Allahabad H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct to delete the addition of Rs. 4,32,685 holding that the Revenue has failed to prove that these deposits were in the nature of revenue receipts ?

High Court Of Allahabad

CIT vs. Ramala Sahkari Chini Mills Ltd.

Section 28(i)

Asst. Year 1981-82

R.K. Agrawal & Prakash Krishna, JJ.

IT Ref. No. 221 of 1992

24th March, 2005

Counsel Appeared :

Shambhoo Chopra, for the Revenue : Amitabh Agrawal & P.K. Jain, for the Assessee


By the court :

The Tribunal, New Delhi has referred the following question of law under s. 256(2) of the IT Act, 1961 hereinafter referred to as ‘the Act’, for opinion to this Court :

“Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct to delete the addition of Rs. 4,32,685 holding that the Revenue has failed to prove that these deposits were in the nature of revenue receipts ?”

2. The present reference relates to the asst. yr. 1981-82.

3. Briefly stated the facts giving rise to the present reference are as follows : The respondent-assessee has been assessed to income-tax in the status of an AOP. The previous year relevant for the assessment year in question ended on 30th June, 1980. The respondentassessee is a co-operative sugar mill. It has obtained a loan of Rs.80,00,000 from the Industrial Credit & Investment Corporation of India Ltd., hereinafter referred to as ‘the ICICI’. It has entered into a mortgage deed with the ICICI, according to which, it undertook to collect non-refundable deposits from the grower members at a minimum rate of Rs. 7.50 per tonne of sugarcane supplied by them. These deposits were not to bear any interest. As per cls. 41, 42, 43 and 44 of the byelaws of the respondent-assessee as approved by the U.P. Government, the said deposits were finally to be converted into the shares of the respondent- assessee in the name of their respective members and in case after the issue of shares as per cl. 28(kha) of the bye- laws there remained any surplus the same had to be refunded to the parties concerned. During the assessment year in question the respondent had received a sum of Rs. 4,32,685 from the cane growers on account of the loss equalisation fund as per details mentioned above, which was shown in the balance sheet as non-refundable deposit. The AO, however, held that this was a revenue receipt and consequentially he added the sum of Rs. 4,32,685 in the total income of the respondent-assessee. Feeling aggrieved, the respondent-assessee preferred an appeal before the CIT(A), who had called for a report vide order dt. 26th June, 1986, pursuant thereof the AO submitted his report dt. 12th Nov., 1986. The ITO has mentioned in the report that no shares had been allotted till 10th Nov., 1986 and hence these non-refundable deposits were rightly taken as the income of the respondent- assessee. The CIT(A), however, came to the conclusion that the amounts realised by the respondent-assessee at the instance of the directions of the Government could not constitute income of the respondent-assessee merely because the amounts had not been utilised so far. The Revenue feeling aggrieved preferred an appeal before the Tribunal. The Tribunal has held that the onus was on the Revenue to prove that a particular receipt partook the character of a trading or revenue receipt and further mere nomenclature of a particular deposit was not determinative or decisive of the character of that deposit. The Tribunal took into consideration the fact that only for the assessment year in question the deposits received from the cane growers had been termed as ‘non- refundable deposits’ and that for subsequent years these deposits were shown as ‘unsecured loans’. It was further noted by the Tribunal that as the loans of U.P. Government had not been paid in full, the amounts deducted from the cane growers had neither been converted into share capital nor paid to them in cash. It was of the view that the mere fact that these deposits had not been converted into shares by the respondent-assessee till 10th Nov., 1986 would not alter or change the character of the deposits and the explanation regarding the non-conversion was plausible. The Tribunal, accordingly, upheld the order of the CIT(A).

4. We have heard Sri Shambhoo Chopra, learned standing counsel for the Revenue and Sri Amitabh Agrawal, holding brief of Sri P.K. Jain, learned counsel appearing for the respondentassessee.

5. From the narration of the facts as found by the authorities including the Tribunal, it is absolutely clear that the amount of Rs. 7.50 per tonne of sugarcane, collected by the respondent-assessee from its member cane growers, was towards deposit in terms of cls. 41 to 44 of the bye-laws and was to be adjusted on conversion into shares. The excess amount was to be refunded. Thus, it was a clear case of collection of amount towards issuance of shares in future and cannot by any stretch of imagination be termed as trading receipts. The apex Court in the case of Siddheshwar Sahakari Sakhar Karkhana Ltd. vs. CIT (2004) 191 CTR (SC) 66 : (2004) 270 ITR 1 (SC), in somewhat similar circumstances has held that the deposits taken from members do not partake the nature of the trading receipt.

6. Respectfully following the aforesaid decision, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. However, there shall be no order as to costs.

[Citation : 278 ITR 670]

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