ACTIVITIES, WHERE ON THE ASSESSEE CAN CLAIM DEDUCTION U/S 80-P HAVE O NLY BEEN MENTIONED AND IT HAS NOT BEEN PROVIDED IN ANY OTHER PROVISION S OF SECTION 80P THAT THE ASSESSEE, TO CLAIM EXEMPTION U/S 80-P, MUST ONL Y BE ENGAGED IN THAT ACTIVITY. TO PUT IT DIFFERENTLY, IT IS NO WHERE PRO VIDED THAT IF AN ASSESSEE IS CARRYING ON AN ACTIVITY, THE INCOME WHERE OF IS TAX ABLE, THEN IT CANNOT HAVE A BUSINESS ACTIVITY, THE INCOME WHERE OF CAN B E EXEMPT U/S 80-P OF PAGE 8 OF 13 - I.T.A.NOS. 628/IND/2007 & 239/IND/0 8 NAVAL SINGH SAHKARI SHAKKAR KARKHANA LTD.,BURHANPUR THE ACT. IN THIS REGARD, WE FIND SUPPORT FROM THE V IEW OF HON'BLE SUPREME COURT IN THE CASE OF KERALA STATE COOP. MARKETING F EDERATION LIMITED & OTHERS VS. CIT, AS REPORTED IN 231 ITR 814, WHEREIN THE HON'BLE SUPREME COURT HELD AS UNDER :- SECTION 80P OF THE INCOME-TAX ACT, 1961, IS INTRO DUCED WITH A VIEW TO ENCOURAGING AND PROMOTING THE GROWTH OF THE CO-OPERATIVE SECTOR IN THE ECONOMIC LIFE OF THE COU NTRY AND IN PURSUANCE OF THE DECLARED POLICY OF THE GOVERNMENT. THE CORRECT WAY OF READING THE DIFFERENT HEADS OF EXEMP TION ENUMERATED IN THE SECTION WOULD BE TO TREAT EACH AS A SEPARATE AND DISTINCT HEAD OF EXEMPTION. WHENEVER A QUESTION ARISES AS TO WHETHER ANY PARTICULAR CATEGO RY OF AN INCOME OF A CO-OPERATIVE SOCIETY IS EXEMPT FROM TAX WHAT HAS TO BE SEEN IS WHETHER THE INCOME FELL WITHIN ANY OF THE SEVERAL HEADS OF EXEMPTION. IF IT FELL WITHIN ANY O NE HEAD OF EXEMPTION, IT WOULD BE FREE FROM TAX NOTWITHSTANDIN G THAT THE CONDITIONS OF ANOTHER HEAD OF EXEMPTION ARE NOT SAT ISFIED AND SUCH INCOME IS NOT FREE FROM TAX UNDER THAT HEA D OF EXEMPTION. PAGE 9 OF 13 - I.T.A.NOS. 628/IND/2007 & 239/IND/0 8 NAVAL SINGH SAHKARI SHAKKAR KARKHANA LTD.,BURHANPUR 10. HAVING STATED SO, IN OUR VIEW, THE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT IN THE ASSESSEE OF KRISHAK SAH KARI GANNA SAMITI LIMITED (SUPRA), STRONGLY SUPPORTS THE CLAIM OF THE ASSESSEE, WHEREIN THE ACTIVITY OF GIVING LOANS AND ADVANCE TO ITS MEMBERS BY THE SOCIETY HAVING MAIN OBJECT OF ORGANIZING INCREASE IN SUGAR CULTIVA TION AND PURCHASE AND SALE OF SUGAR CANE CROP WAS FOUND TO BE AN ACTIVITY OF PROVISION OF CREDIT FACILITY TO ITS MEMBERS AND, THEREFORE, INTEREST RE CEIVED BY THE SOCIETY THEREON WAS FOUND ELIGIBLE FOR DEDUCTION UNDER SUB CLAUSE (I) OF CLAUSE (A) OF SUB SECTION (2) OF SECTION 80P OF THE ACT. WE FU RTHER FIND THAT THE DECISION OF THE HON'BLE A.P. HIGH COURT IN THE CASE OF ANAKKAPALLI COOP. MARKETING SOCIETY LIMITED (SUPRA) IS NOT APPLICABLE FOR THE REASON THAT THE ASSESSEE SOCIETY, IN THAT CASE, WAS NOT FOUND T O HAVE PROVIDED ANY CREDIT FACILITY ON ITS OWN AND THE INCOME FROM CERT IFICATION CHARGES, RECEIVED FROM ITS MEMBERS ON LOAN RECEIVED BY THEM FROM BANK COULD NOT BE CONSIDERED AS OF THE NATURE OF INCOME OF THE BUS INESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, WHEREAS IN THE PR ESENT CASE, THE ASSESSEE HAS EARNED THE INTEREST ON GIVING LOANS AND ADVANCE TO ITS MEMBERS. THEREFORE, IN VIEW OF THE ABOVE FACTS AND LEGAL POS ITION, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR REDUCTION U/S 80-P OF THE ACT ON SUCH INTEREST INCOME. AS REGARDS TO THE OTHER ASPECT OF QUANTUM O F DEDUCTION I.E. WHETHER IT WOULD BE OF GROSS OR NET INTEREST, IN OU R VIEW, THERE CANNOT BE PAGE 10 OF 13 - I.T.A.NOS. 628/IND/2007 & 239/IND/ 08 NAVAL SINGH SAHKARI SHAKKAR KARKHANA LTD.,BURHANPUR ANY DISPUTE THAT THE DEDUCTION U/S 80P IS TO BE GIV EN ONLY ON NET INTEREST INCOME. IN THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT ENOUGH EVIDENCES BEFORE US TO SHOW THAT SUCH I NTEREST INCOME WAS EARNED ON LOANS/ADVANCES GIVEN FROM ITS SURPLUS FUN D OR FUNDS MOBILIZED THROUGH REPAYMENT OF EARLIER LOANS AND EXPENDITURE IN THE FORM OF ADMINISTRATIVE EXPENSES HAD ALSO BEEN CLAIMED FROM SUCH MEMBERS AND, THEREFORE, WE HOLD THAT GROSS AMOUNT OF SUCH INTERE ST IS ELIGIBLE FOR DEDUCTION U/S 80-P OF THE ACT. THUS, BOTH THE GROUN DS OF THE ASSESSEE STAND ALLOWED. 11. IN THE RESULT, THE ASSESSEES APPEAL STANDS ALLOWED . 12. NOW, WE SHALL TAKE UP THE ASSESSEES APPEAL IN I.T. A.NO. 239/IND/2008 FOR ASSESSMENT YEAR 2005-06. 13. THE ISSUE RAISED IN GROUND NO.1 IS IDENTICAL TO ISS UE RAISED IN GROUND NO.1 OF ASSESSEES APPEAL IN I.T.A.NO. 628/I ND/2007. HENCE, FOLLOWING THE SAME REASONS, THIS GROUND OF THE ASSE SSEE STANDS ALLOWED. 14. IN GROUND NO.2, THE ASSESSEE IS AGGRIEVED BY THE D ECISION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 20 LAKHS MADE BY THE ASSESSING OFFICER BY HOLDING THAT SUCH CONTRIBUTION WAS NOT AN ALLOWABLE DEDUCTION U/S 40A(9) OF THE ACT. 15. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE MADE A C ONTRIBUTION OF RS. 20 LAKHS TO NAVAL COPS WELFARE TRUST, WHICH HAD BEEN FORMED FOR PAGE 11 OF 13 - I.T.A.NOS. 628/IND/2007 & 239/IND/ 08 NAVAL SINGH SAHKARI SHAKKAR KARKHANA LTD.,BURHANPUR PROVIDING MEDICAL AND OTHER WELFARE FACILITIES TO T HE EMPLOYEES OF THE ASSESSEE. THE A.O. REQUIRED THE ASSESSEE TO EXPLAIN AS TO HOW THIS AMOUNT WAS ELIGIBLE FOR DEDUCTION AS BUSINESS EXPENDITURE. THE ASSESSEE SUBMITTED THAT A TRUST HAD BEEN FORMED TO GIVE INCE NTIVE TO EMPLOYEES, SO THAT THEY COULD RENDER SERVICES MORE SINCERELY AND DEVOTEDLY. THE A.O., HOWEVER, HELD THAT THE TRUST HAD NOT BEEN APPROVED BY THE COMMISSIONER YET. HENCE, SUCH CONTRIBUTION BY THE ASSESSEE SOCIE TY WAS NOT ALLOWABLE AS REVENUE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER INTO APPEA L BEFORE THE LD. CIT(A), WHO AFTER CONSIDERING THE FACTUAL MATRIX AS WELL AS THE PROVISIONS OF SECTION 40A(9) HELD THAT SUCH EXPENDITURE WAS NOT A LLOWABLE. THE LD. CIT(A) ALSO HELD THE CONTRIBUTION SO MADE BY THE AS SESSEE WAS TOWARDS THE CORPUS, HENCE OF CAPITAL NATURE AND, THEREFORE, NOT ALLOWABLE. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 16. THE LEARNED COUNSEL NARRATED THE FACTS AND MAINLY P LACED RELIANCE ON THE DECISION OF THE HON'BLE RAJASTHAN H IGH COURT IN THE CASE OF CIT VS. SHREE RAJASTHAN SYNTHETICS LIMITED AS RE PORTED IN 18 DTR 25, WHEREIN THE HON'BLE COURT HAD HELD THAT CONTRIBUTIO N GIVEN BY THE ASSESSEE COMPANY TO A TRUST FOR CONSTRUCTION OF SCH OOL BUILDING AND CONTRIBUTION GIVEN TO EMPLOYEES WELFARE FUND WERE A LLOWABLE AS BUSINESS PAGE 12 OF 13 - I.T.A.NOS. 628/IND/2007 & 239/IND/ 08 NAVAL SINGH SAHKARI SHAKKAR KARKHANA LTD.,BURHANPUR EXPENDITURE AND COULD NOT BE DISALLOWED U/S 40A(9) OF THE ACT. IT WAS ALSO CONTENDED THAT IT WAS THE SOLE DECISION OF THI S ASPECT, HENCE, BINDING. 17. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, CONTENDED THAT IT WAS A DECISION OF A NON-JUDICIAL HIGH COURT, HENCE, IT WAS NOT BINDING. IT WAS FURTHER CONTENDED THAT PROV ISIONS OF SECTION 40A(9) WERE OF OVERRIDING NATURE AND SUCH EXPENDITU RE DID NOT MEET THE REQUIREMENTS OF PROVISIONS OF THIS SECTION, HENCE, THE LD. CIT(A)S DECISION WAS CORRECT IN LAW. 18. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 19. IT IS NOTED THAT SUCH EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE SOCIETY BY CONTRIBUTING THE SAME TOWARDS W ELFARE TRUST FORMED WITH THE OBJECTIVE OF PROVIDING MEDICAL FACILITIES TO ITS EMPLOYEES AT A CONCESSIONAL RATE. IN OUR OPINION, THE PROVISIONS O F SECTION 40A(9) ARE SPECIFIC AND, IN THE PRESENT CASE, THE ASSESSEE HAS NOT MET THE REQUIREMENTS OF THE PROVISIONS OF THIS SECTION. IT IS ALSO A SETTLED PROPOSITION THAT SPECIAL PROVISIONS HAVE TO BE GIVE N EFFECT OVER THE GENERAL PROVISIONS. HENCE, THIS EXPENDITURE CANNOT BE ALLOWED U/S 37(1) OF THE ACT. FURTHER, PROVISIONS OF SECTION 40A(9) O VER-RIDE THE PROVISIONS OF SECTION 37(1) ALSO. AS REGARDS TO THE RELIANCE P LACED BY THE LEARNED COUNSEL ON DECISION OF THE HON'BLE RAJASTHAN HIGH C OURT IN THE CASE CIT PAGE 13 OF 13 - I.T.A.NOS. 628/IND/2007 & 239/IND/ 08 NAVAL SINGH SAHKARI SHAKKAR KARKHANA LTD.,BURHANPUR VS. SHREE RAJASTHAN SYNTHETICS LIMITED (SUPRA), WE MOST HUMBLY SUBMIT THAT THIS IS A DECISION OF A NON JURISDICTIONAL HIG H COURT AND AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF THANE ELECTRICITY AND HON'BLE GUJARAT HIGH COURT IN SOME OTHER DECISIONS, THIS IS NOT BINDING ON US. HENCE, WE MOST RESPECTFULLY DECLINE TO FOLLO W THE SAME IN VIEW OF THE SPECIFIC PROVISIONS OF LAW AS CONTAINED IN SECT ION 40A(9) OF THE ACT. THUS, THIS GROUND OF THE ASSESSEE IS DISMISSED. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STA NDS PARTLY ALLOWED. 21. TO SUM UP, APPEAL IN I.T.A.NO. 628/IND/2007 STANDS ALLOWED AND APPEAL IN I.T.A.NO. 239/IND/2008 STANDS PARTLY ALLOWED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 10 TH MARCH, 2010. SD/- SD/- (JOGINDER SINGH) (V. K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :10 TH MARCH, 2010. CPU* 893