2005 (6) TMI 31 - HC - Income Tax

Co-operative sugar factory income of society - various funds/deposits collected/deducted by the assessee-society out of the sugarcane purchase price payable to the cane growers - addition on account of non-refundable deposits (NRD) interest on non-refundable deposits the C.M s relief fund cane development fund education fund college fund famine relief fund sugarcane development fund small savings fund Whether tribunal is justified in deleting the additions holding that various funds/deposits collected by the assessee-society out of sugarcane purchase price payable to the cane growers are not the trading receipts of the assessee

Issues Involved:
1. Non-refundable deposits
2. Interest on non-refundable deposits
3. Chief Minister's relief fund
4. Famine relief fund
5. Hutment fund
6. Y.B. Chavan Memorial fund
7. Education fund
8. Cane development fund
9. Area development fund
10. College fund
11. Water scarcity fund

Detailed Analysis:

1. Non-refundable Deposits:
The primary issue was whether non-refundable deposits collected by co-operative sugar factories from members were trading receipts. The Supreme Court in Bazpur Co-operative Sugar Factory Ltd. [1988] 172 ITR 321 (SC) had earlier held such deposits to be trading receipts. However, the Special Bench of the Income-tax Appellate Tribunal in Shri Chatrapati Sahakari Sakhar Karkhana Ltd. [1992] 198 ITR (AT) 78 (Pune) distinguished the terms and conditions under the Maharashtra Co-operative Societies Act and ruled that these were not trading receipts. The Supreme Court in Siddheshwar Sahakari Sakhar Karkhana Ltd. v. CIT [2004] 270 ITR 1 (SC) confirmed that non-refundable deposits are not trading receipts due to their specific character, including the payment of interest and potential conversion into shares.

2. Interest on Non-refundable Deposits:
Interest on non-refundable deposits was similarly held not to be trading receipts. The Supreme Court's analysis highlighted that these deposits, along with their interest, were not income for the society as they were part of the members' wealth and involved expenditure for the society.

3. Chief Minister's Relief Fund:
The amounts collected for the Chief Minister's relief fund were not considered trading receipts. The Supreme Court ruled that these funds were collected by the society and transferred to the Chief Minister's relief fund, thus not constituting income for the society.

4. Famine Relief Fund:
The Supreme Court held that the famine relief fund, akin to the Chief Minister's relief fund, was not a trading receipt because the society could not retain these amounts, and they were used for specific relief purposes.

5. Hutment Fund:
Similar to other specific funds, the hutment fund was ruled not to be a trading receipt. The society collected and transferred these amounts to the Collector for providing facilities to hutments, thus not retaining them as income.

6. Y.B. Chavan Memorial Fund:
The Supreme Court held that the Y.B. Chavan Memorial fund was not a trading receipt as the amounts collected were transferred to the memorial fund, and the society did not retain them.

7. Education Fund:
The education fund was ruled not to be a trading receipt by the Division Bench of the Bombay High Court in Krishna Sahakari Sakhar Karkhana Ltd. v. CIT [1998] 229 ITR 577. The fund was a statutory obligation under the Maharashtra Co-operative Societies Act, and contributions were made to the State federal society, qualifying as business-related expenditure.

8. Cane Development Fund:
The Supreme Court held that the cane development fund was a trading receipt as the amounts collected were utilized by the society for its benefit and that of its members, thus qualifying as income.

9. Area Development Fund:
The Supreme Court left the determination of whether the area development fund was a trading receipt open for fresh consideration by the Income-tax Appellate Tribunal, noting the specific legal obligations and utilization modalities.

10. College Fund:
The court found insufficient material to determine the nature of the college fund and its utilization. The matter was left open for fresh consideration by the Tribunal.

11. Water Scarcity Fund:
Similarly, due to a lack of material on the provisions and utilization of the water scarcity fund, the court remanded the issue to the Tribunal for fresh consideration.

Judgment Summary:
- Appeal No. 9 of 1999: Affirmed in favor of the assessee, dismissing the appeal.
- Appeal No. 10 of 1999: Partly allowed; Tribunal's decision on non-refundable deposits, famine relief fund, and education fund upheld; sugarcane development fund not upheld.
- Appeal No. 12 of 1999: Partly allowed; Tribunal's decision on non-refundable deposits, interest on non-refundable deposits, and Chief Minister's relief fund upheld; cane development fund not upheld; water scarcity fund remanded for fresh consideration.
- Appeal No. 19 of 1999: Partly allowed; Tribunal's decision on non-refundable deposits, interest on non-refundable deposits, C.M.'s relief fund, and small savings fund upheld; cane development fund not upheld; area development fund remanded for fresh consideration.
- Appeal No. 21 of 1999: Partly allowed; Tribunal's decision on non-refundable deposits and C.M's relief fund upheld; cane development fund not upheld; area development fund remanded.
- Appeal No. 24 of 1999: Partly allowed; Tribunal's decision on non-refundable deposits and C.M's relief fund upheld; cane development fund not upheld.
- Appeal No. 26 of 1999: Dismissed; Tribunal's decision on education fund upheld; college fund remanded for fresh consideration.
- Appeal No. 27 of 1999: Dismissed; Tribunal's findings upheld.
- Appeal No. 28 of 1999: Dismissed; Tribunal's findings upheld.

The judgment clarifies the tax treatment of various deductions made by co-operative sugar factories, distinguishing between trading receipts and non-trading receipts based on the specific legal and operational context in Maharashtra.

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