COMMISSIONER OF INCOME TAX, U.P.-II, LUCKNOW versus BAZPUR CO-OPERATIVE SUGAR FACTORY LTD., BAZPUR, DISTRICT NAINITAL.

Citation: [1988] 3 S.C.R. 1034 · Decided: 06-05-1988 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · cites 4 · see the full citation network in Lexace

Judgment (excerpt)

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B 
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COMMISSIONER OF INCOME TAX, U.P.-II, LUCKNOW 
v. 
BAZPUR CO-OPERATIVE SUGAR FACTORY LTD., 
BAZPUR, DISTRICT NAINITAL. 
MAY 6, 1988 
[R.S. PATHAK, C.J. AND M.H. KANIA, J.] 
Whether a Co-operative Society registered under Co-operative 
Societies Act, 1912 has power to amend its bye-laws with retrospective 
effect-Whether the amended bye-law is operative during period previ-
ous to accounting year-Whether deposits made by members of the 
society by way of deductions contemplated under bye-law 50 of the 
Society were in the nature of permanent liabilities and were capital 
receipts not liable to be included in taxable income of assessee-Society or 
whether the deductions were revenue receipts liable to tax. 
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Civil Appeal No. 563 of 1975 filed in the Court was directed 
against the Judgment of the High Court in an Income-tax Reference. 
The respondent (assessee) was a registered co-operative Society, 
carrying on business of manufacture and sale of sugar. The respondent 
had established a fund called "Loss Equalisation and Capital Redemp-
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tion Reserve Fund" to which it added, during the relevant acconnting 
year, a snm of Rs.5,15,863 by deduction from the price payable by the 
respondent to its members for the supply of sugarcane received from 
the members. The deductions were made nnder bye-law 50 of the Bye-
laws of the society, which was amended later. The Income-tax Officer in 
assessing the respondent for the relevant assessment year held that the 
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sum above-mentioned represented a revenue receipt and was liable to 
be included in the taxable income of the assessee. On appeal, the 
Assistant Commissioner aff'mned the view of the Income-tax Officer, 
holding that the case had to be decided on the basis of the bye-law as it 
stood during the relevant acconnting year. The respondent-assessee 
appealed to the Income-tax Appellate Tribunal, which held that the 
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amended bye-law was operative even during the relevant previous year 
in view of the retrospective amendment thereof and that in view of the 
said amended bye-law 50 the deposits made by the members by way of 
deductions from the price as contemplated in the bye-law 50 were in the 
nature of permanent liabilities and hence they were capital receipts and 
not liable to be included in the taxable income of the assessee. The 
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Tribunal directed that the said amonnt of Rs. 5,15,863 be deducted 
1034 
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C.I.T. v. BAZPUR SUGAR FACTORY 
1035 
from the taxable income of the assessee. At the instance of the appel-
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lant, a reference was made to the High Court for the determination of 
the question whether the Income-tax Appellate Tribunal was right in 
holding that the amount of Rs.5,15,863 was not a revenue receipt liable 
to tax. The High Court answered the question in the affirmative and in 
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favour of the assessee. The Commissioner of Income-tax moved this 
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Court by this appeal against the decision of the High Court. 
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The appellant contended that the· amendment of the bye-law 50, 
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which was purported to be made with retrospective effect, could have. 
no retrospective effect in law. There was ito delegation of power to the 
respondent society to make bye-laws with retrospective effect. 
Allowing the appeal, the Court, 
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HELD: The respondent society had no authority in law to amend 
its bye-law 50 with retrospective effect. The amendment of bye-law 50 
could not have any retrospective effect and the amounts deducted from 
the amounts payable to members for the supply of sugarcane, would 
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have to be dealt with as if they were deducted under the provisions of 
bye-law 50 as it stood in the relevant accounting period. If the provi-
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sions of the unamended bye-law were applied, it was clear that the 
amounts deducted by the respondent from the price payable to its mem-
hers on account of supply of sugarcane were deducted in the course of 
the .trading operations of the respondent and these deductions were a 
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part· of its trading operations. The receipts by way of these deduc-
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tions must be regarded as revenue receiptS and were liable to he 
included in the taxable income of the respondent. Those receipts 
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could not be regarded as deposits. The receipts -constituted by the 
deductions were really trading receipts of the assessee society and 
were liable to be included in !_ts taxable income. The High Courf was 
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in error and the question referred must be answered in favour of the 
revenm,, [1042A, G-H0044D-E

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