NATIONAL CO-OPERATIVE DEVELOPMENT CORPORATION versus COMMISSIONER OF INCOME TAX, DELHI-V

Citation: [2020] 13 S.C.R. 517 · Decided: 11-09-2020 · Supreme Court of India · Bench: SANJAY KISHAN KAUL · Disposal: Disposed off

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Judgment (excerpt)

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   [2020] 13 S.C.R. 517
NATIONAL CO-OPERATIVE
DEVELOPMENT CORPORATION
v.
COMMISSIONER OF INCOME TAX, DELHI-V
(Civil Appeal Nos. 5105-5107 of 2009)
SEPTEMBER 11, 2020
[SANJAY KISHAN KAUL AND INDU MALHOTRA, JJ.]
Income Tax Act, 1961 – s.37(1)– Taxable income of appellant-
Corporation– Interest earned on funds received u/s.13(1), 1962
Act and disbursed by way of grants to national/state level co-
operative societies – If eligible for deduction – Not allowed by
Assessing Officer (AO) – CIT(Appeals) held the Corporation entitled
to deduction – Order set aside by ITAT – High Court decided in
favour of revenue – On appeal, held: 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
s.37(1) – Disbursement of grants is the core business of the
appellant-Corporation – Once that requirement is satisfied, the
expenditure incurred in the course of business and for the ‘purpose
of business’, would naturally be an allowable deduction u/s.37(1)
– Source of funds from which the expenditure is made is not relevant
– It is also not relevant as to whether the expenditure is incurred
out of the corpus funds or from the interest income earned by the
appellant – Findings arrived at by the AO, ITAT and the High Court
not agreed with –View taken by the CIT(A)concurred with – National
Cooperative Development Corporation Act, 1962 – ss.9, 12,
13(1),(2)– Finance Act, 2003 – s.36(1)(xii)– Finance Act, 2001 –
Finance Act, 2002.
Income Tax Act, 1961 – ss.14, 28, 56, 57 – Held: s.56 is in
the nature of a residuary clause, i.e., if the income of every kind
which is not to be excluded from total income under the IT Act would
be chargeable under this head if it is not chargeable u/s.14 heads
‘A’ to ‘E’.
Doctrines/Principles – Principle of diversion by overriding
title – When not applicable – Discussed –Income Tax Act, 1961 –
National Cooperative Development Corporation Act, 1962.
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SUPREME COURT REPORTS
[2020] 13 S.C.R.
Income Tax Act, 1961 – Determination of income – Held:
Scheme of the IT Act requires the determination of ‘real income’ on
the basis of ordinary commercial principles of accountancy – To
determine the ‘real income’, permissible expenses are required to
be set off – Income tax is a tax on real income.
Government Litigation:
Increase in, inter se government and its bodies – Impediments
and resolution – Discussed.
Taxation matters –Pertaining to Central Public Sector
Enterprises (CPSE) and government authorities –Advance tax ruling
system –Indian scenarios vis-à-vis international scenario –
Discussed.
Disposing of the appeals, the Court
HELD: 1.1 The appellant-Corporation, National Co-
operative Development Corporation, was established under the
National Cooperative Development Corporation Act, 1962
(NCDC Act). The functions of the appellant-Corporation are set
out in Section 9 of the NCDC Act, which is, inter alia, to advance
loans or grant subsidies to State Governments for financing
cooperative societies; provide loans and grants directly to the
national level cooperative societies, as also to the State level
cooperative societies, the latter on the guarantee of State
Governments. The funding process for the appellant-Corporation
is set out in Section 12 of the NCDC Act, by way of grants and
loans received from the Central Government.  The appellant-
Corporation is required to maintain a fund called the National
Cooperative Development Fund (for short ‘the Fund’) which is,
inter alia, credited with all monies received by it by way of grants
and loans from the Central Government, as well as sums of money
as may from time to time be realised out of repayment of loans
made from the Fund or from interest on loans or dividends or
other realisations on investments made from the Fund. In
furtherance of this, as and when surplus funds accumulated, the
appellant-Corporation invested the idle funds in fixed deposits
from time to time, which generated income.  Income by way of
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interest on debentures and loans advanced to the State
Governments/Apex Cooperative Institutions are credited to this
account. Even though the appellant-Corporation is an
intermediary or “pass through” entity, it is a distinct juridical
entity.  Its taxation status is as follows:
i. Insofar as funds are received from the Central
Government, these are treated as capital receipts, and hence
are not chargeable to 

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