PRINCIPAL COMMISSIONER OF INCOME TAX, GANDHINAGAR V. GUJARAT STATE CIVIL SUPPLIES CORPORATION LIMITED

TAXAP/1059/2017

AI Insights

The case involves the Principal Commissioner of Income Tax, Gandhinagar, as the appellant, and the Gujarat State Civil Supplies Corporation Limited as the respondent. The core issue was whether a surplus of Rs.67,16,76,274 generated by the Corporation, which is an arm of the State Government responsible for public distribution of essential commodities, should be taxed as income. The Assessing Officer had treated this surplus as taxable income for the assessment year 2010-11. However, both the Commissioner of Income Tax (Appeals) and the Tribunal found that this surplus was not income but a fund retained for government purposes, based on various government resolutions and the nature of the Corporation's relationship with the government.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 727934 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 26-02-2018
• Assessment Year: misc
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MANISH SHAH
• Assessee Lawyers: MAUNA BHATT
• Keywords: Income Tax; Public Distribution; Government Resolutions; Surplus Retention

Judgement Text

"C/TAXAP/1059/2017 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1059 of 2017 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX, GANDHINAGAR Versus GUJARAT STATE CIVIL SUPPLIES CORPORATION LIMITED ========================================================== Appearance: MRS MAUNA M BHATT for the PETITIONER(s) No. 1 MR MANISH J SHAH for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 26/02/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The appeal is filed by the Revenue challenging the judgment of the Income Tax Appellate Tribunal dated 01.06.2017 raising following questions for our consideration: “[A] Whether the Appellate Tribunal has erred in law and on facts of the case in upholding the order of the CIT(A) wherein the CIT(A) deleted the addition of Rs.67,16,76,274/­ to the total income by holding that it is surplus out of activities carried for and on behalf of Government of Gujarat? [B] Whether the Appellate Tribunal has erred in law and on facts of the case in deleting the sum of Rs.2,87,265/­ treating it as “sales return” and not prior period expenditure?” 2. We have focused only on the first question since the second question is of only small amount and can Page 1 of 4 C/TAXAP/1059/2017 ORDER be considered in an appropriate case. The first issue pertains to addition of Rs.67,16,76,274/­ made by the Assessing Officer with the net income of the respondent assessee. Respondent assessee is Gujarat State Civil Supplies Corporation Limited constituted specially by the Government of Gujarat for carrying out public distribution of various commodities, particularly the food grains. The Government of Gujarat permits a fixed commission to be retained by the Corporation in the course of carrying out this important function of public distribution which is of great importance for the citizens at large and in particular those belonging to lower income strata. 3. For the year under consideration i.e. assessment year 2010­11, the Assessing Officer noticed that the Corporation had a net surplus of Rs.67.16 crores after all the expenditures were accounted for. He therefore held that the said amount represented the profit generated by the Corporation and therefore, was required to be brought to tax. He accordingly framed the assessment. 4. Commissioner of Income Tax (Appeals) as well as Page 2 of 4 C/TAXAP/1059/2017 ORDER the Tribunal were of the opinion that the amount did not represent the income of the Corporation and therefore, could not be taxed. The order passed by the Commissioner of Income Tax (Appeals) is more elaborate. He has taken into account the precise nature of relationship between the Government of Gujarat and the Corporation and different Government Resolutions under which such commission was paid and surplus allowed to be retained. Essentially the Commissioner of Income Tax (Appeals) as well as the Tribunal both were of the opinion that the surplus was nothing but the Government fund which the Corporation was allowed retain by the Government under different Government Resolutions and conscious decision by the Government. 5. We are broadly in agreement with the view expressed. Essentially, Corporation is an arm of the State Government and carrying out an important and essential function of the State of public distribution of essential commodities. Additionally, the Assessing Officer in the past had accepted the accounting treatment given by the Corporation. Page 3 of 4 C/TAXAP/1059/2017 ORDER 6. Tax Appeal is dismissed. (AKIL KURESHI, J.) (B.N. KARIA, J.) ANKIT SHAH Page 4 of 4 "