THE issue before the Bench is - Whether any amount transferred to reserve fund is to be treated as business expenditure and allowed deduction u/s 28/37 of the Act. NO is the answer.
Facts of the case
The assessee is co-operative body. It is the sole marketing agency for the products produced by different milk co-operative member unions of the state of Gujarat and for those of other states marketing their products under the brand name of Amul. The product range is mostly milk and milk products. Assessee had created a reserve fund. Assessee was in a position to use the funds lying in the reserve fund for its business as and when it decide to do so. During assessment process, AO took the view that there can be no question of keeping out such profits from the purview of taxation. Hence AO refused to treat the said allocation of fund/profit as business expenditure.Matter on appeal reached to CIT(A) and Tribunal, where order was passed in favour of Revenue. Aggrieved assessee filed appeal in HC.
After hearing both parties, HC held that,
++ Identical substantial questions of law in the case of very assessee came to be considered, dealt with and answered by this Court in ITR No.65 of 1997. In para 8 and 9 of the above decision, the Division Bench has observed and held as under:"8. Having heard the learned advocates it is apparent that the issue raised by the two questions, at the instance of the assessee, stands concluded by the aforesaid decision of the Apex Court in the case of Associated Power Co. Ltd. Vs. Commissioner of Income tax. Furthermore, as can be seen from provisions of Section 67(2) of the Cooperative Societies Act the question of control of the State Government by specifying the mode of investment or the mode of use of the reserve fund can arise only in the eventuality when the society does not use the reserve fund in the business of the society. The opening portion of subsection (2) of Section 67 of the Cooperative Societies Act specifically provides ...and such reserve fund may be used in the business of the society or ..... In other words, it is only in the event the society does not choose to use the reserve fund for the business of the society that the question about investing the reserve fund in the specified category of investments and thereafter utilizing the same for the objects specified by the State Government can arise. Hence, not only is there no diversion of income by overriding title but in fact there is no outgoing of funds from the domain of the assessee society. In fact, the profits at the specified percentage are set apart so as to be available to the society for use in the business of the society at a later point of time. Once the society is in a position to use the funds lying in the reserve fund for the business of the society as and when the society so chooses, there can be no question of keeping out such profits from the purview of taxation. 9. Accordingly, the Tribunal was right in law in holding that the amount transferred to the reserve fund account as per provisions of Section 67 of the Gujarat Cooperative Societies Act, 1961 was not diversion of income at source by overriding title nor can such transfer be treated as a business expenditure deductible either under Section 28 or Section 37 of the Act. Accordingly, both the questions at the instance of the assessee are answered in the affirmative i.e. in favour of the Revenue and against the assessee."
++ We have gone through and considered the decision of the Division Bench of this Court in ITR No.65 of 1997 dated 10.3.2008 and for the reasons stated in the said decision, we answer the aforesaid substantial questions of law raised in the present tax appeals against the assessee and in favour of the revenue and we confirm the respective judgments and orders passed by the learned Tribunal impugned in the present tax appeals
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