Telangana High Court
RC/104/1996 of COMMR.OF I.T. A.P. II HYD Vs A.P.STATE CIVIL SUPPLIES CORPN. LTD HYD on 29 December 2011
SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA R.C.Nos.104 OF 1996 AND 63 OF 1998 COMMON ORDER: (Per the Hon’ble Sri Justice V.V.S.Rao) As the question referred in both the Referred Cases is common, they are being disposed of by this common order. But for
THE HON’BLE SRI JUSTICE V.V.S.RAOAND
THE HON’BLE SRI JUSTICE B.N.RAO NALLA
R.C.Nos.104 OF 1996 AND 63 OF 1998
COMMON ORDER:(Per the Hon’ble Sri Justice V.V.S.Rao)
As the question referred in both the Referred Cases iscommon, they are being disposed of by this common order.Butfor the sake of convenience, the facts in RC.No.104 of 1996 aretaken into consideration.
The A.P. State Civil Supplies Corporation Limited (hereafter,the assessee) is a Public Sector undertaking wholly owned by theGovernment of Andhra Pradesh.They filed their return of income-for the assessment year 198889.The Deputy Commissioner ofIncome Tax (Assts.) completed the assessment.The exemptionclaimed by the assessee under Section 11 read with Section 2(15)of the Income Tax Act, 1961 (“the Act” for brevity) was notallowed.Further, the amounts transferred by the assessee to thePrice Equalisation/Stabilisation Fund (hereafter, the Fund) was-disallowed to a tune of Rs.70,69,646/ and an addition was madeto the income.Aggrieved, the assessee went in appeal before theCIT (A), Hyderabad.
In their appeals before the CIT (A), Hyderabad, theassessee was partly successful.Insofar as the Fund isconcerned, the Commissioner took the view that as per theArticles of Association, the assessee was bound by the directionsissued by the Government of Andhra Pradesh; the Governmenthad issued to set apart not less than 2% of the annual salesturnover for the maintenance of the Fund and therefore, the samecannot be treated as income from the business.The Revenueappealed to the Income Tax Appellate Tribunal.Following theirdecision in the assessee’s case for previous assessment years, Revenue’s appeal was dismissed when they sought referenceunder Section 256 (1) of the Act.The learned Tribunal referred thefollowing two questions in R.C.No.104 of 1996 relating to the-assessment year 198889 and the sole question in R.C.No.63 of-1998 relating to the assessment year 198990.
R.C.No.104 of 1996
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1. Whether on the facts and in the circumstances of thecase, the Tribunal is correct in law in holding that the-case, the Tribunal is correct in law in holding that the-Article6 of the Articles of Association created a legalliability whereby all income vests in the PriceEqualisation/Stabilisation Fund, even when no such fundever existed?liability whereby all income vests in the PriceEqualisation/Stabilisation Fund, even when no such fundever existed?
2. Whether on the facts and in the circumstances of thecase, the ITAT was correct in law in holding that the PriceEqualisation/Stabilisation Fund is required in holding theprice line and that such an activity is an object of generalpublic utility, particularly when the fund was not created andobjects of the fund were not spelt out either by the Govt. orby the assessee company.case, the ITAT was correct in law in holding that the PriceEqualisation/Stabilisation Fund is required in holding theprice line and that such an activity is an object of generalpublic utility, particularly when the fund was not created andobjects of the fund were not spelt out either by the Govt. orby the assessee company.
R.C.No.63 of 1998
“Whether on the facts and in the circumstances of thecase, the ITAT was correct in holding that the contributionmade towards ‘Price Stabilisation and Equalisation Fund’was an allowable revenue expenditure?”
There is no dispute that the Government of Andhra Pradeshissued orders in G.O.Ms.No.361 dated 26.05.1989 directing theassessee to set apart not less than 2% of its annual sales-turnover with effect from the financial year 198182 for themaintenance of Fund, as administered by the Government.Thereis also no dispute that the maintenance of the Fund is somethinganalogous to the statutory liability. When an assessee underStatute is obliged to set apart certain amount from the grossreceipts for maintenance of Fund like Liquidation Fund towardsStabilisation Fund etc., the same cannot be treated as profit orincome from the business and an addition cannot be made in thereturn of income.
The Senior Counsel for Income Tax, however, relied[1]on the decision reported in C.I.T. v. K.C.P. Limited. Therein, afinding was recorded that the assessees collected amount inexcess, over and above the required amounts from the thirdparties and did not transfer to the statutory fund, it was treated asRevenue receipt.
In the case on hand, there is no dispute that the transfer of-2% of the gross receipts by the assesseeCorporation was meantfor maintenance of the Fund and it was controlled by theGovernment, although the funds were not transferred to theGovernment.
During the course of the submissions, our attention hasbeen invited to two unreported decisions in R.C.No.59 of 1992dated 04.03.2003 and R.C.No.76 of 1994 dated 09.03.2006 (CIT v.A.P. Civil Supplies Corporation).In both the cases, the similarquestion was answered in favour of the assessee upholding theview of the appellate Tribunal.Following the same, these tworeferences are disposed of in the following manner.
The questions in both the Referred Cases are answered inaffirmative in favour of the assessee and against the Revenue andboth the Referred Cases shall stand disposed of accordingly,without any order as to costs.
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(V.V.S.RAO, J)
29[th] December 2011RRB
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(B.N.RAO NALLA, J)
[1](1995) 216 ITR 602