Home › Tax Laws › National Co -Operative Development Corporation v .CIT (2020) 427 ITR 288 / 274 Taxman 187 / 119 taxmann.com 137 / 193 DTR 409/ 316 CTR 593(SC) www.itatonline.org Editorial: Decision in National Co-Operative Development Council v. CIT [2008] 300 ITR 312 (Delhi) (HC) reversed.

National Co -Operative Development Corporation v .CIT (2020) 427 ITR 288 / 274 Taxman 187 / 119 taxmann.com 137 / 193 DTR 409/ 316 CTR 593(SC) www.itatonline.org Editorial: Decision in National Co-Operative Development Council v. CIT [2008] 300 ITR 312 (Delhi) (HC) reversed.

S. 37(1) : Business expenditure – Business income- Income from other sources – Interest income – Assessable as business income – Real income theory – Diversion by overriding title – Assessee for preceding years not claiming adjustments does not preclude right of assessee to make out case of mistake at a subsequent date- Disbursements of grants was held to be core business of appellant expenditure incurred in course of business and for purpose of business is allowable as deduction -Recommendation-
A Committee of legal experts presided by a retired Judge can give its imprimatur to the settlement -A vibrant system of Advance Ruling can go a long way in reducing taxation litigation.- This is true even of disputes between the taxation department and private persons, who are more than willing to comply with the law of the land but find some ambiguity- A council for Advance Tax Ruling based on the Swedish model and the New Zealand system may be a possible way forward. [ S.4, 28(i), 56 ]

Dismissing the appeal of the revenue the ,court held that to decide whether a particular source is business income, one has to look to the notions of what is the business activity. The activity must have a set purpose. The fact that the assessee does not carry on business activity for profit motive is not material as profit making is not an essential ingredient .  The Act requires 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. Every application of income towards business objective of the assessee is a business expenditure and nothing else .   Accordingly the disbursements of grants was held to be core business of appellant  expenditure incurred in course of business and for purpose of business  is allowable as deduction  . Obiter dicta : “A number of litigations arise inter se the Government and its bodies. One of the main impediments to such a resolution, plainly speaking, is that bureaucrats are reluctant to accept responsibility of taking such decisions, apprehending that at some future date their decision may be called into question and they may face consequences post retirement. In order to make the system function effectively, it may be appropriate to have a committee of legal experts presided over by a retired judge to give their imprimatur to the settlement so that such apprehensions do not come in the way of arriving at a settlement. It is our pious hope that a serious thought would be given to the aspect of dispute resolution amicably, more so in the post-COVID period.
In so far as taxation matters are concerned, they are consistently sought to be carved out as a separate category of cases. A vibrant system of advance rulings can go a long way in reducing taxation litigation. Instead of first filing a return and then facing consequences from the Department because of a different perception which the Department may have, an advance ruling system can facilitate not only such a resolution, but also avoid the tiers of litigation which such cases go through as in the present case. In 2000 public sector companies were added to the definition of “applicant”, and in 2014, it was made applicable to a resident who had undertaken one or more transactions of the value of Rs. 100 crores or more. In so far as a resident is concerned, the limit is so high that it cannot provide any solace to any individual, and it is time to reconsider and reduce the ceiling limit. The aim of any properly framed advance ruling system ought to be a dialogue between taxpayers and revenue authorities to fulfil the mutually beneficial purpose for taxpayers and revenue authorities of bolstering tax compliance and boosting tax morale. This mechanism should not become Anr. stage in the litigation process.
Thus, the Central Government must consider the efficacy of the advance tax ruling system and make it more comprehensive as a tool for settlement of disputes rather than battling it through different tiers, whether private or public sectors are involved. A council for advance tax rulings based on the Swedish model and the New Zealand system may be a possible way forward.” . ( AY.1976 -77 1981-82 to 1983-84)   (CA Nos  5105-5107 of  2009 dt .11-9 2020)