TMI Blog2004 (8) TMI 721X X X X Extracts X X X X X X X X Extracts X X X X ..... -op. Sugar Factories representing the State) is liable to be disallowed under section 40A(2) as excessive or unreasonable having regard to the legitimate business needs? 3. Whether on the facts and in the circumstances of the case, any portion of sugarcane price and khodki charges fixed as above and actually paid by the assessee is liable to be disallowed as non-business expenditure? 4. Whether on the facts and in the circumstances of the case any portion of cane price/khodki charges actually paid is liable to be disallowed as bonus as defined under section 2(4) of Maharashtra Co-op. Societies Act, 1960? 5. Whether the additional amount paid on account of purchase of sugarcane after finalizing the financial results of the year be allowed as price for the procurement of sugarcane? 6. Whether the additional amount paid on the basis of profit for the year after finalisation of financial results amounts to application of profit? 7. Whether on the facts and in the circumstances of the case additional amount paid by the society for procurement of sugarcane is liable to be disallowed under section 40A(2) of Income-tax Act, 1961 as excessive or unreasonable expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acilities, etc. are concerned, these are not to be judged from the view point of a Revenue Officer but from the view point of a businessman. 7. The assessee Societies are registered under the Maharashtra Co-operative Societies Act, 1960. The principal object is to encourage members to improve method of agriculture by adopting principles of Co-operative farming. No person is admitted as producer member unless he holds agricultural lands and produced sugarcane in the area of operation of the sugar mill. The members are bound by the Societies Bye-Laws to sell sugarcane to the Society. 8. The Society purchases sugarcane only from the farmers who cultivated in its area of operation. It cannot purchase sugarcane cultivated outside the area of operation under the normal circumstances. As such, price paid by one factory cannot be compared with the price paid by the other factory, which is beyond the area of operation. Price is determined as per the specific norms set up by the Government. 9. In the case of CIT v. Shree Panchaganga Sahakari Sakhar Karkhana Ltd. [2001] 250 ITR 772 (Bom.), Hon ble High Court was concerned with the question whether the Karkhana charged the sugarca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , question No. 5 is also answered in favour of the assessee and against the Department. 12. Whether section 40A(2)( b) is applicable to a Co-operative Society? Whether Co-operative Society comes within the ambit of AOP ? These questions were argued before us. It is pertinent to note that the term AOP could include within its ambit company or firm also. Moreover, each Finance Act prescribes a separate and concessional rate of income-tax for Co-operative Societies from that levied on a company or firm or AOP. This clearly implies that Co-operative Society is a distinct entity for the purpose of levy of income-tax. The word Co-operative Society is independently used in number of sections. 13. Tribunal, in the case of Shivamrut Dudh Utpadak Sahakari Sangh v. Dy. CIT [IT Appeal No. 742 (PN) of 1991 dated 3-12-1998 ] (enclosed at page 40 of the Paper Book, Volume II) has held that a plain reading of section 40A(2)(a) reveals that this provision applies to any person referred to in clause (b) of this sub-section and in sub-section (b) the persons mentioned are a company, firm, association of persons or Hindu Undivided Family. Thus, it is very clear that in its wisdom the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he complete law declared by the Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions, which were before the Court. The decision of a Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, Courts must carefully try to ascertain the true principle laid down by the decision. Reliance was placed on the decision of the Apex Court rendered in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 . It was further stated by Shri Kapila that each case depends on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid temptation as said by Cordozo, by matching the colour of one case against the colour of another. Reliance was also placed on the decision of the Hon ble Bombay High Court rendered in the case of CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727. Our attention was invited on the observation quoted from the decision of Supreme Court in Mumbai Kamgar Sabha v. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn Code No. 11 and not Code No. 8. We have examined the copy of the return filed before us. We have also noted that in all Finance Acts, the Co-operative Societies are taxed at different rates than applicable to AOPs. 21. In regard to the objection of Shri Kapila that the Hon ble High Court did not consider this aspect in detail and all the relevant arguments, it would be pertinent here to refer the decision of the Hon ble Apex Court rendered in the case of Ambika Prasad Mishra v. State of U.P. AIR 1980 SC 1762, at page 1764, wherein it was held :- Every new discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent ......... A decision does not loose its authority merely because it was badly argued, inadequately considered or fallaciously reasoned .......... 22. In view of the above, we take the decision of the Hon ble High Court rendered in the case of Shivamrut Doodh Utpadak Sahakari Sangh Maryadit (supra) as a binding precedent. It would be pertinent here to note that the Hon ble Supreme Court in the case of Union of India v. Kamlakshi Finance Corpn. Ltd. 1991 (55) ELT 433, has held as under :- Judicial propriety deman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted following amounts from the cane purchase price :- NRDRs. 27,36,975 CM Fund ₹ 8,39,845 Hutment Fund ₹ 47,358 Mowad Relief Fund ₹ 94,732 Cane Development Fund ₹ 14,30,611 Area Development Fund ₹ 32,44,973 Famine Water Relief Fund ₹ 78,878 Indira Awas Fund ₹ 1,31,451 Total ₹ 86,05,923 26. Shri Kapila contended that the expression actually paid is not to be understood in a physical sense. To buttress this proposition, Shri Kapila relied on the decision of the Hon ble Madras High Court rendered in the case of Pereira Roche v. CIT [1966] 61 ITR 37. In this case the Hon ble High Court has held that the word actually paid used in section 10(5) of the Income-tax Act, 1922, is not to be understood in a physical sense, but in the sense that expenditure is actually incurred. 27. Shri Kapila argued that the amounts retained as per the order of the State Government should not be considered as price paid. For this purpose he placed his reliance on the decision of the jurisdictional High Court rendered in the case of CIT v. Shri Chhatrapathi Sahakari Sakhar Karkhana Ltd. [2000] 245 ITR 498 (Bom.). In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State Government and actually paid by the assessee could be disallowed as non-business expenditure ? The other issue, which is to be considered, is whether any portion of the cane price paid as determined by the State Government can be disallowed as excessive or as an appropriation of net profits ? 32. These two issues are entirely different. In order to decide the issue that whether the amount of non-refundable deposit constitute payment or not, the Tribunal is required to investigate fresh facts such as refund of deposits made, deposits converted into shares etc. Shri Inamdar demonstrated this aspect with reference to Page 89 of the Paper Book No. I. Vide Para 5.6, the Assessing Officer has worked out the deduction at ₹ 86,75,923. It was stated that if the Bombay High Court judgment is to be followed, then only ₹ 27,36,975 can be treated as trading receipts . However, the disallowance under dispute before the Tribunal is in relation to ₹ 3,09,63,548. Thus, even arithmetically, the issue is not the same. It was, therefore, urged that this is not an issue referred to the Special Bench, as such the Bench should not take any cognizance of the prayer made in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come to the notice of the board wherein the Income-tax Officer in the case of consumer co-operative store had disallowed the claim of deduction on account of rebate allowed on the purchases made by the members of the store. 2. The Board in consultation with the Department of Community Development and Co-operation has decided that rebate or bonus (which is in the nature of deferred discount) passed on by the consumer co-operative stores to their members on the value of the purchases made by them during a year should be allowed as a deduction in computing the business income of such a society . 36. Having heard both the parties on this question, we hold that in view of the prescription of section 65(2) of the Maharashtra Co-operative Societies Act and CBDT Circular No. 117 dated 22nd August, 1973, any portion of the cane price/khodki charges actually paid cannot be disallowed as bonus as defined under section 2(4) of the Maharashtra Co-operative Societies Act, 1960. 37. Question Nos. 5 and 6 stand modified as under :- Whether on the facts and in the circumstances of the case, the excess amount of expenditure on sugarcane purchase price as disallowed by the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rences in the price of sugarcane paid to the members of a Co-operative Society and to the non-members. 41. It is necessary to understand the mechanism for pricing of sugarcane followed in the State of Maharahstra. The process of price fixation could be divided into three parts:- viz. (i) The Fixation of the minimum ex-factory price by the Central Government under clause 3 of 1966 Order for all sugar factories linking it with basic recovery of 8.5% with a proportionate increase for every 0.1% of extra recovery. Therefore, the minimum price of cane paid by two factories would not be the same, since it would be dependent upon the recovery factor. The difference in the yield gets reflected in the price fixation. For example, the difference of 1.28% in the recovery of sugar by two factories would result in difference of 12.8 kgs. per tonne of sugar production, which in turn would result in additional sales realisation. This difference in the additional realisation gets reflected in the price fixation by way of additional premium, (ii) Then, there is a State Advised Price. Every State has its own method of determining it. In Maharashtra 95% of sugar factories are in the Co-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the advance to be given to the concerned farmers for the sugarcane to be supplied to Co-operative Sugar Factories in 1991-92 crushing season. Next Circular being Outward No. CS/2090/Finance-4/91-92/Second Adv/92, dated 23rd June, 1992, was in respect of the second advance to sugarcane supplier farmers for the season 1991-92 and the final price was fixed vide Resolution No. 31 of Board of Directors Meeting dated 23rd October, 1991. It was submitted by the learned counsel that sugar is essential commodity. The Government took the power to order to sugar factory to sell sugar at levy price, so it could be made available to all. He explained the concept of levy sugar and free sugar. The factories are bound to sell sugar to the Government at the levy price. 43. The peculiar features of the sugar industries were explained. It was submitted that the State protects the interest of the growers. After cutting sugarcane, it is necessary that it must be crushed within 48 hours. As such, it can only be sold within the adjoining area. This necessitated the concept of zoning. The Government made it compulsory that the farmers should sell the sugarcane to the factory of their zone area of opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owned by non-millers. The farmers received payment in accordance with the provisions of Sugar Co-ordination Law. In 1954, farmers share was around 50 per cent. In Mexico, 80 per cent of sugarcane drawn is used in sugar production. The payment of cane takes place in terms of a Government Decree appearing every year. About 50 per cent of the ex-factory proceeds of sugar and by-products is paid to the cane grower subject to certain minimum recovery. In Philippines, the growers raise the cane and take it to the miller for processing it into sugar. The relationship between the farmer and the miller is governed by a Milling Contract. In Mauritius, payment is made on recovery basis and the grower gets 2/3rd value of the sugar computed to have been made from his cane on the basis of the test figures. The recovery is calculated on the basis of brix, pol and purity of the absolute juice. 49. The CIT(A) opined that the higher price paid by the Government in India was in accordance with the Co-operative principles, as such she took the amount excess of the minimum price fixed by Government of India as appropriation of profits and its distribution was treated as application of income. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to pay to the sugarcane growers in addition to the minimum sugarcane price fixed under clause 3(a), an additional price if found due in accordance with Second Schedule to that order. This surplus is calculated in terms of Bhargava Commission formula. The obligation to pay the cane growers arises only if the statutory minimum cane price plus the surplus exceeds the actual cane price already paid to the grower. Therefore, only to the extent of excess the payment is required to be made. 52. At page 670, vide paras 92 and 93, and at pages 675 to 677, vide paras 103(5), 104 and 104.2.39, the Hon ble Apex Court has held as under : 92. In the State of Maharashtra initially an ex-field advance is fixed uniformly for all Co-operative sugar factories. At the end of the season, the actual, working results are assessed and the entire profits are passed on to the cane growers as additional cane prices. Thus, the farmers get profits in the form of additional cane prices and this fluctuates widely from factory to factory. In view of this it can be categorically stated that actual cane prices are not available in Maharashtra, particularly for co-operative (sic) as it is of a prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. It is further added that the additional price payable to the cane grower under clause 5A will arise after the expiry of the sugar year. Sugar price will have to be met only from the extra realisation made by the producer by the sale of sugar in free market which will naturally be more than the levy price. 54. In the case of UP Co-operative Cane Unions v. West UP Co-operative Sugar Mills Association [Civil Appeal No. 460 of 1997, dated 5-5-2004], the controversy was raised byway of SLP, in regard to the competence of the State Government to fix the State Advised Price for purchase of sugarcane by an occupier of a sugar factory over and above the minim price fixed by the Central Government. The Apex Court took into consideration the concept of price as enunciated under section 2(g) of the Sugar Control Order, 1966 and has held that in view of the definition of price given in clause 2(g) and also the language used in clauses 3 and 3A, the 1966 order clearly contemplates that there can be a price other than the minimum price of sugarcane fixed under clause 3(1), viz. the price agreed to between the producer and the sugarcane grower or the sugarcane growers Co-operative S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sugarcane price fixed under clause 3, the final working results of the year and the cost Schedule and return recommended by such Authority as the Central Government may specify from time to time. 4. A is the amount found payable for the previous year but not actually paid [vide sub-clause (9)]. 59. The proformat statement of receipt and expenses gives the mechanism of determining cane price. As per section 9 of the Sale of Goods Act, 1930, the parties may, by agreement, fix such price for the goods as they may please. They are the best judges of their interest. But in the present case, parties accepted the price fixed by the State. They have no choice. Profit is a component for the determination of the price. This theory of price fixation was devised by the State in the interest of the Public. It is based on the price fixation mechanism of sugarcane followed in other countries. Just because profit is one of the component in ascertaining the price, it cannot be said that profit is separately distributed in the guise of additional price. The amount paid by the assessee Co-operatives to the sugarcane growers is consideration for the procurement of sugarcane. It cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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