Gujarat High Court
Commissioner Of Income-Tax vs Surat Jilla Kamdar Sahakari Sangh Ltd. on 8 September, 1992
Equivalent citations: [1993]200ITR157(GUJ)
Author: S.B. Majmudar
Bench: S.B. Majmudar
JUDGMENT S.D. Shah, J.
1. On being moved by the Revenue, the Income-tax Appellate Tribunal has referred the following question of law for our opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that an amount of Rs. 16,750 was allowable as revenue expenditure ?"
2. After hearing learned counsel for both the parties, we found that the question referred to us is required to be reframed so as to give proper effect to the question in fact arising from the statement of the case stated by the Tribunal. The question is, accordingly, reframed as under :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that an amount of Rs. 16,750 was allowable by way of overriding payment to the Government ?"
3. In order to answer the aforesaid question, it would be necessary to set out a few relevant facts herein :
(i) The assessee is a co-operative society. It received a sum of Rs. 3 lakhs from the Gujarat Government as loan on subsidised rate of interest at the rate of 2.5 per cent. per annum only and the loan was given by the Government with a view to foster and develop employment-oriented business activity in the rural areas. The relevant terms and conditions subjects to which the loan was given are reproduced herein :
"Every year, the Sangh has to provide 25 per cent. out of gross profit towards loan charges to the Government."
4. Clause (7) of the said terms and conditions provides as under :
"Rs. 3,35,008 be repayable in five equal annual instalments. The guarantee amounts at 1/2 per cent. shall be remitted to the Government treasury."
5. If both the clauses are read together, it would be clear that the loan was to be repaid by the assessee in five equal annual instalments. Over and above the liability to repay the loan, the assessee was required to make a provision at the rate of 25 per cent. out of the gross profits towards loan charges which were payable by the assessee to the Government. This was, admittedly, to be paid by the assessee to the Government over and above the repayment of the loan. In the previous year, the assessee claimed an amount of Rs. 16,750 as deduction by way of overriding payment made by the assessee to the Government. The Income-tax Officer disallowed the said claim. On appeal to the Appellate Assistant Commissioner, the said claim was allowed on the ground that the assessee received the loan from the Government at a subsidised rate of interest and as per the terms and conditions of the loan, provision of Rs. 9,750 and Rs. 7,000 was made in the two accounts, and there was, thus, overriding title to the income of the assessee to the above extent, i.e., to an extent of Rs. 16,750.
6. Being aggrieved by the order the Appellate Assistant Commissioner, the matter was carried further in second appeal to the Tribunal and the tribunal confirmed the order of the Appellate Assistant Commissioner which has given rise to the aforesaid question of law for our opinion.
7. In view of the terms and conditions subject to which the loan was advanced to the assessee by the Government at a subsidised rate of interest, it leaves no room for doubt that the assessee was required to make a provision at the rate of 25 per cent. out of the gross profits towards loan charges to the Government. The aforesaid amount was to be paid by the assessee to the Government over and above the repayment of the said loan in five equal annual instalments. It is, thus, clear that the charge was created in favour of the Government over the said amount and the assessee was liable to pay up the said amount to the Government. The said amount, in fact, did not belong to the assessee and by way of overriding title which was created in favour of the Government under the terms and conditions of loan, the amount was required to be passed over to the Government. This position clearly emerges from the terms and conditions of the agreement of loan, and in our opinion, if the said terms and conditions are properly construed, as is done by the Appellate Assistant Commissioner, there is no scope for reference of the question which is referred for our opinion. In fact, the Appellate Assistant Commissioner has rightly construed the terms and conditions of the loan and has correctly reached the findings of fact that the assessee was required to utilise the loan for the very purpose for which it was granted with 25 per cent. of the net profit and to create reserve. In fact the said amount of 25 per cent. was to be passed over by the assessee to the Government under the terms and conditions of the loan, and, therefore, there was overriding title to the said income in favour of the Government. In view of the said factual position that emerges from the terms and conditions of the loan and the findings of fact reached by the Appellate Assistant Commissioner, and confirmed by the Tribunal, in our opinion, in fact, no question of law arises which requires an answer from this court.
8. The question which we have reframed as stated hereinabove is, accordingly, required to be answered in the affirmative, i.e., in favour of the assessee and against the Revenue. No costs.