2019 (8) TMI 655 - HC - Income Tax

Members Welfare Fund - allowable expenditure u/s 37 - HELD THAT - Questions as proposed by the Revenue are no longer resintegra in view of a decision of this Court in the case of Karjan Cooperative Cotton Sales Ginning Pressing Society 1992 (1) TMI 39 - GUJARAT HIGH COURT as held that expenditure incurred for purchase of articles for presentation only to its members for keeping alive good image among members and for generating goodwill and ensuring continuity of business with member societies was geld to the expenditure incurred wholly and exclusively for the purpose of business. The facts of the appellant's case, in so far as the above decision is concerned, differ only to the extent that in the relied upon case the household stainless steel utensils were distributed to the members of the said Coop. Society, whereas the bank asked the members to take the gift item worth ₹ 400/from the selected stores. - Decided against revenue.

Summary

Issues:
1. Disallowance of payment of education fund
2. Disallowance of claim of payment made to members of welfare fund
3. Disallowance of special long-term finance fund
4. Disallowance of investment depreciation

Analysis:
1. The first issue pertains to the disallowance of payment of education fund under Section 37 of the Income Tax Act, 1961. The Assessing Officer contended that the expenditure was exclusively for the benefit of members and not a legitimate business expense. However, the CIT(A) ruled in favor of the assessee, citing cooperative society principles and previous tribunal decisions. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, referencing precedents and emphasizing the necessity for maintaining good relations with members. Ultimately, the ITAT dismissed the revenue's appeal, relying on established legal interpretations and case law.

2. The second issue involves the disallowance of claim of payment made to members of welfare fund. The CIT(A) justified the expenditure based on the principle of cooperative society and past tribunal rulings. The ITAT concurred with the CIT(A)'s findings, citing a similar case and a decision by the Gujarat High Court. The ITAT dismissed the revenue's appeal, emphasizing the importance of maintaining relations with members and the legitimacy of the expenditure.

3. The third issue concerns the disallowance of special long-term finance fund. The CIT(A) deleted the addition after considering relevant legal precedents and the judgment of the Gujarat High Court. The ITAT affirmed the CIT(A)'s decision, citing a case involving a cooperative and sales union. The ITAT found no reason to interfere with the tribunal's order, leading to the dismissal of the appeal.

4. The fourth issue revolves around the disallowance of investment depreciation. The CIT(A) ruled in favor of the assessee, following the decision of the Gujarat High Court in a related case. The ITAT upheld the CIT(A)'s decision, referencing legal precedents and finding no justification to overturn the tribunal's order. Consequently, the appeal was dismissed by the ITAT.