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TMI Blog2009 (4) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... also. 2. The assessee-societies are federal milk societies and its members are primary milk co-operative societies and the business of the assessee is to purchase milk from its members and other producers of milk at the rate i.e. similar to both the members and outside milk producers and sell the milk to various parties. The difference in purchase price and sale price after the normal expenses is the profit of the assessee- societies which is liable to tax. This profit in turn is distributed to the member primary milk co-operative societies. 3. The rate of purchase price is fixed by the board of the assessee-societies. The purchase price is linked to the fat content of milk and also varies according to seasons like the rate for purchase of milk in the lean season is different from the flush season. 4. The respondents fixes the rate of processing of milk at the beginning of the year on the basis of the price declared by the Government of Maharashtra and price which other buyers pay to the vendors. These rates are revised from time to time. It is made always clear that the rates are provisional to the final milk rate difference which is determined in the month of March every year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the findings recorded by the A.O. which we have reproduced earlier and which is affirmed by the C.I.T.(Appeals), the tribunal recorded as under : (i) The basic price itself was based on quality, any increase in basic price which was provisional was automatically linked with quality e.g.if price paid on the basis of fat and SNF content was X & Y final rate difference of say 25 paise increased theprice as X+ 25 paise &Y +25 paise. (ii) The supply by non-members was miniscule and that too only for two years. Therefore, non payment of final rate difference to outsiders does not convert the payments to members in respect of milk as appropriation of profits. Here, we may mention the case of Solapur District Cooperative Milk Producers and Process Union Ltd, a finding has been recorded that payment is made to members as well as non-members. (iii) The government only fixes minimum price to be paid. The board has authority under bye laws to fix the price of the milk purchased from time to time. In view of the cooperative principles, assessee tend to pass on the maximum price to its member societies. Similar situation was obtaining in Mehsana Districts case 282 ITR 24 wherein Gujrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med by the C.I.T. (Appeals) was justified. Apart from supporting the order of the ITAT, it is also submitted, that the profits were arrived at after debiting the expenditure by way of market rate difference and there was no allocation of the profits and this fact has remained uncontroverted. In the case of C.I.T. vs Shri Sarvaraya Sugars Ltd, (1987) 163 ITR 429 and Addl.C. I. T. Kanpur vs MP Sugar Mills (P) Ltd. (1984) 148 ITR 203, it has been held that the liability for additional price of sugar cane under price linking formula in the year the sugarcane is purchased and arises on receipt of goods and additional price paid relates back to such receipts. If this test is applied to the assessee's case, it would be squarely covered. Payment is made not in proportion to shareholding but, based on quality of milk and quantity supplied. The tribunal has further held that " If in the final accounts certain amounts are taken as liability for purchase of goods, quantified on the basis of quality or quantity of goods purchased then it cannot be said that the payment amounts to appropriation of profits. 10. Is the price difference paid out of the profits? Firstly, the profits have to be as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, admittedly the decision to pay the additional purchase price was based on the resolution of the Board of Directors, approved at the general meeting. 11. From the facts on record and arguments advanced what emerges is as under : 1) That the price difference paid in the case of Kolhapur society to its members and in case of Solapur society to both members and non-members ; 2) Payment is made only to members who are suppliers; 3) Payment is made to suppliers not on the basis of the shares held by them but, on the amounts of the milk supplied and on the basis of the fat content of the milk ; 4) The resolution to pay additional price is taken before the end of the financial year i.e. before the profits can be said to accrue though payment is made in the subsequent financial year; and 5) The profits are only payable in terms of section 65 of the Maharashtra Cooperative Societies Act, 1960. 12. A similar question had come up for consideration before the Gujrat High Court. The Gujrat High Court was considering in case of Commissioner of Income Tax vs Mehasena District Cooperative Milk Producers Union Ltd. (2005) (195 ) CTR 385, as to whether a claim for deduction was allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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