TMI Blog1995 (8) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... ine the taxability of the trading receipt as income, but nature, object and obligation of the receipt"; without considering the decision in CIT vs. Bazpur Co-operative Sugar Factory (1988) 70 CTR (SC) 94 : (1988) 172 ITR 321 (SC) and Punjab Distilling Industries Ltd. vs. CIT (1959) 35 ITR 519 (SC) in such reconciliation? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that "what is relevant to see is not how the amount was collected and when it was collected but with what obligation it was collected", in total disregard of the Supreme Court's decision in Bazpur Co-op. Sugar Factory and Punjab Distilling Industries P. Ltd.? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the purpose of collecting the deposits i.e., deduction is to issue shares (but not immediately but after certain time, i.e., the time taken to repay the loans); when the Tribunal itself held in para 7 of its order that the main purpose of collecting the deposits from the cane growers by way of deduction from the cane price was to secure funds to repay the loan taken from the financial inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that during the period the deposits remained with the assessee, they are not regarded as assessee's own money but as only a liability and, therefore, a provision was made for payment of interest; when the conversion into shares is dependent on repayment of loans, etc., and when the conversion is discretionary and not binding till the assessee decides to convert the deposit into shares? 10. Whether, the Tribunal was factually and in law correct in concluding that the purpose of deducting these amounts and designating them as collection of deposits is towards share capital and conversion of the deposits into share capital is not contingent and nor it can only be of part of the deposit and not of the full amount, merely because there is a time lag between the date of the collection of the deposit and the conversion into share capital? 11. Whether, on the facts and in the circumstances of the case and in law the Tribunal was justified in giving a finding that they are not able to read the Bye-law 61A as affording a clue or a suggestion to say that the primary purpose of collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in holding that non-refundable deposit assumes character of a loan, rather than a trading receipt as it is part of the purchase price retained to be adjusted towards share capital, when in fact the deposits were a result of the composite trading transaction of the assessee agree to purchase sugarcane on the condition of deducting the amount from the purchase price towards the non-refundable deposits and unless the making and accepting such deposits has all the attributes of a trading receipt, debar of any legal liability to issue the shares, as was the case in Bazpur Co-op. Sugar Factory (1988) 70 CTR (SC) 94 : (1988) 172 ITR 321 (SC) and when there was no mere linkage of the deposits to the purchase price? 17. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in attributing to the Departmental Representative the argument regarding the deposits not to be regarded as substituting one creditor by another, when it was the argument of the learned counsel for the assessee that there was substitution of one creditor by another while the Departmental Representative all along argued that accepting the non-refundable deposits, did not give r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not determinant of creating relationship of creditor and debtor, as decided by the Bombay High Court in the case of Shree Nirmal Commercial Ltd. vs. CIT (1991) 96 CTR (Bom) 54 : (1992) 193 ITR 694 (Bom) and when the lack of security for the deposits was a pointer to the fact that these deposits were not loans but the income of the assessee? 22. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in rejecting the argument that the provisions in the bye-law No. 61A was only a make belief affair, in spite of the fact that loans and other liabilities were nil and the State Government's share capital was insignificant and could have been easily redeemed, on the basis of baseless assumption that such thing was done for good purpose and under the supervision of the State Government and when there is no evidence to show that the State Government has directed the assessee not to act as per its bye-laws concerning refund of the State Government's share capital and not to refund the share capital to the State Government? 23. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in rejecting the Revenue's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the case of CIT vs. Punjab Distilling Industries Ltd. (1964) 53 ITR 75 (SC) and coming to a conclusion that the receipt of non-refundable deposit admittedly under a contract of supply of sugarcane is not a trading receipt, by wrongly assuming that there existed legal liability to convert the non-refundable deposits into share capital? 29. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Supreme Court's ruling in Bijlee Cotton Mills P. Ltd. (1979) 8 CTR (SC) 1 : (1979) 116 ITR 60 (SC) applies and that the Supreme Court decision in the case of Bazpur Co-op. Sugar Factory (1988) 70 CTR (SC) 94 : (1988) 172 ITR 321 (SC) is inapplicable to the assessee's case and that the rulings in the case of Chowringhee Sales Bureau (P) Ltd. 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC) are inapplicable and in holding that the Revenue's claim is untenable and fallacious, when in fact the rulings of the Supreme Court in the case of Bijlee Cotton Mills P. Ltd. are totally inapplicable and those in the case of Bazpur Co-op. Sugar Factory and Chowringhee Sales Bureau (P) Ltd. were squarely applicable to treat the non-refundable deposits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Jiwajeerao Sugar Co-op. Ltd. vs. CIT (1988) 73 CTR (MP) 51 : (1989) 176 ITR 182 (MP) in respect of the Area Development Fund, on the basis of irrelevant considerations? 35. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law, in drawing a distinction between the funds created by deductions from the cane price payable for sugarcane to the sugarcane growers and the funds created or amounts collected out of sale proceeds, when there was no case for such distinction and when the assumptions on the part of the Tribunal was contained in para 30 of their order are incorrect and irrelevant? 36. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the amounts agreed to be kept in deposits for the sugarcane suppliers and contributed by them towards a compulsory levy made by the State Govt. under an Act for various development purposes the contributors being cane suppliers, the collecting agent being the Sugar Co-operatives and, hence, there is no income at all, when in fact, the so-called compulsory levy was not in any way different from the sales-tax collected by a trader from his cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposits, which were called refundable deposits. Under the powers taken by the State Government, the Director of Sugar issued instructions to these sugar factories to collect funds for what was called: (i) Area Development Fund, (ii) Cane Development Fund, (iii) Hutments Fund, (iv) Chief Minister's Relief Fund, (v) Members Small Savings Funds, (vi) Late Y.B. Chavan Memorial Fund, (vii) Members' Non-refundable deposits, (viii) Members' refundable deposits, (ix) Non-members refundable deposits, and, (x) Voluntary deposits of Members' Fund. Various amounts were collected from the cane growers out of the cane purchase price payable to them at various rates fixed by the Government under the instructions given by the Director of Sugar. For the collection of these funds, there was the authority of the Director of Sugar. A question then arose whether these deposits were taxable as income of the assessees. In all the previous years other than the asst. yr. 1984-85 these deposits were not treated as income of the assessees, i.e., trading receipts, though collected from the cane growers. But in the asst. yr. 1984-85 and 1985-86, which were in appeal in the ITA Nos. 714 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were also in appeal before the Tribunal, the Dy. CIT following the reasons given by the CIT for the earlier years, brought to tax these deposits of varying amounts. 4. On appeal, the learned CIT(A) confirmed the inclusion of these deposits as income of the assessee, relying upon the orders passed by the CIT and also supplemented them by additional reasons, which were that the distinction sought to be drawn between the case of the assessees and the case of Bazpur Co-operative Sugar Factory Ltd. before the Supreme Court was more in language than on facts. Recourse was taken to another decision of the Supreme Court in the case of McDowell Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), according to which it was open to the Department to penetrate the tax avoidance scheme if not a genuine tax planning scheme. There was no possibility for refunding the non-refundable deposits as stated in the bye-laws of the appellant itself. The refund of these deposits were almost non-existent over the years. Even though the bye-laws provided that the amounts should be refunded under certain stated circumstances, namely, on the resignation of the member or on his death. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the suppliers, they became trading receipts like sales-tax collections. He also invoked s. 43B of the IT Act to support the view that they were taxable. For the same reasons, he held that the refundable deposits of non-members were also taxable. For these reasons, the assessments made by the Dy. CIT were confirmed. Aggrieved by these orders passed by the CIT under s. 263 for the asst. yrs. 1984-85 and 1985-86 and by the learned CIT(A) for the other three years on appeal, the assessees preferred appeals before the Pune Bench of the Tribunal and on the recommendations of the Pune Bench, these appeals were placed for consideration before the Special Bench at Pune. 5. The Special Bench, after consideration of the facts and circumstances of the case, the arguments advanced on behalf of the parties, the provisions of the Maharashtra State Co-operative Societies Act, 1960, and the bye-laws of the assessee-societies, and the circulars issued by the Director of Sugar, came to the following findings: (i) that the non-refundable deposits were not to be treated as trading receipts and should not have been brought to tax as in the earlier years; (ii) the ownership of the refundable depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Hon'ble Supreme Court directly on the legal issue involved therein is not available, it would be necessary to refer the suggested question to the Hon'ble High Court for its opinion. In this connection, he contended that the Special Bench of the Tribunal was not justified in distinguishing the facts of the present cases from the facts involved in the case of CIT vs. Bazpur Co-op. Sugar Factory Ltd.. The Special Bench has erred in not following the ratio of the decision of the Supreme Court in the case of Bazpur Co-op. Sugar Factory Ltd.. In this connection, he also made a reference to the decision in the case of Punjab Distilling Industries Ltd. vs. CIT and submitted that this was the first decision of any superior Court on the facts of like nature. That decision has gone in favour of the Revenue and it has been held that the amount of such deposits/collections are to be treated as trading receipts. Elaborating his contention, he further submitted that for determining as to whether a particular collection is a trading receipt or not, its nature and character has to be seen at the time of collection and the subsequent refunds, even if any, did not make any material differenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. vs. CIT (1959) 35 ITR 519 (SC) in such reconciliation? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that "what is relevant to see is not how the amount was collected and when it was collected, but with what obligation it was collected", in total disregard of the Supreme Court's decision in Bazpur Co- op. Sugar Factory Ltd. and Punjab Distilling Industries P. Ltd. and (1964) 53 ITR 75 (SC)? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the purpose of collecting the deposit, i.e., deduction is to issue shares (but not immediately but after certain time, i.e., the time taken to repay the loans); when the Tribunal itself held in para 7 of its order that the main purpose of collecting the deposits from the cane growers by way of deduction from the cane price was to secure funds to repay the loans taken from the financial institutions, to repay the capital provided by the State Government and then to convert the deposit into share capital? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in coming to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case, the Tribunal was justified in law in holding that the fact that the interest was being paid on the deposits brings out the relationship of a creditor and debtor? 12. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in rejecting the argument that the provisions in the bye-law No. 61A was only a make belief affair, in spite of the fact that loans and other liabilities were Nil and the State Government's share capital was insignificant and could have been easily redeemed? 13. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in treating the non-refundable and refundable deposits as loans, and not as income? 14. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding, in respect of various funds like Chief Minister's Fund, Hutment Fund, Small Savings Scheme, Y.B. Chavan Memorial Fund, etc., that the assessee acted as an agent and collections were made as per the directions of the State Government. For spending them on the purposes specified by the State Government and that the collections were made by way of retaining amount of can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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