Commissioner of Income Tax vs Bazpur Co-operative Sugar Factory Ltd.

This is an Income Tax reference u/s 256 of the Income Tax Act, 1961, in which the following three questions have been referred for our opinion :

"1. Whether the credit balances in the Loss Equalisation and Capital Redemption Reserve Fund which were actually used by the assessee for the purpose of its business represented capital borrowed by the assessee for the purpose of its business within the meaning of Section 36(1)(iii) of the Act ?

Whether the Tribunal was right in law in allowing interest on such balances standing to the credit of the Loss Equalisation and Capital Redemption Reserve Fund as a deduction in computing the total income of the assessee ?

Whether the Tribunal was right in law in holding that the impugned payment of interest did not contravene the provisions of Section 57 of the U.P. Co-operative Societies Act, 1965 ?"

We have heard Sri Rajesh Kumar Agarwal, for the Department, and Sri U.S. Awasthi, for the assessee.

In view of the decision of the Supreme Court in between the same parties, Commissioner of Income Tax, Lucknow Vs. Bazpur Co-operative Sugar Factory Limited, , the first two questions are answered in the negative, i.e., in favour of the Department and against the assessee. Learned counsel for the parties agree that the third question need not he answered.