SUPREME COURT JUDGMENT ON WHETHER THE COMPONENT OF INTEREST INCOME EARNED BY THE APPELLANT-CORPORATION, (NATIONAL CO-OPERATIVE DEVELOPMENT CORPORATION ESTABLISHED UNDER THE NATIONAL COOPERATIVE DEVELOPMENT CORPORATION ACT, 1962) ON THE FUNDS RECEIVED UNDER SECTION 13(1), AND DISBURSED BY WAY OF “GRANTS” TO NATIONAL OR STATE LEVEL CO-OPERATIVE SOCIETIES, IS ELIGIBLE FOR DEDUCTION FOR DETERMINING THE “TAXABLE INCOME” OF THE APPELLANT-CORPORATION

NAME		MOBILE NO.	E-MAIL I’D
RANJEET KUMAR		8383098478, 9667769795	rk@courtkutchehry.com
JAI THAKUR		8130703334, 9355723300	jai.thakur@courtkutchehry.com
RAJEEV RANJAN		9334553249	rajiv.ranjan@courtkutchehry.com
ASHOK MISHRA		9718327746	sales@courtkutchehry.com
RAVI KUMAR			ravi.singh@courtkutchehry.com

National Co-Operative Development Corporation Vs.  Commissioner Of Income Tax, Delhi-V, (2020) 09 SC CK 0020

A Division Bench of the Supreme Court while allowing the Civil Appeal filed by the Appellant Corporation (National Co-Operative Development Corporation established under the National Cooperative Development Corporation Act, 1962) pronounced its Judgment with the opening remark “Which pocket of the Government should be enriched has taken forty-four (44) years to decide – a classic case of what ought not to be”. The question of law in the Civil Appeal before the Supreme Court was “whether the component of interest income earned on the funds received under Section 13(1), and disbursed by way of “grants” to national or state level co-operative societies, is eligible for deduction for determining the “taxable income” of the appellant-Corporation”. The Judges stated that we are unable to accept the contention of the Revenue Department that merely because the interest income received has merged with the monies in the common Fund it loses its revenue character and becomes a capital receipt. This line of argument is inconsistent with the position where interest money is received, it is held to be of revenue character, and chargeable to tax under the head ‘Profits and Gains of Business or Profession’. This amount while lying in the same fund cannot acquire the character of a capital receipt. The interest having been treated as revenue receipt on which taxes are paid, it must continue to retain the character of revenue receipt. If the nature of receipt is treated as capital receipt then consistent with the aforesaid approach, no taxes would have been payable on the amount. The corollary is that all expenses incurred in connection with the business are deductible. The legal position, which emerges is that if an assessee carries on business, all that is required to be seen is whether any outlay constitutes an expenditure ‘for the purpose of business’ as used in Section 37(1) of the IT Act. We are also unable to accept the contention of the respondent that the payouts constitute a mere application of income, which does not tantamount to expenditure. The disbursement of non-refundable grants is an integral part of business of the appellant-Corporation as contemplated under Section 13(1) of the NCDC Act and, thus, is for the purpose of its business. The purpose is direct; merely because the grants benefit a third party, it would not render the disbursement as ‘application of income’ and not expenditure. The logical conclusion is that every application of income towards business objective of the appellant-Corporation is a business expenditure and nothing else. The endeavour of the Revenue Department to rely on the judgment in the Sitaldas Tirathdas case (supra) is not appreciable since that was a case dealing with the obligation of an individual who was compelled to apply a portion of his income for the maintenance of persons whom he was under a personal and legal obligation to maintain. The IT Act does not permit any deduction from the total income in such circumstances. We also find really no force in the submission of the Revenue Department that the direct nexus of monies given as outright grants from the taxable interest income cannot be distinctly identified. This is a question of fact. The plea of the respondents is based on a pure conjecture. The judges concluded that we are unable to agree with the indings arrived at by the AO, ITAT and the High Court albeit for different reasons and concur with the view taken by the CIT(A) for the reasons set out hereinbefore. It is, thus, left to this Court as stated above to strike the final blow and allow the appeals, leaving the parties to bear their own costs, while noticing with regret the inordinately long passage of time and the wastage of judicial time on deciding, who is principally right when in either eventuality it benefits the Central Government.