2001 (6) TMI 61 - HC - Income Tax

Court ruling on interest, excess price, and greetings expenses for Karkhana.

The court held that interest on non-refundable deposits constitutes trading receipts for the assessee-Karkhana. The excess price charged by the Karkhana ... Income, Interest, Business Expenditure, Capital or Revenue Expenditure Issues Involved: The judgment addresses the following issues: 1. Whether interest on non-refundable deposits constitutes trading receipt. 2. Whether excess price charged by the Karkhana constitutes income/trading receipt. 3. Whether expenses on shubhechha greetings constitute revenue expenditure.Issue 1: Interest on Non-refundable Deposits The court held that non-refundable deposits and interest thereon constitute trading receipts in the hands of the assessee-Karkhana, based on the judgment in CIT v. Chhatrapati Sahakari Sakhar Karkhana Ltd. [2000] 245 ITR 498. The court emphasized that these deposits were not voluntary and constituted an important source of revenue for the Karkhana, hence, interest on such deposits could not be claimed as deductions. The Tribunal's decision to delete the addition of interest on non-refundable deposits was set aside.Issue 2: Excess Price of Sugarcane The Department disallowed the excess price charged by the Karkhana, contending it was in breach of bye-law No. 64. However, the Tribunal ordered deletion of such additions, stating that the price was fixed based on commercial expediency and not unreasonably high. The court upheld the Tribunal's decision, emphasizing that expenditure incurred for business purposes, even if in breach of bye-laws, cannot be disallowed if it was commercially expedient. The judgment in K. C. P. Ltd. v. CIT [2000] 245 ITR 421 was distinguished as it dealt with excess amounts realized as trading receipts, unlike the present case involving disallowance of expenditure.Issue 3: Expenses on Shubhechha Greetings The Assessing Officer disallowed expenses on shubhechha greetings as advertisement expenses, but the Tribunal found them to be necessary for maintaining cordial relationships with members, thus constituting revenue expenditure. The court upheld the Tribunal's decision, stating it as a finding of fact and confirming that no substantial question of law arises. Therefore, the expenses on shubhechha greetings were considered as revenue expenditure.Order: Question 1 was answered in favor of the Department, while Questions 2 and 3 were answered in favor of the assessee. The appeal was partly allowed with no order as to costs.