SIDDHESHWAR SAHAKARI SAKHAR KARKHANA LTD. versus C.I.T., KOLHAPUR AND ORS.

Citation: [2004] SUPP. 4 S.C.R. 155 · Decided: 08-09-2004 · Supreme Court of India · Bench: RUMA PAL · Disposal: Dismissed

Judgment (excerpt)

SIDDHESHWAR SAHAKARI SAKHAR KARKHANA LTD. 
A 
v. 
C.l.T., KOLHAPUR AND ORS. 
SEPTEMBER 8, 2004 
[P. VENKATARAMA REDDI AND RUMA PAL, JJ.] 
B 
Income Tax Act, 1961-Compulsory deductions from cane growers 
made by sugar co-operative societies-repayment on occurrence of specified 
event of repayment of govt. loans-Held, is a deposit-Events not uncertain-
Further Held, deposits belong to members-Dominion with such members. C 
Refundable and Non-Refundable deposits-Payment of interest credited 
to individual member's accounts-Refund on the happening of certain 
event-Held, such clear deposits liable to be excluded from the income of 
the co-operative societies. 
Maharashtra Co-operative Societies Act, 1960-Deduction made by 
assessee societies from cane growers-Towards various funds such as Chief 
Minister's Funds-Money collected for any on behalf of the person to whom 
it is payable-Held, such receipts should not be treated as income of the 
asses see. 
Cane Development Fund-Collected for utilization for benefit of itself 
and members-Held, is income taxable in the hands of the assessee societies. 
The Appellants are registered Cooperative Societies, governed by 
D 
E 
the provisions of Maharashtra Co-operative Societies Act, 1960, are its F 
members are predominantly sugarcane farmers. The sugarcane growing 
areas in the State of Maharashtra have been divided into different 
territorial units and each area has a factory for manufacturing sugar 
and the sugarcane growers within the territory are obliged to sell their 
sugarcane only to the said factory. The bye-laws provided for deduction 
of amounts towards refundable and non-refundable deposits from the G 
cane price payable to the grower members. In addition to that pursuant 
to the orders passed or circulars issued by the State Government/Director 
of Sugars, amounts were deducted for being credited into various Funds 
such as Chief Minister's relief Fund, Y.B. Chavan Memorial Fund, Area 
Development Fund etc. The amounts credited to these Funds were utilized H 
155 
156 
SUPREME COURT REPORTS (2004] SUPP. 4 S.C.R. 
A either by the Society directly as per the guidelines or remitted to the 
Government or trustees for socio-economic development of the 
operational area. Till the assessment year 1984-85, these collections/ 
deposits were not treated as income of the assessee on the footing that 
they were not trading receipts. 
B 
After judgment in Bazpur Co-operative's case the Commissioner 
of Income Tax revised the assessments for the assessment years 1984-85 
and 1985-86 in respect of non-refundable deposits and refundable deposits 
and other deduction by exercising power under Section 263 of the Income 
Tax Act. As far as the following years were concerned, namely, assessment 
C years 1986-87, 1987-88 and 1988-89, assessment orders were passed by 
the Income-tax authorities treating the non-refundable deposits, 
refundable deposits and other deductions as trading receipts. The 
Commissioner of Income Tax (Appeals) dismissed the appeals filed by 
the· assessees. All these orders were challenged before the Income Tax 
D Appellate Tribunal by the Sugar Co-operative Societies was heard and 
disposed of by a Special Bench of the Tribunal which-decided the question 
in favour of the Sugar Cooperatives holding that the bye-laws in Bazpur 
Co-operative 's case and the character of deductions made were 
substantially different from those in the case of Sugar Co-operatives in 
the State of Maharashtra. The Tribunal referred 15 questions to the 
E High Court at Bombay under Section 256(1) of the Income Tax Ac~. The 
High Court decided the question whether the various amounts collected 
by the Society from the cane growers out of the Sugarcane Purchase 
Price in the name of deposits are taxable as income of the assessee 
Society holding that the non-refundable and refundable deposits are 
F trading receipts whereas· deductions on account of Area Development 
Fund, Cane Development Fund, Hutment Fund, Y.B. Chavan Memorial 
·Fund, The Chief Minister's Relief Fund, Education Fund are not trading 
receipts and therefore not taxable. 
· , 
Before this Court both assessees and Revenue filed appeals. The 
G appellant-assessee contended that the High Court overlooked certain 
important aspects of the case and laid undue stress on the fact that the 
amount treated as deposit is deducted from the price payable to the 
cane growers as part of the trading operations and, therefore, it was.

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