Commissioner of Income Tax vs Panipat Co-operative Sugar Mills Ltd.

Jawahar Lal Gupta, J.—The assessee is a co-operative society. It is running a sugar mill and a distillery. It filed its returns of income for the assessment years 1976-77 to 1979-80. It claimed deduction of certain amounts of money on account of supply of pesticides to sugarcane growers at a concessional rate. The Assessing Officer did not accept the claim of the society on the ground that "the expenses were not directly and intimately connected with the business of the assessee-society. The assessee-society had no legal liability to supply pesticides at reduced rates to its own members as a gratuitous act..." The assessee challenged the orders passed in respect of the four assessment years by filing appeals. The Commissioner of Income Tax (Appeals) rejected the assessee''s claim. The assessee appealed to the Tribunal. The claim was accepted.

Aggrieved by the order of the Tribunal, the Revenue filed a petition u/s 256(1) of the Income Tax Act, 1961. The Tribunal has referred the following question for the opinion of this court :

"Whether the Tribunal was right in holding that the expenditure debited to the profit and loss account incurred on the sale of pesticides to its members by the assessee-society is of revenue nature ?"

Admittedly, the assessee utilised sugarcane for production of sugar. It has an interest in the growth of sugarcane so that the requisite quantity is available and the yield of sugar is good. Thus, it provides pesticides at a concessional rate to the farmers. The obvious intent and purpose of the assessee is to promote its own commercial interest. Nothing has been pointed out from the record to show that the assessee had any extra commercial consideration.

Mr. Bindal, learned counsel for the Revenue, contends that the assessee was not bound to supply the pesticides to the farmers.

It may be so. However, it cannot be disputed that the assessee needed sugarcane. There is not even an iota of evidence which may indicate that the sugarcane was being supplied by the concerned farmers to any other sugar mill. In fact, there is not even a suggestion that any other sugar mill exists in the area. Thus, it can be safely assumed that the bulk of the sugarcane was being used by the assessee.

Mr. Bindal submits that the expense was not directly and intimately connected with the business of the assessee-society.

The contention is misconceived. If sugarcane is the basic raw material for production of sugar, the expense on supply of pesticides at concessional rates was directly connected with the assessee''s business.

No other point has been raised.

In view of the above, the question is answered in favour of the assessee and against the Revenue.

In the circumstances of the case, the parties are left to bear their own costs.