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TMI Blog2014 (9) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellant had used the money collected towards Area Development Activities for its business purposes during the period of delay in utilisation of the money. 3. The learned CIT(A) erred in holding that collections towards Area Development Fund were not impressed with a specific legal obligation to spend them for purposes unrelated to the appellant's business. 4. It may be held that during the period the appellant continued to hold the collections towards Area Development Fund in its custody, it was legally liable and obliged to spend these collections for the purposes they were collected and this liability did not get extinguished due to postponement of the spending of the said funds. 3. The briefly stated facts which emerge from the records are as under. The assessee, a Co-operative sugar factory which is engaged in the business of manufacturing and sale of sugar. The assessee is deducted certain amount from the bills payable to the members and non-members towards the supply of sugarcane and the said deduction is made and shown under the head Area Development Fund (in short "ADF"). The Assessing Officer in the origi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21st June, 1988, the Agriculture and Co-operation Department of the Government of Maharashtra framed certain directive principles laying down the modalities of utilization of Area Development Funds. The said order was issued in exercise of the power under section 79A of the Maharashtra State Co-operative Societies Act. This order passed during the middle of the last assessment year relevant to these appeals gives statutory basis for the already existing practice. It is difficult to equate this fund to the other categories of funds, as has been done by the Tribunal and affirmed by the High Court. Unlike the other funds like Chief Minister's Relief Fund, the amount collected towards Area Development Fund is retained by the sugar factory itself and utilized as per the guidelines issued by the Government or the National Cooperatives Development Corporation. The collective Body of the Society and its elected representatives take the decision as to how much amount has to be spent and for what purposes. The Director of Sugars or other designated official, no doubt acts in a supervisory capacity to oversee that the funds are properly utilized. On that account, it cannot be said that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment Fund" (CDF): "48. As far as Sugar Cane Development Fund is concerned, the case of the Revenue seems to stand on a stronger footing. In the paper-book, we find a Circular dated 18th August, 1986 in which certain directive principles have been laid down to regulate the expenditure to be incurred out of Cane Development Fund. The items specified in the directive principles are (1) green manuring, (2) lift irrigation schemes, (3) distribution of cane seeds and (4) construction of new wells or deepening of old wells. The sugar factory is required to make sure that any project which they want to undertake out of the Cane Development Fund is technically and financially sound and to send the proposals in advance to the Directorate of Sugar for requisite sanction. The projects will directly benefit the members and augment the sugarcane production which will incidentally help the Society in its manufacturing operations. The beneficiaries under the scheme are no other than the members of the Sugar Co-operative Society concerned and the advantage of enhanced production of sugarcane will ultimately be felt by the Society itself. Unlike the Area Development Fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 1541/PN/2007 and vide order dated 27-02-2009, the appeals of the assessees were disposed of restoring the matter to the file of the Assessing Officer by framing four questions for fresh determination. The operative part of the finding of the Tribunal in the second round is as under: "9. We first deal with the citation referred from the side of the revenue namely CIT v. Bazpur Co-operative Sugar Factory Ltd. [1988] 172 ITR 321 (SC). However, at the outset we can express our opinion that the receipt by way of deduction was regarded as revenue receipt and held to be included in the taxable income of the assessee was mainly because of the peculiarity of the facts that the impugned fund called "loss equalization and capital redemption fund" was meant for the purpose of meeting the losses of the sugar factory. After adjusting the losses, if any, in the working year, the deposit shall be allowed to accumulate and utilize for repayment of the initial loan from the Industrial Finance Corporation of India and finally redeeming the Government shares. The facts of the case have also revealed that the amount outstanding to the credit of this fund was to be used for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rkhana Ltd. [2000] 245 ITR 498 (Bom) is concerned the same was over ruled in part and remanded in part by the Hon'ble Supreme Court while deciding the case of Siddheshwar Sahakari Sakhar Karkhana Ltd. v. CIT [2004] 270 ITR 1 (SC) and this is the decision which is to be followed by all the sub-ordinate authorities including the Tribunal. In the light of the above discussion and in our humble understanding on the precedents cited ante we may like to conclude that the observation of the Hon'ble Supreme Court were two fold: First observation:- (i) The Apex court has held that the Hon'ble High Court fell into an error in invoking the theory of diversion of income at source and it was further held that the crux of the matter was that it never had been a diversion of income of a third party before it reached the assessee. The court has also made an observation that the impugned receipt in the form of Area Development fund always remained with the assessee. Second observation: (ii) That the question about the realization of fund being impressed w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation may depend on certain consideration of facts not so far brought on record. Definitely, the facts were about the scheme under which the Area Development Fund was collected and the obligation attached with the said scheme earlier when this issue had come up before the respected co-ordinate benches either it was remitted back to the file of the A.O or it was concluded with for want of information in those particular cases, the Area Development Fund was an income of the assessee, since it was not proved otherwise in the absence of availability of funds. In one of the decision as cited from the side of the revenue, it is true that the respected co-ordinate bench has taken a view that once the Hon'ble Supreme Court has pronounced that there was no diversion of income and the receipt remained with the assessee therefore, the fund was income in the hands of the assessee; but we have to state with restrain that the view so expressed was only one part of the decision of the Hon'ble Supreme Court and the other part of the decision of the Hon'ble Supreme Court has escaped the attention, as is evident from the relevant paragraphs reproduced above from the said order of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is aspect is in Para No. 8.5 which reads as under: "8.5 The second important question that arises is whether the Area Development Fund was impressed with a specific legal obligation to be spent for specified purposes. According to the learned A.R., in case of area development fund, it was impressed with a specific legal obligation to be spent for specified purposes unlike cane development fund. In fact, the learned A.R. pleaded that a clear finding of fact be given on this aspect of the matter as directed by the Supreme Court in the case referred above. As per the guidelines in the above order of State Govt. deductions made towards the Fund are to be generally used in accordance with the guidelines issued from time to time by National operative Development Corporation, New Delhi, and by the State Government for certain specified purposes as per priority to be decided by the Board of Directors of a sugar factory. The order also provides that the fund can also be utilized for a purpose not specified in the Bye Laws after obtaining sanction from Director of Sugar [clause 3(g) of the order]. It is thus clear from the order of the State Govt., the sugar factori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted by the assessee and the funds collected cannot be diverted for any other use save specified in the Government's order dated 18-09-1989 issued by the Department of Co-operative and Textile, Govt. of Maharashtra. He referred to the Paper Book Nos. 3 to 7 of the Compilation and submits that the assessee is bound to follow the said directions and the said fund is in the custody of the assessee in the capacity as a trustee. He submits that the amounts collected under the ADF are specifically identified in the balance sheet though the same are not kept in the separate bank account. He submits that the receipt in the hands of the assessee cannot be treated as income because the assessee cannot enjoy said fund and the assessee has not used a single rupees from the ADF. He also filed the chart showing that the amounts from the ADF are spent on the Hospitals, Schools, incentive to the Wrestlers, help to the persons affected by the fire, incentive for digging wells etc. It is argued that entire fund is utilised on Socio-economic programmes/projects. He submits that the order passed u/s. 79A of the MCS Act has put obligation on the assessee and it is the statutory duty of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und, (ii) Late Shri Y. B. Chavan Memorial Fund, (iii) Hutment Fund, (iv) Area Development Fund, (v) Cane Development Fund and (vi) Member's Small Savings Fund. So far as Chief Minister's Relief Fund, Late Shri Y. B. Chavan Memorial Fund and Hutment Fund, their Lordships confirmed the decision of the Hon'ble High Court by holding that said levied and collection cannot be treated as income as the assessee merely acted as an agent of the Govt. in collecting those amounts and remitted the same to the Government/Trustees. Their Lordships further observed that in truth and in substance, the money collected by the assessee sugar factory was not reaching the assessee as part of its income, but the collection was made "for and on behalf of the person to whom it is payable" as held in the case of CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 (SC). In sum and substance their lordships concurred with the view taken by the High Court that the assessee was merely acting an agent of the Government. 12. Same way while deciding the issue of Sugarcane Development Fund after considering the purpose for which the fund is to be used, their Lordships held that even if to some extent there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft upon for fresh determination by the Tribunal. In sum and substance their Lordships disproved the view taken by the High Court that so far as the collection made towards ADF is concerned the assessee sugar factory is merely agent of the Government as in the case of Chief Minister's Relief Fund, Late Shri Y. B. Chavan Memorial Fund and Hutment Fund. Now we have to examine this issue in the light of principles laid down by the Hon'ble Supreme Court in the case of Bijli Cotton Mills (P.) Ltd. (supra). 14. In the case of Bijli Cotton Mills (P.) Ltd. (supra), the assessee company used to realize a specified amount on account of "Dharmada" from its customers on sales of yarn and bales of cotton, and the said amount was credited in a separate account under the head "Dharmda" account, and the same was not treated as a trading receipts. Subsequently, the trust was also constituted and the said levy was treated as a trust fund which was to be utilised for the religious and charitable purposes. The said assessee claimed that the amounts levied and collected under the head "Dharmada" were held for the trust by it which were earmarked for charity and as such the said receipts were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions on which reliance was placed by counsel for the revenue, namely, Poosarla Sambamurthi's v. State of Madras [1956] 7 STC 652 (AP) and N.S. Pandaria Piilai v. State of Madras [1973] 31 STC 108 (Mad) are clearly distinguishable and inapplicable to the facts of this case inasmuch as both the decisions were rendered under sales tax legislation where the question that was required to be considered was whether the realisations for dharmam (charitable purpose) in the former case or mahimai (religious purpose) in the latter case would fall within the definition of "turnover" as contained in the concerned legislation and it was held that such realisations were includible in the assessee's turnover. We do not wish to express any opinion on the correctness of these decisions. Suffice it to state that the ratio of these decisions cannot apply to the instant case. Since the realisations in question in the present case are not a part of the price or surcharge on the price but payments for the specific purpose of being spent on charitable purposes, they cannot be regarded as trading receipts of the assessee. Dealing with the factual aspects on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to income-tax. The ultimate conclusion of the High Court is, therefore, confirmed and the appeals are dismissed with costs." 15. Before us the argument of the assessee is that the collection made by the assessee towards the ADF is impressed with the specific obligation to spend the same for specific purposes. The Director of Sugar, Maharashtra State vide letter dated 28-03-1974 informed the Maharashtra Rajya Sahakari Sakhar Karkhana Sangh Ltd. (federation of the sugar factories) that in the Minister's Committee meeting held on 27- 08-1973, a decision was taken that the Co-operative Sugar Factories should deduct ADF from the final cane price at Rs. 1/- per M.T. from members and non-members and the factories have been advised not to utilize the fund unless specific permission of this Directorate is obtained. In the said letter the view of the Sugar Factories were also called for. So this is a beginning when the Govt. machinery started to have the controlled and the collections made by the Sugar Factories towards ADF. The National Co-operative Development Corporation (Sugarcane Division), New Delhi vide letter dated 28-04-1977 issued to all the Co-operative Sugar Factories ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be used and approval for the meeting be obtained. (b) The funds so collected shall be spent by the Board of Directors as per the policy approved in the General Meeting. For spending money personally for an individual, prior permission of Director of Sugar may be taken. However, if a person suffers damage in natural calamities, the Board of Directors can utilize these funds on the basis of a certificate from local Revenue Officer not below the rank of a Tahsildar. (c) The said fund, as far as possible, be used within one year from the time they are credit with the factory. If for any reason they cannot be so utilized, they may be utilized in next year. (d) Separate account be maintained for this fund and the same should be got audited from the auditor. (e) Every year information on utilization of this fund should be submitted to the Director of Sugar, Government of Maharashtra, Pune. (f) If the funds are to be used outside area of operation or as an exception for a purpose not approved by the General Meeting, prior permission of Director of Sugar should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al given in the annual general meeting (AGM). The assessee has to submit the report every year in respect of the collection and utilization of the amount under the ADF to the Government. Nowhere, it is the case of the Revenue that any money is diverted by the assessee sugar factory for any other purpose other than approved in the AGM of the members. Merely because the amount collected is not kept separately in the bank account, the character of the amount will not change as held in the case of Bijli Cotton Mills (P.) Ltd. (supra). As submitted before us the assessee is required to submit the Auditor's Report to the Director of Sugar, Govt. of Maharashtra each year showing the opening balance of the ADF, amount collected during the year and utilized during the year (Page No. 29 of the Compilation). We, therefore, hold that the collection made by the assessee towards the ADF by way of deduction made from the sugarcane bills payable to the members and non-members is impressed with an obligation to spend the same for the specified purposes and the persons/Members paying contribution to ADF are aware before the deduction is made that for what purpose the assessee Co-operative Factor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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