After National Dairy Development Board (NDDB) claimed that because it had provided long-term financial help to several dairies, it was exempt from paying direct tax in the amount of Rs 990 crore. When evaluating the board's 2003–2004 filings, the IT department declined to accept the reductions allowed by section 36(I)(ii) of the IT Act.
The board reported a taxable income of Rs 81 crore in 2003–04, and the government issued a refund of almost Rs 15.61 crore. However, deductions of Rs. 9.90 crore were denied due to the fact that NDDB received public financial institution notification a year after they were requested. The IT department also stated that the financing provided to dairy cooperatives could not be defined as milk food under the Industrial Act and that the operation of the dairy industry cannot be referred to as an agricultural activity.
The HC heard the case in 2008, before the Income Tax Appellate Tribunal (ITAT), the NDDB unsuccessfully claimed for deductions on the financial help it had provided to milk cooperatives for the construction of a government financial institution.
The board's legal counsel argued that receivers of NDDB funds are engaged in agricultural development activity, and the assessment officer was unable to deny the deduction requested under this category by assuming the recipients were engaged in agricultural activity.
Additionally, the department erred in determining that those businesses producing milk meals do not create any new products as a result of which they cannot be included in the definition of a qualified business for the purpose of allowing their financier to claim deductions.
The bench of Chief Justice Aravind Kumar and Justice Ashutosh Shastri rejected NDDB's appeal after hearing the case and stated that giving long-term financing to various daily cooperatives for industrial or agricultural development cannot be considered long-term financing extended for agriculture or industrial development.
