COMMISSIONER OF INCOME-TAX VS BAZPUR COOPERATIVE SUGAR FACTORY LTD
1998 P T D 2435
[222 I T R 90]
[Allahabad High Court (India)]
Before M. Katju and Dr. B. S. Chauhan, JJ
COMMISSIONER OF INCOME-TAX
versus
BAZPUR COOPERATIVE SUGAR FACTORY LTD
Income-tax Reference No.258 of 1981, decided on 04/04/1996.
Income-tax---
----Interest---Capital borrowed---Cooperative society---Loss Equalisation and Capital Redemption Reserve Fund---Credit balance in fund being used for the purpose of its business---Cannot be capital borrowed within the meaning of cl.(iii) of S.36(1)---Interest on credit balance not allowable as deduction-- Indian Income Tax Act, 1961, S.36(1)(iii).
Held, that the credit balance standing in the Loss Equalisation and Capital Redemption Reserve Fund which were actually used by the assessee, a cooperative society, for the purpose of its business could not represent capital borrowed within the meaning of clause (iii) of section 36(1) of the Income Tax Act, 1961.
CIT v. Bazpur Cooperative Sugar Factory Ltd. (1989) 1-77 ITR 469 (SC) fol.
Held also; that the interest on the credit balance in the Loss Equalisation and Capital Redemption Reserve Fund of the society could not be allowed as a deduction in computing the total income of the society.
CIT v. Bazpur Cooperative Sugar Factory Ltd. (1989) 177 ITR 469 (SC) fol.
Rajesh Kumar Agarwal for the Commissioner.
U.S Awasthi for the Assessee.
JUDGMENT
This is an income-tax reference under section 256 of the Income Tax Act, 1961 in which the following three questions have been referred for our opinion:
"(1) Whether the credit balances in the Loss Equalisation and Capital Redemption Reserve Fund which were actually used by the assessee for the purpose of its business represented capital borrowed by the assessee for the purpose of its business within the meaning of section 36(1)(iii) of the Act?
(2) Whether the Tribunal was right in law in allowing interest on such balances standing to the credit of the Loss Equalisation and Capital Redemption Reserve Fund as a deduction in computing the total income of the assessee?
(3) Whether the Tribunal was right in law in holding that the impugned payment of interest did not contravene the provisions of section 57 of the U.P. Cooperative Societies Act, 1965?"
We have heard Sri Rajesh Kumar Agarwal, for the Department, and Sri U.S. Awasthi, for the assessee.
In view of the decision of the Supreme Court in between the same parties, CIT v. Bazpur Cooperative Sugar Factory Ltd. (1989) 177 ITR 469, the first two questions are answered in the negative, i.e., in favour of the Department and against the assessee. Learned counsel for the parties agree that the third question need not be answered.
M.B.A./1521/FCReference answered.