1995 (8) TMI 111 - AT - Income Tax

Summary

Issues Involved:
1. Reconciliation of Supreme Court decisions.
2. Obligation of collection.
3. Purpose of collecting deposits.
4. Comparison of bye-laws.
5. Interpretation of Bye-law No. 61A.
6. Adjustment of deposits towards losses.
7. Ownership of deposits during the collection period.
8. Ownership and use of money.
9. Interpretation of Bazpur Co-op. Sugar Factory decision.
10. Nature of trading operations and collections.
11. Relationship of creditor and debtor.
12. Validity of Bye-law No. 61A.
13. Classification of deposits as loans or income.
14. Nature of various funds collected.
15. Non-application of Madhya Pradesh High Court decision.

Detailed Analysis:

1. Reconciliation of Supreme Court Decisions:
The Tribunal reconciled the Supreme Court decisions in CIT vs. Bijli Cotton Mills (P) Ltd. and Chowringhee Sales Bureau (P) Ltd. vs. CIT, concluding that the taxability of a trading receipt as income depends on the nature, object, and obligation of the receipt, not merely on the method or point of collection. This was done without considering the decisions in CIT vs. Bazpur Co-operative Sugar Factory and Punjab Distilling Industries Ltd.

2. Obligation of Collection:
The Tribunal held that the key factor is the obligation under which the amount was collected, rather than the method or timing of collection, disregarding the Supreme Court's decisions in Bazpur Co-op. Sugar Factory and Punjab Distilling Industries P. Ltd.

3. Purpose of Collecting Deposits:
The Tribunal determined that the deposits were collected with the purpose of issuing shares after repaying loans, even though it acknowledged that the primary purpose was to secure funds to repay loans and then convert the deposits into share capital, leading to a contradiction.

4. Comparison of Bye-laws:
The Tribunal concluded that there is a total difference and dissimilarity between the unamended bye-law of Bazpur Co-op. Sugar Factory and Bye-law No. 61A, despite substantial similarities except for the loss Equilisation Fund.

5. Interpretation of Bye-law No. 61A:
The Tribunal interpreted Bye-law No. 61A, focusing on the primary purpose of repayment of loans and time deposits, and found that non-refundable deposits were to be converted into share capital only after the repayment of loans.

6. Adjustment of Deposits Towards Losses:
The Tribunal concluded that only when part of the deposit is adjusted towards losses does the amount belong to the assessee; otherwise, it remains with the depositors.

7. Ownership of Deposits During Collection Period:
The Tribunal held that during the period the deposits remained with the assessee, they were regarded as a liability and not the assessee's own money.

8. Ownership and Use of Money:
The Tribunal concluded that the depositors, as lenders, are the owners of the money, while the assessee is entitled to use the money, but does not own it.

9. Interpretation of Bazpur Co-op. Sugar Factory Decision:
The Tribunal interpreted the Bazpur Co-op. Sugar Factory decision to mean that only deposits that get consumed amount to trading receipts, ignoring the broader implications of the decision.

10. Nature of Trading Operations and Collections:
The Tribunal distinguished between collections involved in trading operations and mere retention of money, concluding that the trading operation was only an occasion for retention of money, not a consideration for supply of cane.

11. Relationship of Creditor and Debtor:
The Tribunal held that the payment of interest on deposits indicates a creditor-debtor relationship, contrary to the argument that such deposits were not loans.

12. Validity of Bye-law No. 61A:
The Tribunal rejected the argument that Bye-law No. 61A was a make-believe affair, despite the fact that loans and other liabilities were nil and the State Government's share capital was insignificant.

13. Classification of Deposits as Loans or Income:
The Tribunal treated non-refundable and refundable deposits as loans and not as income, based on their temporary possession and the lack of voluntariness or mutual understanding between the assessees and the cane growers.

14. Nature of Various Funds Collected:
The Tribunal held that collections for various funds like the Chief Minister's Fund, Hutment Fund, Small Savings Scheme, and Y.B. Chavan Memorial Fund were not trading receipts liable to tax, as they were impressed with a legal obligation for specific purposes.

15. Non-application of Madhya Pradesh High Court Decision:
The Tribunal did not follow the Madhya Pradesh High Court's decision in Jiwajirao Sugar Co-op. Ltd. vs. CIT regarding the Area Development Fund and Cane Development Fund, based on its interpretation of the nature and purpose of these funds.

Conclusion:
The Tribunal's findings and interpretations led to the conclusion that the non-refundable deposits and various funds collected by the assessee were not to be treated as trading receipts and should not have been brought to tax. The decision was based on a detailed analysis of the nature, purpose, and obligations associated with the collections, as well as a comparison of relevant Supreme Court decisions and bye-laws.