36. Principal CIT
vs. Rajasthan Co-Operative Dairy Federation Ltd. [2020] 423 ITR 89 (Raj.) Date of order: 23rd July, 2019 A.Y.: 2004-05
Deemed income – Section 41(1)(a) of ITA,
1961 – Remission or cessation of liability – Condition precedent – Assessee, a
co-operative society, obtaining loan from National Dairy Development Board for
which state government stood guarantee on payment of commission – Commission
claimed by assessee as revenue expenditure in earlier assessment years – State
government writing off liability and allowing it to be treated as capital grant
to be used only for capital and rehabilitation purposes – Assessee continues to
remain liable to repay those amounts – No remission or cessation of liability
u/s 41(1)(a) – Cannot be treated as deemed income u/s 41(1)(a); A.Y. 2004-05
The assessee, a
co-operative society involved in milk and milk product processing, secured a
loan from the National Dairy Development Board for which the government of
Rajasthan stood guarantor subject to payment of commission of Rs. 25 lakhs per annum.
This was claimed as expenditure by the assessee for several years up to the
A.Y. 2004-05. The amount remained outstanding and was shown as payable to the
government of Rajasthan. The state later wrote off that liability and allowed
it to be treated as a capital grant to be used only for capital and
rehabilitation purposes. The A.O. was of the view that the transaction, i.e.,
cessation of liability, involved the utilisation of receipts which had been
treated as revenue all along and, therefore, treated it as deemed income u/s
41(1)(a) of the Income-tax Act, 1961 for the A.Y. 2004-05.
The Commissioner (Appeals) allowed the
appeal and held that the amount payable to the government was to be treated as
capital grant to be used for rehabilitation or capital requirement of the
assessee and could not be used for any further distribution of dividend or
revenue expenditure, and that it was not a case of remission or cessation of
the liability as envisaged u/s 41(1)(a). The Tribunal concurred with the view
of the Commissioner (Appeals) and dismissed the appeal filed by the Department.
On appeal by the Revenue, the Rajasthan High
Court upheld the decision of the Tribunal and held as under:
‘Both the Commissioner (Appeals) and the
Tribunal had rendered concurrent findings on the facts. The record also
supported their findings in that the loan utilised by the assessee was for
capital purposes and the loan was given by the National Dairy Development
Board. The assessee continued to remain liable to repay those amounts. The
state, instead of fully writing off the amounts, had imposed a condition that
they would be utilised only for capital or rehabilitation purposes. This was
therefore a significant factor, i.e., the writing off was conditional upon use
of the amount in the hands of the assessee which was for the purpose of
capital. No question of law arose.’
