Commissioner of Income Tax vs Rajasthan Co-operative Dairy Federation Ltd.

J.K. Ranka, J.

These three Income Tax Appeals filed by the appellant-revenue u/s. 260A of the Income-tax Act (for short, "IT Act") are directed against the order passed by the Income Tax Appellate Tribunal, Jaipur Bench ''A'', Jaipur (for short, "ITAT") by which the ITAT, while affirming the order passed by the Commissioner of Income-tax (Appeals) (for short, "CIT(A)"), has dismissed the appeal filed by the appellant-revenue. Where Dairy Co-operative Society Development charges (DCS) stands allowed.

It relates to Assessment Year 2007-08, 2008-09 & 2009-10 respectively.

Since the facts and controversy involved is identical, all these three appeals are decided by this common order.

The brief facts, as emerging on the face of record, are that the respondent-assessee is an Apex body of the cooperative society and is engaged in the business of promotion, production, procurement, processing and marketing of milk products and in addition to the sale of the milk products, it is also having other income. The respondent-assessee, during the course of its business, claimed Dairy Co-operative Society (DCS) Development Expenses at Rs. 1,22,11,408/- in the assessment year 2007-08 and other amounts in other assessment years which has been incurred for development of dairy business and such amount was paid to the various primary societies and inter alia, was in the nature of registration of new DCS (dairy cooperative society) by contributing expenses, revival of DCS, membership contribution for registering members as women/BPL families/SC/ST, purchase of automatic milk collection system etc. During the course of scrutiny of the assessment proceedings, when this fact was noticed by the Assessing Officer (for short, "AO"), he came, prima facie, to the conclusion that such claim is not allowable as the respondent-assessee has incurred expenses in respect of primary societies from whom the respondent-assessee was neither having any transaction nor any business connection/consideration and thus the said expenses were incurred on its own and without any business expediency and accordingly a show cause notice was issued as to why the said amount may not be disallowed.

The respondent-assessee reiterated that the said expenses are required to be incurred for business expediency and the said expenses are incurred wholly and exclusively for the purpose of business of the respondent-assessee. It was further submitted that to maintain the business and good relations with the dairy cooperative societies, such expenses were required to be made and thus are allowable. However, the AO disallowed the same.

The matter was carried in appeal by the respondent-assessee by filing appeal before the CIT(A) and a detailed explanation was submitted by the respondent-assessee and it was contended that the respondent-assessee is an Apex body responsible for development of dairy activities in cooperative sector in the State of Rajasthan and on perusal of the bye-laws, it can be noticed that the respondent-assessee is providing necessary help, advise and guidance to various district level and primary level societies engaged in procurement of milk. It was further contended that the district level societies collect milk from the primary dairy cooperative societies (DCS) in their milk shed area and selling the milk products to the consumers under the brand developed by the respondent-assessee for increasing, procurement of milk and for protecting the dairy farmers from the threat of private milk vendors, the respondent-assessee has launched various schemes from time to time for inducing more and more milk producers to join primary dairy development cooperative societies in furtherance of its fundamental objectives and reiterated the fact that the expenses are incurred for new registration of DCS, revival of closed DCS, membership, contribution for women/BPL families/SC/ST families, providing automatic milk stations etc and these allowable u/s. 37(1) of the Act.

The CIT(A), after analyzing the evidence on record and finding this fact that the amount paid has not been doubted by the AO. He further came to the conclusion that the expenses are directly related to the business of the respondent-assessee and incurred for commercial expediency and accordingly directed that the said expenses are allowable expenses u/s. 37(1) of the IT Act. The CIT(A), while allowing the deduction, relied upon the judgments rendered by the Hon''ble Apex Court in the case of Sassoon J. David and Co. Pvt. Ltd., Bombay Vs. Commissioner of Income Tax , Bombay, and Commissioner of Income Tax, Delhi Vs. Delhi Safe Deposit Company Limited, so also the judgment rendered by the Karnataka High Court in the case of The Commissioner of Income Tax and The Joint Commissioner of Income Tax, Assessment, Special Range-2 Vs. Karnataka Financial Corporation .

Aggrieved with the deletion of the said amounts, the appellant-revenue preferred appeals before the ITAT and the ITAT also vide order impugned has held that the genuineness of the expenses is not doubted by the appellant-revenue and further held that the expenses were incurred wholly and exclusively for the purpose of business and accordingly dismissed the appeal of the appellant-revenue. This order of ITAT has been assailed by the appellant-revenue before us for all the years.

Mr. Y.S. Meena, Dy. Commissioner of Income-tax, present in person on behalf of the appellant-revenue, submitted that there was no connection/co-relation of incurring such huge amount by the respondent-assessee on the various activities. He further contended that the respondent-assessee is receiving huge grant from the National Dairy Development Board (NDDB) and there is no justification for allowing the said amount as expenditure and in the alternate such expense should have been first adjusted against the grant received from NDDB. He submitted that it is an expenditure which is not relatable to business considerations/expediency and the AO has rightly disallowed the same and contended that substantial question of law arise out of the order of the ITAT for consideration of this Court. He also placed reliance on judgment of Kerala High Court rendered in the case of Season Rubber Ltd. Vs. Commissioner of Income Tax, .

We have considered the submissions of the ld. officer, appearing on behalf of the appellant-revenue and gone through the impugned order as also the order of the lower authorities.

In our view, the ITAT as well as CIT(A) have arrived at a finding of fact that the genuineness of the expenses is not doubted by the appellant-revenue and thus, when genuineness of the expenses has not been doubted by the appellant-revenue, then it is a finding of fact. We may further add that the respondent-assessee, as referred to herein above, is an apex body responsible for development of dairy activities in cooperative sector in the State of Rajasthan and the fundamental objectives of the respondent-assessee, as per its bye-laws, are as under:--

"3.1 To carry out activities for promoting production, procurement, processing and marketing of the milk and milk products for economic development of the animal husbandry/farming community.

3.2 Development and expansion of such other applied activities as may be conducive for the promotion of the Dairy Industry, improvement and protection of such milch animals and economic betterment of those engaged in milk production.

3.2(7) advise, guide, assist and control the member milk unions in all respects of management, supervision and audit functions;

3.2(8)purchase or assist in purchasing raw material, processing material etc; or to collaborate with some one if need arises;

3.2(12) promote the organization of primary societies and assist members in organization of the primary societies;

3.2(13) plan development strategies and programme to increase the volume of production, procurement of federation and its member unions and for effective marketing of the same;

3.2(14) render technical, administrative, financial and other necessary assistance to the member unions and enter into collaboration agreement with some one if the need arises."

On perusal of the aforesaid objectives, it is clear that the primary duty of the respondent-assessee is to take into consideration the amount incurred towards the primary level societies from which it is engaged in procurement of milk. The respondent-assessee has incurred the said amount for increasing the procurement of milk and protecting the dairy farmers from the threat of the private milk vendors, launched various schemes from time to time for inducing more and more milk producers to join milk development cooperative societies in furtherance of its fundamental objectives, which, in our opinion, is certainly in the nature of business expenses. It is also a finding of fact that one of the objectives of the respondent-assessee is to carry out such activities as may be conducive for the promotion of the dairy industry and improvement and protection of milch animals and in pursuance of the said objective, it has to run technical, administrative, financial and other necessary support to the societies. The respondent-assessee collects milk from its member unions i.e. primary dairy cooperative society (DCS) and sells the milk and milk products to the consumers under its brand name "SARAS". For increasing the procurement of milk and protecting the dairy farmers, it has to launch various schemes for inducing more and more milk producers to join the primary dairy co-operative society and for this purpose, it has incurred expenditure and thus, in our view, these expenses are directly related to the business of the respondent-assessee and incurred for commercial expediency. It is also a finding of fact that the respondent-assessee has also charged ''Cess'' @1% of the sale value from milk unions for which receipts of Rs. 9,12,27,490/- have been offered as income by the assessee and when income has been offered by the respondent-assessee, then the said expenditure is certainly allowable as business expenditure. Further more, when such income of Rs. 9,12,27,490/- is already offered for taxation then question of adjustment against grant from NDDB does not arise.

We have also gone through the judgment relied by the officer of Kerala High Court in Season Rubber Ltd. case (supra), however, the said judgment is totally distinguishable and not even remotely applicable to the facts of the instant case.

In view of what we have observed herein above and the same being essentially a concurrent finding of fact by both the authorities below that the said expenditure has been incurred wholly and exclusively for the purpose of business, in our view, no substantial question of law can be said to arise out of the findings arrived at by both the authorities below when particularly the genuineness of the expenditure is not doubted by the appellant-revenue at all. We find no perversity or illegality in the order of ITAT. Consequently, all the three appeals, being devoid of any merits, are hereby dismissed.