Case Note & Summary
The matter arose from a reference under the Income Tax Act, 1961, at the instance of the Revenue, challenging the order of the Income Tax Appellate Tribunal (ITAT). The assessee, Jai Bhavani Sahakari Sakhar Karkhana Ltd., a co-operative sugar factory, collected non-refundable deposits from its member cane suppliers. The Assessing Officer treated an amount of Rs.4,40,695 as trading receipt and added it to the assessee’s income. The ITAT, however, deleted the addition, relying on the decision of the ITAT Special Bench in Shri Chhatrapati SSK Ltd. (198 ITR 78-AT) and the Supreme Court decisions in Bazpur Co-op. Sugar Mills Ltd. (172 ITR 321 and 177 ITR 469). The ITAT also held that the order passed by the Assessing Officer under Section 154 of the Act, based on the Supreme Court decision, could not be sustained even though it was passed before the ITAT Special Bench decision. The Revenue, aggrieved, sought reference to the High Court on two questions of law: firstly, whether the ITAT was right in deleting the deposit amount by holding it was not a trading receipt; and secondly, whether the ITAT was correct in holding that the Section 154 order could not be sustained. The High Court heard both parties and found that the issues were squarely covered by the Supreme Court decision in Commissioner of Income Tax v. Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. (2004) 270 ITR 1, which had authoritatively held that, in view of the rules prevailing in Maharashtra, non-refundable deposits collected by co-operative sugar factories from their members are not trading receipts and are not liable to be included in income. The Court also noted that its own earlier decision in Income Tax Appeal No.9 of 1999 supported this view. Accordingly, both questions were answered in the affirmative, i.e., in favour of the assessee and against the Revenue, confirming that the ITAT had correctly deleted the addition and that the Section 154 order was unsustainable. The reference was disposed of accordingly.
Headnote
A) Income Tax - Non-Refundable Deposits as Trading Receipts - Non-Refundable Deposits Not Trading Receipts Under Maharashtra Rules - The assessee co-operative sugar factory collected non-refundable deposits from member cane suppliers. The Assessing Officer added Rs.4,40,695 to income, but the ITAT deleted the addition holding these are not trading receipts, following ITAT Special Bench in Shri Chhatrapati SSK Ltd. and Supreme Court in Bazpur Co-op. Sugar Mills Ltd. The Revenue sought reference. Held that the Supreme Court in CIT v. Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. (2004) 270 ITR 1 has settled that under Maharashtra rules, such deposits are not trading receipts and not includible in income; ITAT’s deletion was correct. (Paras 1-3) B) Income Tax - Rectification Under Section 154 - Sustainability of Order Passed by Assessing Officer - Income Tax Act, 1961, Section 154 - The Assessing Officer passed an order under Section 154 based on Supreme Court decision before the ITAT Special Bench decision. The ITAT held such order could not be sustained. Held that the question is covered by the Supreme Court decision in CIT v. Shri Chhatrapati SSK Ltd., and therefore the ITAT’s order was correct; question answered in favour of the assessee. (Paras 2-3)
Issue of Consideration
Whether non-refundable deposits of Rs.4,40,695 collected by the assessee co-operative sugar factory from its members are trading receipts liable to be added in income, and whether the ITAT rightly deleted such deposits and held that the order under Section 154 passed by the Assessing Officer could not be sustained.
Final Decision
The Court answered both questions of law in the affirmative, in favour of the assessee and against the revenue, holding that non-refundable deposits collected by co-operative sugar factories from members under Maharashtra rules are not trading receipts and not includible in income, as per Supreme Court decision. The ITAT’s order deleting the addition and holding the Section 154 order unsustainable was upheld.
Law Points
- Non-refundable deposits collected by co-operative sugar factories from members under Maharashtra rules are not trading receipts
- hence not liable to be added in income
- as per Supreme Court decision in Commissioner of Income Tax v. Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. (2004) 270 ITR 1.
