Ropar District Cooperative Union Limited Vs DCIT (ITAT Chandigarh)
Royalty Paid Between Government Milk Unions Allowable: ITAT Chandigarh Deletes ₹2.28 Crore ‘Commission’ Disallowance in Multi-Year Appeals
The Chandigarh Bench of the ITAT allowed all five appeals of the Ropar District Cooperative Union Ltd. and deleted disallowance of commission aggregating to ₹2.28 crore (and corresponding amounts in other years), holding that the payments were in the nature of mandatory royalty between government-controlled cooperative societies and were allowable business expenditure.
The assessee, a government-constituted milk cooperative union, had paid amounts to other district milk unions for procuring milk from their milk-shed areas. The Assessing Officer disallowed the payments as non-genuine “commission” under Section 37, alleging absence of services and contravention of internal instructions. The disallowance was repeatedly sustained by the CIT(A) even after an earlier remand by the Tribunal.
Before the Tribunal, the assessee produced government minutes, inter-union agreements, letters under Section 133(6) and committee resolutions showing that payment @ ₹3 per litre was fixed by the Government of Punjab as royalty for operating in another union’s milk-shed area. It was also shown that recipient unions had declared the receipts as income and paid tax thereon.
The Tribunal held that the nomenclature “commission” was misleading and that the payment was in substance royalty mandated by government policy. Since no services were required to be rendered and the payment was compulsory under government instructions between statutory cooperative bodies, the expenditure was wholly for business purposes and could not be treated as gratuitous or excessive.
It further noted that disallowance would lead to double taxation since the recipients had already offered the income to tax. Accordingly, the additions made by the AO and confirmed by the CIT(A) were deleted for AY 2009-10 and all connected years (AYs 2012-13, 2013-14, 2014-15 and 2015-16).
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
