Rajarambapu Patil Ssk Ltd v. Deputy Commissioner Of Income Tax,Special Range – 3, Solapur

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 666 OF 2003 Rajarambapu Patil SSK Ltd. .. Appellant V/s Deputy Commissioner of Income Tax,Special Range – 3, Solapur .. Respondent Mr. Mihir Naniwadekar i/b Mr. S.N. Inamdar for the appellant.Mr. Vimal Gupta, Senior Advocate for the respondent. CORAM : MOHIT S. SHAH, CJ M.S. SANKLECHA, J. M.S. SANKLECHA, J. DATE : 5 DECEMBER 2013 P.C.: This appeal under Section 260A of the Income Tax Act, 1961 (“the Act”) by the revenue challenges the order dated 7 March 2003 passed by the Income Tax Appellate Tribunal (Tribunal) in relation to Assessment Year 1990-91. 2.following substantial questions of law: This appeal was admitted on 1 November 2004 on the (1) Whether on the facts and in the circumstances of the case and in law, the appellate tribunal was justified in sustaining the additions by treating the amounts of non-refundable and refundable deposits which were converted in the share capital or repaid, as income of the appellant?case and in law, the appellate tribunal was justified in sustaining the additions by treating the amounts of non-refundable and refundable deposits which were converted in the share capital or repaid, as income of the appellant? (2) Whether on the facts and in the circumstances of the case and in law, the appellate tribunal was justified in disallowing interest actually paid by the appellant on the above deposits and treating the same as income of the appellant?case and in law, the appellate tribunal was justified in disallowing interest actually paid by the appellant on the above deposits and treating the same as income of the appellant? 3.So far as question no.1 is concerned, the counsel for the parties are agreed that the issue stands covered in favour of the assessee and against the revenue by the decision of the Apex Court in the matter of CIT v. Shri Chatrapati Sahakari Sakhar Karkhana Ltd., (2004) 270 ITR 1 and of this Court in CIT v. Shri Bhogawati Sahakari Sakhar Karkhana Ltd., (2006) 283 ITR 374. 4.So far as question no.2 is concerned, the counsel for the assessee submits that the issue is covered in his favour by the decision of this Court in CIT v. Shri Bhogawati Sahakari Sakhar Karkhana Ltd. (supra). However, the same is not accepted by the counsel for the revenue. 5.The issue involved in question no.2 is whether interest payable on the deposit is allowable as an expenditure as claimed by the assessee and disallowed by the revenue. In support, Mr. Naniwadekar, counsel for the assessee, points out that this Court in Shri Bhogawati Sahakari Sakhar Karkhana Ltd. (supra) while following the Apex Court order in CIT v. Shri Chatrapati Sahakari Sakhar Karkhana Ltd., (supra) has held that interest payable on-refundable and nonrefundable deposits is also an expenditure of the society and is liable to be deducted from income taking into--consideration the Maharashtra Cooperative Societies Act, bylawsand the Government directives. 5.The issue involved in question no.2 is whether interest payable on the deposit is allowable as an expenditure as claimed by the assessee and disallowed by the revenue. In support, Mr. Naniwadekar, counsel for the assessee, points out that this Court in Shri Bhogawati Sahakari Sakhar Karkhana Ltd. (supra) while following the Apex Court order in CIT v. Shri Chatrapati Sahakari Sakhar Karkhana Ltd., (supra) has held that interest payable on-refundable and nonrefundable deposits is also an expenditure of the society and is liable to be deducted from income taking into--consideration the Maharashtra Cooperative Societies Act, bylawsand the Government directives. 6.However, Mr. Vimal Gupta, learned Senior Counsel for the revenue, submits that the Supreme Court decision in the case of Shri Chatrapati Sahakari Sakhar Karkhana Ltd. (supra) was not concerned with the issue of deduction of interest payable on refundable and non-refundamble deposits as an expenditure from the income of the society. The learned counsel submits that even if the non-refundable deposit is a deposit because it is to be converted into share capital of the members, the assessee has not shown that the amount of deposit is used by the assessee during the relevant year for the purposes of business of the society. In the circumstances, it is submitted that the interest paid or payable by the society to the members on such deposit cannot be treated as a business expense to be deducted from the income of the society. Therefore, it is submitted that the decision of this Court in CIT v. Shri Bhogawati Sahakari Sakhar Karkhana Ltd. (supra) does not lay down the correct law. 7.In response to a specific query from the Court as to whether the decision of the Division Bench of this Court in Shri Bhogawati Sahakari Sakhar Karkhana Ltd. (supra) was challenged before the Apex Court, the learned counsel for the revenue is not in a position to say whether the said decision was carried in appeal. At least nothing is brought to our notice to show that the above decision of this Court in ShriBhogawati Sahakari Sakhar Karkhana Ltd. (supra) rendered as far back on 8 August 2005 has been reversed and/or stayed. Therefore, question no.2 also is concluded in favour of the assessee by virtue of the decision of this Court in Bhogawati Sahakari Sakhar Karkhana Ltd. (supra). 8.In view of the above, following the aforesaid decision of this Court in Shri Bhogawati Sahakari Sakhar Karkhana Ltd. (supra), we answer both the questions in the negative, i.e. in favour of the assessee and against the revenue. 9.The appeal is accordingly allowed in terms of the above answers. CHIEF JUSTICE M.S. SANKLECHA, J.