Case Note & Summary
The case involved a tax appeal by the Commissioner of Income Tax against Shetkari Sahakari Sakhar Karkhana Limited, a cooperative sugar factory. Two issues were raised. First, whether a provision made in the books of account for contribution to a recognised research institute is deductible under Section 35(1) of the Income Tax Act, 1961, even if not actually paid in the relevant assessment year. The court, relying on its earlier decision in CIT v. Jai Ambika Sahakari Sakhar Karkhana Ltd., held in favour of the assessee, allowing the deduction. Second, whether the difference between the market price and the concessional sale price of sugar sold to sugarcane suppliers (both members and non-members) can be added to the assessee's income under Section 40A(2) of the Act. The court examined the conditions for applying Section 40A(2)(a), which requires that the assessee must have incurred an expenditure in respect of which payment is made or to be made to a related person, and the Assessing Officer must find it excessive or unreasonable. The court noted that the assessee sold sugar at a concessional rate to ensure adequate supply of raw material; this was a sale, not an expenditure. Therefore, Section 40A(2) was not attracted. The court dismissed the appeal, confirming the order of the Income Tax Appellate Tribunal.
Headnote
A) Income Tax - Deduction under Section 35(1) - Provision for Contribution to Research Institute - The issue was whether an amount provided in the books of account for contribution to a recognised research institute is allowable as a deduction under Section 35(1) of the Income Tax Act, 1961 even if not actually paid in the relevant assessment year. The court, following its earlier decision in CIT v. Jai Ambika Sahakari Sakhar Karkhana Ltd., held in favour of the assessee, allowing the deduction on provision basis. (Paras 2-3) B) Income Tax - Section 40A(2) - Concessional Sale to Related Persons - The issue was whether the difference between market price and concessional sale price of sugar sold by a cooperative sugar factory to its sugarcane supplier members can be added to income under Section 40A(2) of the Income Tax Act, 1961. The court held that Section 40A(2) applies only to expenditure incurred by the assessee, not to a sale of goods. Since the assessee sold sugar at a concessional rate, it did not incur any expenditure; rather, it received income. Therefore, the provision was not attracted. (Paras 4-6)
Issue of Consideration
Whether a provision for contribution to a recognised research institute is deductible under Section 35(1) of the Income Tax Act, 1961 even if not actually paid in the relevant assessment year; Whether the difference between market price and concessional sale price of sugar sold to sugarcane suppliers can be added to income under Section 40A(2) of the Income Tax Act, 1961
Final Decision
Appeal dismissed. The court held that the provision for contribution to a recognised research institute is deductible under Section 35(1) of the Income Tax Act, 1961 even if not actually paid, following the earlier decision in CIT v. Jai Ambika Sahakari Sakhar Karkhana Ltd. Further, the difference between market price and concessional sale price of sugar sold to sugarcane suppliers cannot be added under Section 40A(2) as the provision applies only to expenditure incurred by the assessee, not to a sale of goods.
Law Points
- Deduction under Section 35(1) of Income Tax Act
- 1961 allowable on provision basis for contribution to recognised research institute
- Section 40A(2) of Income Tax Act
- 1961 not applicable to concessional sale of sugar to sugarcane suppliers as it is not an expenditure
