9911796707
TMI Blog1988 (5) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of manufacture and sale of sugar and runs a mill situated at, Bazpur. The relevant assessment year is the assessment year 1961-62, corresponding to the accounting year July 1, 1959, to June 30, 1960, which was the relevant co-operative year. The assessee had established a fund called Loss Equalisation and Capital Redemption Reserve Fund . On the opening day of the year of account, namely, July 1, 1959, a sum of ₹ 1,30,196 stood to the credit of this fund. During the relevant accounting year, the respondent-society added a sum of ₹ 5,15,863 to this fund by deduction from the price payable by the respondent to its members for the supply of sugarcane received from it's members. These deductions were made under the provisions of bye-law 50 of the bye-laws of the respondent-society, to which we shall presently come. Bye-law 50, under which the said amount was deducted from the price payable by the respondent to its members for the supply of sugarcane, at the relevant time ran as follows : There shall be established a Loss Equalisation and Capital Redemption Reserve Fund in the society. Every producer-shareholder shall deposit every year a sum not le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto force from July 1, 1958. The Income-tax Officer, in assessing the respondent for the relevant assessment year, held that the said sum of ₹ 5,15,863 represented a revenue receipt and was liable to be included in the taxable income of the assessee. On appeal, the Appellate Assistant Commissioner affirmed the view of the Income-tax Officer holding that the case has to be decided on the basis of the bye-law as it stood during the relevant accounting year. The respondent-assessee went in appeal to the Income-tax Appellate Tribunal which took the view that the amended bye-law 50 must be held to be operative even during the relevant previous year in view of the retrospective amendment thereof and that in view of the said amended bye-law 50, the deposits made by the members by way of deductions from the price as contemplated by bye-law 50 were in the nature of permanent liabilities and hence they were capital receipts and not liable to be included in the taxable income of the respondent-assessee. The Tribunal allowed the appeal of the assessee and directed that the said amount of ₹ 5,15,863 should be deducted from the taxable income of the assessee as determined by the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red under section 43 of the Co-operative Societies Act, 1912, the Government of U.P. framed certain rules known as the United Provinces Co-operative Societies Rules, 1936, for registered societies and these rules were in force at the relevant time. The relevant portion of rule 8 under the heading III-Bye-laws ran as follows: A society shall, subject to the provisions of the Act and of the rules, make bye-laws in respect of the following matters, namely:- (1) the name of the society; (2) its registered address ; (3) its aims and objects; and (4) the purposes for which its funds may be applied. Rule 10 conferred power on a society to make bye-laws in respect of any other matter incidental to the management of its business. Rule 11 which deals with the amendment of rules runs as follows : An amendment may be made in the bye-laws, i.e., a bye-law may be altered or rescinded or a new bye-law added by a resolution passed by the votes of at least two-thirds of the members present at a special meeting called for the purpose. It was submitted by Mr. Ahuja, learned counsel for the appellant (Revenue), that the amendment of bye-law 50, although it was purport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may also refer here to the decision of this court in Co-operative Central Bank Ltd. v. Additional Industrial Tribunal [1970] 40 Comp Cas 206, 217, where it has been stated by this court as follows : We are unable to accept the submission that the bye-laws of co-operative society framed in pursuance of the provisions of the Act can be held to be law or to have the force of law. It has no doubt been held that, if a statute gives power to a Government or other authority to make rules, the rules so framed have the force of statute and are to be deemed to be incorporated as a part of the statute. That principle, however, does not apply to bye-laws of the nature that a co-operative society is empowered by the Act to make. The bye-laws that are contemplated by the Act can be merely those which govern the internal management, business or administration of a society. We may mention that the Act under which the bye-laws were framed was the Andhra Pradesh Co-operative Societies Act, 1964. In the light of the decisions discussed earlier, it appears to us that the respondent-society had no authority in law to amend bye-law 50 with retrospective effect as it purported to do. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the relevant accounting period. If the provisions of the unamended bye-law are to be applied, it is clear that these amounts which were deducted by the respondent from the price payable to its members on account of supply of sugarcane were deducted in the course of the trading operations of the respondent and these deductions were a part of its trading operations. The receipts by way of these deductions must, therefore, be regarded as revenue receipts and are liable to be included in the taxable income of the respondent. It is urged by Mr. Manchanda, that these receipts have been described in the bye-law 50 as deposits, but we fail to see how they can really be regarded as deposits. It was held by this court in Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542, that it is the true nature and quality of the receipt and not the head under which it is entered in the account books that would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as a trading receipt. The same principle can be derived from the decision of this court in Punjab Distilli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the losses of the respondent-society in the working year ; thereafter in the repayment of initial loan from the Industrial Finance Corporation of India and then for redeeming the Government share and only in the event of any balance being left, it was liable to be converted to share capital. The primary purpose for which the deposits were liable to be used were not to issue shares to the members from whose amounts the deductions were made but for discharging the liabilities of the respondent-society. In these circumstances, the receipts constituted by these deductions were really trading receipts of the assessee-society and are liable to be included in its taxable income. In our view, the learned judges of the High Court were, with respect, in error in answering the question referred in the negative. In our opinion, the question referred must be answered in the affirmative and in favour of the Revenue. In the result, the appeal succeeds and is allowed with costs. The respondent shall also pay to the appellant the costs incurred in Income tax Reference No. 67 of 1979. Civil Appeal No. 564 of 1975. This is an appeal against the judgment of a Division Bench of the Allahabad Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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