Case Note & Summary
The dispute concerned the tax treatment of non-refundable deposits collected by Ashok Sahakari Sakhar Karkhana Ltd., a co-operative sugar mill, from cane growers out of the sugarcane purchase price. The Assessing Officer added an amount of Rs. 4,88,164 as non-refundable deposits and Rs. 13,96,482 as interest on such deposits to the assessee's income, treating them as trading receipts. The assessee challenged these additions. The Income Tax Appellate Tribunal (ITAT), following its Special Bench decision in Shri Chhatrapati SSK Ltd. (198 ITR 78-AT), deleted the additions, holding that such deposits and interest were not trading receipts. The Revenue, aggrieved, filed a reference before the Bombay High Court under Section 256 of the Income-tax Act, 1961, raising three questions of law. The core issue was whether the ITAT was correct in law in deleting the additions and in holding that the issue was debatable, despite a Supreme Court decision in Bazpur Co-op. Sugar Mills Ltd. (172 ITR 321) which the Assessing Officer had invoked to pass a rectification order under Section 154. During the pendency of the reference, the Supreme Court delivered its judgment in Commissioner of Income Tax v. Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. (2004) 270 ITR 1, which distinguished the legal position under Maharashtra co-operative society rules from that in Uttar Pradesh and held that such non-refundable deposits are not trading receipts and interest is deductible. The Division Bench of the High Court, relying on this Supreme Court authority and its own earlier decision in Income Tax Appeal No. 9 of 1999, answered all three questions in the affirmative, i.e., in favour of the assessee and against the Revenue. The Court held that the ITAT's order was in conformity with the law, and the additions were rightly deleted. The reference was disposed of accordingly.
Headnote
A) Income Tax - Trading Receipts - Non-Refundable Deposits - Income-tax Act, 1961, Section 154 - Whether non-refundable deposits collected by a co-operative sugar mill from cane growers out of the sugarcane purchase price and interest thereon constitute trading receipts - The Court held that, following the Supreme Court decision in Commissioner of Income Tax v. Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. (2004) 270 ITR 1, such deposits are not trading receipts under the rules applicable in Maharashtra and provision for interest is deductible - Held that the ITAT was right in deleting the additions (Paras 1-3).
B) Income Tax - Rectification of Order - Debatable Issue - Section 154 of Income-tax Act, 1961 - Whether the Assessing Officer's order u/s 154 could be sustained when the issue was debatable - The Court held that the ITAT correctly held that the order could not be sustained as the issue was debatable, even though the Assessing Officer had relied on the Supreme Court decision in Bazpur Co-op. Sugar Mills Ltd. (172 ITR 321) which did not address the Maharashtra rules - Held that the ITAT's decision was in consonance with the later Supreme Court verdict (Paras 2-3).
Issue of Consideration
1. Whether non-refundable deposits and interest thereon are trading receipts of the assessee. 2. Whether the ITAT was right in holding that the order u/s 154 passed by the Assessing Officer could not be sustained. 3. Whether the issue was debatable despite the Supreme Court decision in Bazpur Co-op. Sugar Mills Ltd.
Final Decision
The Court answered all three questions in the affirmative, i.e., in favour of the assessee and against the Revenue. The Reference was disposed of, holding that non-refundable deposits are not trading receipts and interest on non-refundable deposits is deductible under the rules applicable in Maharashtra, following the Supreme Court in Commissioner of Income Tax v. Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. (2004) 270 ITR 1.
Law Points
- Non-refundable deposits collected by co-operative sugar mill from cane growers out of sugarcane purchase price not trading receipts
- provision for interest deductible
- Supreme Court distinguished rules between Maharashtra and U.P.
- Section 154 order not sustainable when issue is debatable
Case Details
2005 LawText (BOM) (07) 124
Income Tax Application No. 149 of 1997
S. Radhakrishnan, J.H. Bhatia
Parag Vyas, A.S. Rao, Pramod Vaidya
Commissioner of Income Tax, Nashik
Ashok Sahakari Sakhar Karkhana Ltd., Ashoknagar, Tal. Shrirampur, Dist. Ahmednagar
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Nature of Litigation
Reference under Section 256 of the Income-tax Act, 1961 for opinion on questions of law arising from ITAT's order.
Remedy Sought
The Revenue sought to set aside the ITAT's order deleting additions of non-refundable deposits and interest, and to restore the additions to the assessee's income.
Filing Reason
The Assessing Officer had added non-refundable deposits collected from cane growers and interest thereon to the assessee's income, treating them as trading receipts. The ITAT deleted the additions relying on its Special Bench decision. The Revenue contended that the ITAT erred in law.
Previous Decisions
ITAT, Special Bench Pune in Shri Chhatrapati SSK Ltd. (198 ITR 78-AT) held such deposits not trading receipts. The Assessing Officer passed an order under Section 154 relying on Supreme Court in Bazpur Co-op. Sugar Mills Ltd. (172 ITR 321), but the ITAT later held the issue debatable and deleted the additions. Subsequently, the Supreme Court in CIT v. Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. (2004) 270 ITR 1 affirmed the ITAT's view for Maharashtra.
Issues
Whether the ITAT was right in deleting the additions on account of non-refundable deposits and interest by holding that they are not trading receipts of the assessee.
Whether the ITAT was right in holding that the order under Section 154 passed by the Assessing Officer in view of the Supreme Court's decision in Bazpur Co-op. Sugar Mills Ltd. could not be sustained, even though it was passed before the ITAT Special Bench decision.
Whether the ITAT was right in holding that the issue involved was debatable despite the Supreme Court's decision in Bazpur Co-op. Sugar Mills Ltd.
Submissions/Arguments
The Revenue argued that the ITAT erred in relying on the Special Bench decision when the Supreme Court in Bazpur Co-op. Sugar Mills Ltd. had already ruled on the issue; that the issue was not debatable; and that the order under Section 154 should be sustained.
The assessee contended that the Special Bench decision correctly interpreted the applicable Maharashtra rules and that the Supreme Court later clarified the distinction between Maharashtra and U.P., affirming the ITAT's view.
Ratio Decidendi
Under the rules applicable in Maharashtra, non-refundable deposits collected by a co-operative sugar mill from cane growers out of the sugarcane purchase price are not trading receipts, and provision for interest on such deposits is deductible from income. The Supreme Court in CIT v. Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. (2004) 270 ITR 1 has settled the law distinguishing the position in Maharashtra from that in Uttar Pradesh. Where the issue is debatable, an order under Section 154 of the Income-tax Act, 1961 for rectification is not sustainable.
Judgment Excerpts
The question of Non-refundable deposits and interest on Non-refundable deposits is squarely covered by the judgment of the Supreme Court in Commissioner of Income Tax v. Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. (2004) 270 Income Tax Reports 1 as also in the judgment of this Court in Income Tax Appeal No.9 of 1999.
The Supreme Court has distinguished the rules obtained in Maharashtra and U.P.
Procedural History
The assessee, a co-operative sugar mill, collected non-refundable deposits from cane growers out of the sugarcane purchase price. The Assessing Officer added these deposits and interest to income and passed an order under Section 154 of the Income-tax Act, 1961 relying on Supreme Court in Bazpur Co-op. Sugar Mills Ltd. (172 ITR 321). On appeal, the ITAT, following its Special Bench decision in Shri Chhatrapati SSK Ltd. (198 ITR 78-AT), deleted the additions. The Revenue filed a reference before the High Court. During pendency, the Supreme Court decided CIT v. Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. (2004) 270 ITR 1, holding that such deposits are not trading receipts in Maharashtra. The High Court accordingly answered the reference in favour of the assessee.
Acts & Sections
- Income-tax Act, 1961: Section 154
