Income Tax Appellate Tribunal - Pune
Shrigonda S. S. K. Ltd. vs Deputy Commissioner Of Income Tax on 18 September, 1998
Equivalent citations: (1998)62TTJ(PUNE)646
ORDER
B. L. Chhibber, AM.
This appeal by the assessee is directed against the order of the Commissioner (Appeals), Nashik.
2. The assessee is a co-operative society engaged in the manufacture and sale of sugar. The first ground raised in the appeal by the assessee relates to the confirmation of the additions made on account of the following funds/deposits :
(a) Non-refundable deposits (b) Sugarcane development fund (c) Chief Minister's fund (d) Chief Minister's Relief fund (e) Hutment fund (f) Education fund Rs.
(a) Non-refundable deposits 16,40,121
(b) Sugarcane development fund 13,87,096
(c) Chief Ministers fund 1,44,137
(d) Chief Ministers Relief fund 3,77,178
(e) Hutment fund 1,55,278
(f) Education fund 15,916 It is the common contention of both the sides that the issues involved in the above ground stand covered in favour of the assessee and against the revenue by the decision of the Special Bench of the Tribunal in the case of Shri Chhatrapati SSK Ltd. v. Dy. CIT (1992) 43 TTJ (Pune-Trib) (SB) 90 : (1992) 198 ITR 78 (AT) (Pune)(SB). Following the aforesaid order of the Special Bench, we delete the additions. The assessee succeeds on this ground.
3. The next grievance of the assessee is that the authorities below are not justified in disallowing a sum of Rs. 1,01,546 on account of guest-house expenses. At the time of hearing, this ground was not pressed. The same is accordingly dismissed.
4. The next grievance of the assessee is that the authorities below are not justified in disallowing a sum of Rs. 1, 115 on account of depreciation on guest house. At the time of hearing, this ground was not pressed. The same is accordingly dismissed.
5. The next grievance of the assessee is that the authorities below are not justified in disallowing a sum of Rs. 39,695 on account of ceremonial expenses.
The assessee claimed the expenses incurred on various ceremonial functions The assessing officer disallowed one-half of the claim. On appeal, the Commissioner (Appeals) confirmed the action of the assessing officer.
6. In our view, the disallowance made by the authorities below is rather excessive. We direct the assessing officer to restrict the disallowance to 1/4th of the claim. This ground succeeds in part.
7. The next ground is in respect of disallowance of the expenses incurred on :
Rs.
(i) Flood rehabilitation expenses 37,137
(ii) Cattle camp expenses 1,19,393
(iii) 20-point programme expenses 73,275
(iv) Gobar gas subsidy expenses 53,625
(v) Artificial insemination expenses 42,710 The assessing officer observed that the expenditure on flood rehabilitation was of charitable nature and it was not connected with the manufacturing activity of the assessee-society. As regards the remaining expenses, the assessing officer observed that the same were not relevant with the carrying on of sugar manufacturing activity. He, therefore, held these expenses as not allowable.
8. On appeal, the Commissioner (Appeals) confirmed the action of the assessing officer observing as under :
"I have considered the contentions of the appellant. The appellant has not been able to say as to how these expenses are incidental to the activity of the appellant. The fact that the same were incurred under the government orders or resulted into and indirect benefit to the appellant does not by itself justify that the expenditure was incurred exclusively and necessarily for business purposes or was incidental to carrying on the business activity. The assessing officer was, therefore, justified in disallowing the aforesaid amounts. The disallowance is maintained."
9. S. N. Doshi, the learned counsel for the assessee, submitted that these expenses were incurred as per the directions issued by the State Government through District Collector, Tahsildar, etc., from time to time. These directions were binding on the society and the expenses on these various development programmes had to be incurred by the assessee-society. He took us through such directions issued by the State Government from time to time which have been placed in the paper-book. According to the learned counsel the affairs of the co-operative society are governed by the provisions of the Maharashtra State Co-operative Societies Act, 1960. He drew our attention to section 79A of the above Act and submitted that the State Government is empowered to issue directions to the co-operative societies for participating in the expenses to be incurred on the various development programmes launched in the public interest. He especially drew our attention to sub-section (1) of section 79A of the said Act which, according to him, clearly states that every co-operative society shall be bound to comply with such directions. He further drew our attention to sub-section (3) of section 79A of the above Act which further provides that any failure on the part of member of the committee of the society or on the part of employee of the society entails the removal of such member from the committee and declare such member to be disqualified for a period of six years and in case of employee the Registrar shall direct the committee to remove such person from employment . The Registrar accordingly initiates action even to the extent of supersession of the committee of the society. From the above, the learned counsel submitted that it was amply clear that these directions are statutory directions and, therefore, in compliance of such directions any expenditure incurred by the society has to be held as part of the business expenditure of the society. These being the statutory directions which have to be complied with or else existence of the society itself is at stake and, therefore, if the society has to remain in existence and in business, it has no alternative but to obey and comply these statutory directions regardless of the fact whether such expenditure has nexus to the nature of business carried on by the society. In support of his contentions, he relied upon the judgment of the Madhya Pradesh High Court in CIT v. M. P. State Handloom Weavers' Co-op. Society (1998) 233 ITR 62 (MP) and the judgment of the Bombay High Court in Krishna S.S.K. Ltd. v. CIT (1998) 229 ITR 577 (Bom).
10. Adhir Jha, the learned Departmental Representative, strongly supported the orders of the authorities below. He submitted that majority of the expenditure incurred by the assessee was charitable/philanthropic in nature and accordingly had no connection with the business of carrying on or manufacture of sugar. In support of his contentions, he relied upon Voltas Ltd. v. CIT(1993) 114 CTR (Bom) 274 and the judgment of the Gujarat High Court in the case of CIT v. Navsan Cotton & Silk Mills Ltd. (1982) 135 ITR 546 (Guj).
11. We have considered the rival submissions and perused the facts on record. We have perused the various provisions of the Maharashtra State Co-operative Societies Act, 1960, brought to our notice by the learned counsel and under which the assessee co-operative society was governed. Sub-section (3) of section 79A of the said Act clearly provides that any failure on the part of member of the committee of the society or on the part of employee of the society entails the removal of such member from the committee and declare such member to be disqualified for a period of six years and in case of employee the Registrar shall direct the committee to remove such person from employment. The Registrar accordingly initiates the action even to the extent of supersession of the committee of the society. There was flood in the area in which the society operates and accordingly the Collector of the District directed the assessee to provide relief to the farmers who contribute sugarcane to the factory of the assessee. Similarly, when there was shortage of fodder in the area, the assessee was directed to arrange cattle camps and under the directions of the government, the assessee had to incur an expenditure of Rs. 1,99,393 on such cattle camps. The relief was provided to the cattle of the farmers who produce sugarcane for the assessee society by ploughing the land with the help of such cattles. Similarly, a sum of Rs. 42,710 was spent on artificial insemination of such cattle which had direct nexus with the business of the assessee-society. Similar is the position of expenses incurred on 20-point programme expenses and gobar gas subsidy expenses which were incurred under the directions of the government and the benefits of which flowed to farmers of the area who supplied sugarcane to the assessee society. Thus, it is very clear that these expenses were incurred under the specific directions of the government and were meant for the welfare of the farmers and their cattle who supplied sugarcane to the assessee-society. Thus, the expenses have nexus with the business being carried on by the assessee-society. These expenses were necessitated by business considerations and were not in the nature of charity as held by the authorities below. The case of the assessee gets support from the judgment of the Madhya Pradesh High Court in the case of CIT v. M. P. State Handloom Weavers' Co-op. Society (supra). In this case, the court has based its judgment on the interpretation and appreciation of section 49C of the Madhya Pradesh Co-opperatives Act, 1960. This section is reproduced by the court in its order. It is seen and appreciated that the said section 49C is exactly identical in every respect of section 79A of the Maharashtra State Co-opperative Societies Act, 1960. Reference is also invited to the judgment of the Bombay High Court in Krishna S.S.K. Ltd. (supra) wherein contribution made by the co-opperative society to education fund set up by the government being made as per the statutory provision of Maharashtra State Co-operative Societies Act is held to be an allowable expenditure being in the nature of statutory obligations and hence such contribution is directly related to carrying on of the business.
12. Coming to the cases relied upon by the learned Departmental Representative, we must submit that the facts of those two cases are distinguishable from the facts of the case before us. In the case of Navsari Cotton & Silk Mills Ltd. (supra), the Hon'ble Gujarat High Court held that contribution made to municipality for providing underground pipeline through municipal land for disposal of effluents is allowable business expenditure. In fact, this judgment goes in favour of the assessee. The Hon'ble High Court has laid some positive tests and some negative tests and one of the negative tests is that if the expenditure mainly satisfies philanthropic urges, the same may not be allowed. In the case before us, contributions were made under statutory directions and for the welfare of the constituents of the society and not to satisfy the society's philanthropic urges. In Voltas Ltd. (supra) the assessee made contribution to refugee relief project, i.e., towards Tata Refugee Relief Project. Since the contribution was made to a fairly laudable object which had no nexus with the business being carried on by the assessee, the same was held as "clearly a donation". In the case before us, the expenses were incurred under the government directions as statutory obligation towards the constituents of the assessee-society. Accordingly, the ratio laid down by the Hon'ble Bombay High Court in the case of Voltas Ltd. (supra) is not applicable to the facts of the case before us.
13. In the light of above discussion, the expenditure incurred by the assessee on the above items under the directions of the State Government are held to be directly related to the business of the society and accordingly allowable expenditure. The above additions are accordingly deleted.
14. The next grievance of the assessee is that the authorities below are not justified in disallowing a sum of Rs. 24,616 on account of subscription. At the time of hearing, this ground was not pressed. The same is accordingly dismissed.
15. The next grievance of the assessee relates to administrative expenses. The assessee claimed a sum of Rs. 19,303. These expenses are in the nature of providing tea and snacks to customers and employees. Since some of the expenditure is also incurred on the employees, we direct the assessing officer to allow 25 per cent of such expenditure as business expenditure.
16. The next grievance of the assessee is that the authorities below is not justified in disallowing a sum of Rs. 13,660 on account of annual general meeting expenses. The assessing officer has disallowed the claim of the assessee on the ground that these expenses were in the nature of entertainment expenses. Since some part of the expenses pertains to the employees, we direct the assessing officer to allow 25 per cent of such expenses as business expenses.
17. The next grievance of the assessee is that the lower authorities are not justified in disallowing a sum of Rs. 50,000 on account of education fund. It is the common contention of both the sides that this issue stands covered in favour of the assessee and against the revenue by the judgment of the Bombay High Court in the case of Krishna SSK Ltd. (supra). Following the said judgment, we delete the addition.
18. The next grievance of the assessee is that the authorities below are not justified in disallowing a sum of Rs. 8,190 on account of cash payments in excess of Rs. 2,500. At the time of hearing, this ground was not pressed. Accordingly, we dismiss this ground.
19. The next grievance of the assessee is that the authorities below are not justified in disallowing a sum of Rs. 16,93,358 on account of interest on non-refundable deposits. It is the common contention of both the sides that this issue stands covered in favour of the assessee and against the revenue by the decision of the Special Bench of the Tribunal in the case of Shri Chhatrapati S.S.K. Ltd. (supra). Following the same, we delete the said addition.
20. The next ground reads as under:
"On the facts and in the circumstances of the case, the lower authorities erred in disallowing sales-tax of Rs. 28,083 by wrongly invoking the provisions of section 43B of the Income Tax Act."
It has been submitted before us that a sum of Rs. 14,163 was paid before the due date. The whole issue is restored to the file of the assessing officer for verification and to allow the amounts which were paid within the statutory time prescribed by section 43B.
21. The last ground reads as under :
"On the facts and in the circumstances of the case and in law the lower authorities have erred in treating the forfeiture of security deposit credited to reserve fund as revenue receipt."
At the time of hearing, this ground was not pressed. The same is accordingly dismissed.
22.In the result, the appeal is allowed in part.