9911796707
TMI Blog1990 (3) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... ticed that the-following payments, inter alia, were made during the year :--- 1 . Regular price paid during the course of procurement of milk Rs. 48,36,21,076 2. Additional price paid on the last day of the accounting period Rs. 5,47,69,105 Payments were made according to the following prices for the period mentioned below:--- Period Rs. per kilofat buffalo milk Cow milk 1-4-83 to 20-12-83 41 18.10 21-12-83 to 31-1-84 43 19.10 1-2-84 to 31-3-84 46 20.35 The ITO enquired of the assessee how these prices were decided, as stated by him, several times but he did not get any definite reply. He noticed that on the last day of the accounting period the assessee's board of directors by a resolution sanctioned an additional payment at the rate of 121/2% and 15% of what the members were paid from April to February in respect of buffalo milk and cow milk respectively. He has noted that the resolution does not spell out the necessity or justification for making such payment and also how the aforesaid percentages, i.e., 12 1/2% and 15%, were decided upon. The ITO asked the assessee to explain the basis of this payment and the computation thereof. It is unnecessary to give detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter i.e., in the month of March before the books of account are closed and adjusted and profits determined. The union therefore denies having distributed any profits amongst its member co-op. societies but paid final price to member co-op. societies on the basis of the quantity of milk supplied by them. We deny having distributed any percentage of profit to member societies who supplied milk to us.... The final price is determined by the board keeping in mind the market price of milk prevailing in our region and keeping in mind the supply and flow of milk.... If the price is not paid at the prevailing market rate, the member societies would stop supplying milk to us and they will be tempted to sell the milk to other persons paying them higher price. . . . " The assessee, vide its letter dated 23-1-1987, inter alia, stated : "Taking into consideration the overall position of market price of buffalo milk, the final price was determined and allowed to the supplier of milk at the rate of 47.02 per kilo fat of buffalo milk supplied during the year and on the same line Rs. 21.18 per kilo fat of cow milk supplied during the year, which was taken as a base for allowing 12 1/2% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. He has crystallised these factors into the following questions: - What was the seasonal production of milk? - What were the prices of feed and fodder? - What was the purchase price of milk by private traders within the district and in the adjoining districts? - How much milk was available throughout India? His comment was that if these factors were really taken into account by the Directors then the data would have been put before the Board and if that was so why was it not supplied to the ITO. 4. Since, according to the ITO, the assessee had failed to supply the relevant facts and figures regarding the market conditions, be tried to ascertain the facts himself. He has mentioned the case of one Ambica Dairy Farm where the price offered for buffalo milk was Rs. 26 per kg. fat from 1-4-1983 to 4-11-1983 and Rs. 40 per kg. "at from 5-11-1983 to 31-3-1984. From this he has drawn the inference that because of this huge difference between the price paid by the assessee and that paid by the said Ambica Dairy Farm the assessee was not producing the required data regarding market price. The ITO has then addressed himself to the question why the assessee has raised the pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproach of the ITO was totally wrong and that the ITO had failed to appreciate that this was a case of a co-operative society. He explained that the purpose of the assessee was to obtain the best price for the milk supplied by the actual producers and to eliminate the middle man. He pointed out that the assessee ensured that the benefit reached the consumer. In that connection he referred to the preamble to die Co-operative Act emphasising that it was the purpose of the co-operative movement to promote self-help among the members, majority of whom were poor farmers. He submitted that the ITO had passed an unstatable and ridiculous order and that if this assessment was upheld it would adversely affect the suppliers, many of whom were poor people, and the co-operative movement generally. He supplied two sets of figures - one showing the comparative position of payments made by similar societies and the other showing payments made by the assessee over a period of years. The former is as follows: DETAILS OF AVERAGE PURCHASE PRICE PAID PER KG. FAT ---------------------------------------------------------------------------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1982-83 the prices were revised as many as 8 times. He then said that although the circular mentioned decrease in prices that was never done because lower price was paid earlier which permitted increase in prices later on so that there would not be any disappointment or discontent to the suppliers. He said that the assessee had fully explained its stand in its letter dated 5-1-1987 to the ITO and that the insistence by the ITO regarding the data for market price was unreasonable. He submitted that from past experience the assessee had a good idea as to the market price and that the "Market price is the market price". Further he relied upon the decision of the Andhra Pradesh High Court in the case of Armoor Co-operative Marketing Society and the decision of the AAC in the case of Kaira District Co-operative Milk Producers' Union Ltd. for the assessment year 1960-61. He submitted that the department had not appealed against the said decision of the AAC and that it was accepted by it. According to him in that case even bonus payment was held to be allowable and so it was fully applicable to the present case. 7. In a forceful reply, Shri R.P. Bhatt, learned counsel for the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that it is the co-operative movement which is at stake here. There are cases where sometimes extra legal ,submissions are made but this one has the added factor of poverty of the farmers in whose case the sympathy of the Tribunal is sought to be aroused. It is this factor which gives certain special importance to this case. 10. Now, it is entirely true that the assessee is a co-operative society having the laudable object of helping the producers (many of whom might be poor farmers) in marketing the milk and eliminating the middle man's profit. But it is equally true that the assessee is a taxable entity under the Income-tax Act and no special provisions are made in that Act for assessing it. The arguments on behalf of the assessee ultimately came to. this that the assessee was merely a body which tries to get the best, price for the producers and after deducting its expenses it pays the sale proceeds to the producers and so the question of the assessee making any profit and distributing it does not arise. This substantially means that the sale price to the consumer was the cost price of the assessee. This is the second novel and special feature of this case which gives it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's case. In all of them what is undeniable is the manner of arriving at the quantum of payment to be made i.e., not with reference to a known market price at the time of purchase by the assessee but with reference to the price realised by the assessee subsequently. That is why those instances are inherently defective and cannot be taken into account here. 11. This payment has been made at the end of the accounting period. The assessee has tried to explain it by saying that the "final price" is paid, not in July or August when the accounts are closed and profits determined but in March. That is not convincing. In the end of March the financial position may not be known to the last naya paisa but it would certainly be known sufficiently to enable the assessee to give a "price" increase not by 12% or 13% but exactly by 12 1/2%. As the time passes, the receipt and expenditure would be known more and more and the assessee can know how much it can pay. End of the accounting period is relevant only from that angle because we, are here concerned only with the payment made at that time. Moreover the payment is made as the "price" of an earlier period. In other words, the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the case before him it was paid before close of the accounting year and (c) the decision of the Supreme Court in the case of Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521, delivered after the Tribunal's decision, made it necessary to reconsider the law applicable to the case before him. So far as the AAC's approach regarding the assessee as a pooling agency is concerned that has been considered above. Regarding the point (a) above in the AAC's order, debiting to milk purchase account is not important.. Entries in the assessee's books are not material. The nature of the payment has to be decided on objective criteria. Regarding point (b) above what is relevant is not whether the payment was made before or after the close of the accounting period but whether it was made at a time when the financial position of the assessee would be known to the assessee so that it could distribute the surplus after deducting the expenses from the total collection by way of sale proceeds. Regarding point (c) above, the AAC has not shown how the Supreme Court decision in the case of Poona Electric Supply Co. Ltd. was applicable to the case before him. In that case there was a statutory c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igher rate had to be paid. It was submitted that if this rate was not paid, the producer will sell the milk to others and so the assessee would not be able to get a continuous supply of milk. So far as the payment by other similar societies is concerned, as has been pointed out above, the manner of arriving at the payment was the same as in this case; the modus operandi of the other similar societies being the same. Therefore, the payments made by the others do not establish any market rate. Indeed there is no market so far as the transactions of these societies are concerned; the suppliers not being free to sell to any one other than their society. In the bye-laws of the society there is a provision that if milk is supplied to any one else by a member-producer a penalty of Rs.100 can be imposed and in case of such repeated default even the defaulter could be expelled from the society. Therefore, the risk of the member selling to any one else is not serious. So far as the rates paid by the assessee in the past are concerned, again the same difficulty arises i.e., the manner of arriving at the payment is the same as in this year. It may be true that similar payments have been made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the ITO's order giving effect to the Commissioner's order whereby the assessee's claim for deduction was allowed. 20. The fourth ground is that the Commissioner erred in confirming the disallowance made by the assessing officer of group insurance premium amounting to Rs. 9,34,006. The Commissioner had confirmed the disallowance on the ground that the farmers for whom the insurance had been taken were not members of the assessee society nor were they connected with its day to day activities and that there was no obligation on the assessee to take out such policies and incur the expenditure. Before us a copy of the rules of the Group Insurance Scheme has been supplied which shows that the benefit of that scheme was given to farmers who supplied milk for not less than 180 days in a year and the quantity was not less than 200 litres in one year and that the farmer should be a member of a society which was a member of the assessee-society. Before us it was pointed out that this claim had been allowed for all the years in the past and further that the expenditure in respect of insurance for cattle had been allowed. It was submitted that both, the cattle who produce the milk and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing officer of a sum of Rs. 12,000 under section 80VV. The assessee had incurred the following expenditure : Rs. 12,000 to M/s C.C. Chokshi Co., C.As Rs. 2,000 to -do- for hearing before the Tribunal. Rs. 3,000 to Shri J.P. Shah for hearing before the Tribunal. --------------------- Rs. 17,000 --------------------- Out of the total amount of Rs. 17,000 the ITO allowed Rs. 5,000 under sec. 80VV and disallowed the balance. He held that this balance could not be allowed u/s 37(1) because of the operation of section 80VV. The assessee filed a copy of the bill of M/s C.C. Chokshi Co. The assessee has submitted that the fees have been paid to the Chartered Accountants M/s C.C. Chokshi Co. for consolidated services rendered by them and that, therefore, provisions of section 80VV had no application. Since this is a consolidated bill, in our view, half the expenditure should be considered as having been incurred in respect of proceedings before the tax authority or the income-tax Tribunal or court and, therefore, covered under sec. 80VV. Out of the consolidated amount of Rs. 14,000, Rs. 7,000 must be taken to be covered u/s 80VV. The bill of Shri J.P. Shah is also cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified. The assessee had filed a return of 'nil' income and its case was that since no tax was payable the assessee was not liable to pay interest under section 215. It relied on the decision of the Gujarat High Court in the case of CIT v. Bharat Machinery Hardware Hart [1982] 136 ITR 875. The Commissioner has distinguished that decision on the ground that it was concerned with levy of interest under sec. 217(1)(a) owing to difference between the returned income and the assessed income because of certain additions made by the ITO. However, the Tribunal, Ahmedabad Bench 'B' in the case of ITO v. Maneklal Harilal Spg. Mfg. Co. Ltd. [IT Appeal No. 2553 (Ahd.) of 1985] vide its order dated 16-9-1987 has applied the said decision of the Gujarat High Court in the case of levy of interest u/s 215. Therefore, consistently with that decision of the Tribunal we can consider the applicability of that decision to the present case. Now, for the earlier years no addition based on facts similar to the addition of Rs. 5,47,69,105 has been made and so the assessee could be said to be under the bona fide belief that this year also no such addition will be made, The other additions also could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e" paid for the milk supplied by various Primary Milk Co-operative Societies over the entire previous year beginning 1-4-1983 and ending on 31-3-1984 and is allowable as a deduction. The case of the tax authorities on the other hand is that is is a case of "profit adjustment". According to the assessing officer the payment is "not guided by any commercial principles and therefore, is not allowable as an expense u/s. 37(1)". 2. I do not propose to repeat either the facts or the arguments advanced by the parties since these have been ably dealt with by brother. I will only refer to these wherever necessary. 3. The assessee is a Co-operative Society (hereinafter referred to as "Society") established under the Gujarat Co-operative Societies Act. Its members are Primary Co-operative Milk Producers' Societies situated in the various villages of Mehsana District. These numbers around 889 during the period under consideration. These Primary Societies in turn comprise of individuals who supply milk to the Primary Societies which then supplies it to the assessee. The individuals who are members of the Primary Societies' number around 2,20,000 during the period under consideration. 4. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: "Distribution of profits : 54. At the annual general meeting the gross profit earned in the previous year shall be announced and the following deductions shall be made : (A) (1) Interest payment on loans and deposits. (2) Working expenses (3) Losses (4) Depreciation on unions' plant machinery, buildings and other assets. (5) Taxes on land cesses, local taxes and rent. (6) Contribution to staff provident fund and gratuity fund after above provisions under 54(A) - the balance of profit if any, shall be provided for the following: (7) Provisions for bonus to employees not exceeding three months salary. (8) Provision for income-tax and other taxes. (9) Provision for capital redemption fund @ 10% on preference share capital. 54 (B) - The balance of net profits which then remains shall be divided as under: (1) 25% shall be transferred to General Reserve. (2) To contribute towards Gujarat State Co-operative Union Education Fund in terms of rule 31 of Gujarat Co-operative Societies Act. (3) Out of the remaining profit dividend shall be distributed on the paid up share capital as per provisions of Co-operative Act and Rules and as decided by the Annual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. There is also an allegation of design and purposeful intent in "maintaining" the profit at a particular figure. According to me these allegations are baseless and not supported by any evidence. They are mere surmises and conjectures. In case the turnover has increased the expenses have also shown an appreciable upward trend. 12. In respect of the year under consideration the ITO has failed to notice that huge additions to the tune of Rs. 5,07,86,915 were made towards "Fixed Assets". This not only led to an increased claim on account of depreciation to the tune of Rs. 1,58,36,628 as against Rs. 57,13,363 in A.Y. 1983-84 but also hiked up the deduction on account of investment allowance (addition of Rs. 2.71 crores towards plant machinery) from Rs. 8.96 lakhs in A.Y. 1983-84 to Rs. 68.14 lakhs in the year under consideration. The other items of expenditure and income on the other hand have maintained a normal upward trend in between A.Y. 1983-84 and 1984-85. 13. In case the increased claim on account of depreciation and investment allowance is ignored the profit would go up many times. These figures also belie the revenue's charge of a "maintained" figure of profit from yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively whereby "provisional prices" were determined covering the entire period from 1-4-1983 to 31-3-1984. The relevant portions of one of the circulars dated 27-1-1984 are as under: "This is to inform all the milk producing co-operative societies that with effect from the morning of 1-2-1984 the milk purchase price per kilo fat will be as under till the next change is intimated to you." "The prices fixed above are ad hoc/provisional from 1-4-1983 the prices for milk fixed as above are provisional. After considering the amount realised by the union of the milk received from the societies, at the end of the years, the final price increase/decrease will be decided and shall be intimated." 18. The fixation of the final prices was included in the agenda (item No. 7) for the Board of Directors' meeting to be held on 31-3-1984 for which notice was issued on 24-3-1984. The following resolution was passed at the said meeting : "The milk purchase prices paid to the milk producing co-operative societies during the year have been provisional. It is hereby resolved that the final prices be paid to co-operative societies to enable them to pay, to their milk producers on good milk supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orth and South have been less than what is paid to the farmers in Gujarat. It is a matter for concern, as to up to what extent, we can increase and maintain the ever increasing trend in the purchase price of milk. It is time that we realise limitation in this area of pricing and give a serious thought to the per animal increase in milk production." 21. The Government Auditors have taken note of the activities of the assessee and the payment position for the supply of milk as under :--- "Main activity and aim of the Union is to see that milk producers' of the district get better milk prices ......." "Keeping in view the above aims, Mehsana District Milk Producers' Union Ltd. has undertaken vide spread development activities. The milk producers' of the district are integrated by the Union through affiliated co-operative societies and has collected the milk produced by their cattle and from this milk, by manufacturing and selling ghee, powder, butter, casein etc. and by this it has led to give maximum possible purchase price of milk." "(i) The milk collected and processed and sold by the Union with a view to give supporting milk prices to the milch animals owners are as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------------------------------------------------------------------------- 23. It is apparent that the average payment towards "final price" to each individual who has supplied the milk comes to Rs. 248.95 which is lower than the average of Rs. 285.75 and Rs. 255.22 for A.Y. 1983-84 and 1982-83 respectively. It is rather strange that an average payment of Rs. 248.95 per person over a period of one year is viewed as a "tax evasion Scheme". 24. A few words at this stage about the "sample" collected by the ITO about the prices prevailing with a private dairy in Mehsana for the relevant period. I am of the view that this example does not advance the revenue's case inasmuch as a private dairy operates on a very small scale and does not have large overheads as would be the case of the assessee. The quality of the milk is also bound to differ. An examination of the figures collected by the ITO shows that the price per kilo fat of buffalo milk from 1-4-1983 to 4-11-1983 was Rs. 26 when it suddenly jumped to Rs. 40 from 5-11-1983. This sudden jump could only be attributed to various market conditions the most important being the demand and supply posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red and pass it on to the suppliers. (8) A similar system of payment of "final price" has been adopted by other societies in the State of Gujarat and accepted by the tax authorities. (9) No action has been taken by the department to revise the completed assessments of earlier years where similar payments on account of "final price" have been made. (A statement at the bar to this effect was made by the assessee's counsel). (10) The payment of Rs. 5,47,69,105 distributed over 2,20,000 members of the primary societies works out to Rs. 248.95 per person as against figures of Rs. 5,48,64,234 and Rs. 285.75 respectively for asst. year 1983-84 (the latter figures have been accepted by the department). (11) The "comparable case" relied upon by the department was in fact not "comparable" and was not even put across to the assessee to meet it. 26. In the final analysis I would hold that the payment of Rs. 5,47,69,105 towards "final price" for procuring milk is an allowable deduction. Reference u/s 255(4) of the Income-tax Act, 1961 Per Shri K.R. Dixit, Judicial Member - A difference of opinion has arisen amongst the Members who constituted the Bench. The following point of dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osal : Clause 4.2, sub-clause 2.2 "To make arrangements for the disposal of the milk and the milk products of its members or of the members of its affiliated societies, on commission basis or to purchase the milk and milk products of its members or the members of its affiliated societies it her on cash or on credit as the circumstances permit and dispose of them to the best advantage. Also to purchase milk from private sources in case the supply from members falls short of the demand." The affairs of the assessee society are regulated, controlled and supervised by a Board of Directors, twelve of whom are drawn from the affiliated societies, one representative of other societies and individual members, one nominee of the Registrar of Co-operative Societies, one nominee each of the Financial Institutions like Gujarat Industrial Investment Corporation, Indian Dairy Corporation, National Dairy Development Board, Mehsana District Central Co-operative Bank Ltd. The Managing Director is the ex-officio member. One member is also drawn from Gujarat Co-operative Milk Marketing Federation Ltd. The manner of distribution of profits also was provided in clause 54 of the Articles, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es determined were only provisional e.g. in the circular dated 27-1-1984, by which the price was revised to Rs. 46 and Rs. 20.35 per kilo fat respectively for buffaloes and cows milk, circular read as under: "This is to inform all the Milk Producing Co-operative Societies that with effect from the morning of 1-2-1984 the milk purchase price per kilo fat will be as under till the next change is intimated to you. The prices fixed above are ad hoc/provisional from 1-4-1983 the prices for milk fixed as above are provisional. After considering the amount realised by the Union of the milk received from the societies at the end of the years, the final price increase/decrease will be decided and shall be intimated." Mr. Bhanot made It was in pursuance of this undertaking to fix the final price increase or decrease that the Board of Directors of the assessee society at its meeting held on 31-3-1984, for which notice was issued on 24-3-1983, passed the following resolution: "The milk purchase prices paid to the Milk Producing Co-operative Societies during the year have been provisional. It is hereby resolved that the final prices be paid to Co-operative Societies to enable them to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Farms Highway, the price paid by the assessee society was much higher. Therefore there was no need to pay still higher prices at the end of the year by calling it additional price determined on the basis of the market rates. (f) A comparison of the assessee's book results over a period of 5-6 years in the past showed that even though the turnover was steadily maintained by passing off the extra money earned to the suppliers by way of additional price the net profit ranging between 0.38% to 0.23%. (g) He arrived at the conclusion that to arrive at the profit margins of the earlier years, the excess money was paid off and it was that excess money that worked-but to 12 1/2% and 15 1/2% respectively on buffalo and cow milk. Thus the assessee had adopted a scheme for evasion of income-tax. (h-i) The Income-tax Officer also noticed that for the month of February, 1984 the price paid was Rs. 51.75 for buffalo milk and 23.40 for cow milk but that rate slipped down to Rs. 46 and Rs. 23.35 respectively for the next month of March, 1984 and there was no reason as to why the prices had slipped down. (j) He also referred to the fact that while the average purchase price was higher in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r point was decided by the Appellate Asstt. Commissioner in favour of the assessee. The Commissioner (A) declined to place reliance upon this decision on the ground that the facts were distinguishable. He went to the extent of remarking that the obligation to pay the additional purchase price was a self generated obligation and the payments made, in discharge of such an obligation would not entitle the payment to a deduction. 7. Then there was an appeal to the Tribunal and after the arguments addressed to it by both the sides, the learned Judicial Member held in favour of the department while the learned Accountant Member held in favour of the assessee. The main argument addressed before the Tribunal was that the prices originally paid were only provisional, that there was an undertaking to pay the final price at the end of the year taking into account the results of the trading in the year as a whole and that in any case the assessee society being a co-operative society, the purpose was to obtain the best price for the milk supplied by eliminating the middle-man and helping the producers and by this process the assessee society ensured that the benefit reached the consumers. To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of the assessee society that the prices determined at the end of the year was a business requisite and not an apportionment of profits and that there was an obligation on the part of the assessee society to make the final payment as the prices earlier fixed were only provisional. I would, however, prefer to reproduce the final conclusion of the learned Judicial Member: "The essential point is that the rate of payment increases with the financial position of the assessee and not with the market price. As stated above the payment made by other similar societies cannot be taken into consideration as proof of the market price. Therefore, there is no satisfactory evidence regarding the market price produced by the assessee but evidence to the contrary has been produced by the Income-tax Officer. The assessee, looking to its financial position, fixes the price as on an earlier date. It is because of this correlation of the rate of payment with the financial position of the assessee coupled with the failure to produce satisfactory evidence of the market price, that the claim of the assessee cannot be accepted. Therefore, both the Income-tax Officer and the Commissioner are right w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red other services to the milch animal owners. From this report he drew the inference that payment of higher price was a necessary commitment for the carrying on of the business by the assessee society and the milk price paid had to be compared with the prices paid by other societies. He also referred to the average final price paid to the primary societies over a period of 5 years starting from the assessment year 1980-81 and ending with the assessment year under appeal and found that while the average purchase price paid to the primary societies in 1983-84 was Rs. 280.75, the average purchase price paid in the assessment year under appeal was only Rs. 248.95, which showed that what was paid was much lower including the final payment made and therefore there could not be any suspicion about this payment as being normal incident of business and the theory that it was apportionment of profit was wrong and ill advised. He was also not prepared to place reliance on the sample collected by the Income-tax Officer as the assessee in that case was a small trader with a different variety of milk His final conclusion was that the final price paid does have a relationship with the ultimate r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to prove that what was determined to be paid represented or at least approximated to the market price. That evidence was either withheld or was lacking and therefore the conclusion drawn by the department was the inevitable conclusion. It is wrong to suggest, the learned counsel for the department argued, that the assessee society had no object of profit making. He relied upon a decision of the Gujarat High Court in the case of CIT v. Navsari Cotton Silk Mills Ltd. [1982] 135 ITR 546 in this connection. 12. The learned counsel for the assessee in reply submitted that had the increase not been allowed, the rate paid would have come to Rs. 41 per kilo fat, which was lower than Rs. 45.75 paid in the previous year and no supplier would agree to receive such a low price unless there was an expectation firmly embedded in it that the prices ultimately paid at the end of the year would not be lower than the price received in the earlier years. The assessee society could not also over look the escalation in the prices of inputs so as to reduce the price from Rs. 45.75 per kilo fat paid in the previous year to Rs. 41 per kilo fat paid in the year under appeal disallowing the additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end of the year. Merely because an adjustment had taken place at the end-of the year that should not by itself become suspect, which appears to me to be the sole cause for the entire exercise that was undertaken by the department in this case. When an undertaking was given by the assessee society to the members that they were fixing a provisional price at that time and that they would revise the price at the end of the year either upward or downward, it becomes an offer made to the societies to purchase the milk subject to those conditions and when the milk was supplied by the primary societies accepting those conditions, it became a sort of contract or an agreement between the assessee society and the primary societies that the prices paid would be provisional and that the final price would be paid at the end of the year. This contract or agreement has legal implications. It become enforceable at law. The assessee society had incurred an obligation to adjust the prices at the end of the year although the quantum of the adjustment was left undecided and open and was at the discretion of the Board of Directors. If the Board of Directors do not discharge this obligation, any aggrieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se prices made from time to time, as often as 8 times in some of the previous years and three times in this accounting year, amounted to creation of a contractual obligation, the responsibility of performing which was squarely on the management (i.e.) on the Board of Directors. Therefore the rule laid down by the Andhra Pradesh High Court in the case of Armoor Co-operative Marketing Society is clearly applicable and in my opinion it is not correct to say that the principles laid down by the Andhra Pradesh High Court were not applicable to the facts of this case. As rightly pointed out by the learned Accountant Member the average price paid to the primary societies this year was far less than the price paid in the previous year including the additional price. It is unthinkable that the primary society would agree to supply the milk to the assessee society at prices far lower than the price paid to them in the earlier years i.e. as against Rs. 285.75 paid in the previous year the price paid this year was only Rs. 248.95, still lower than that. That only shows that the conditions in the year under appeal were not so favourable as to pity them a higher price than in the previous year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Neither in fact nor in law, this proposition has got roots. Nor can it be said as pointed out by the learned Judicial Member, that the prices paid by other similar societies do not reflect the ruling market prices. In fact if I may make an observation here that it is the price paid by other similarly situated societies that do reflect the market price and there could not be a better price index differentiating from those prices reflecting the market price. In other words, market price cannot mean the prices paid by solitary individuals carrying on business as suppliers of milk to the house hold on a minor scale as compared to the large scale of supplies made by similar societies. Therefore reliance upon the evidence that the Income-tax Officer claimed to have collected as representing the market price do not, in my opinion, reflect the market price in contradistinction to the prices paid by the other similarly situated societies. In fact it is the eventual financial position that will determine the final prices and therefore eventual financial position has to invariably have a correlation to the rate of payment to be fixed at the end of the year and this factor cannot be dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
