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

CIVIL APPEAL No. 563/1975Supreme Court[1988] 3 S.C.R. 103406 May 1988Bench: 2 JudgesAuthor: R.S. PATHAK, M.H. KANIA B12 pages
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What were the facts?

The assessee, Bazpur Co-operative Sugar Factory Ltd., a registered co-operative society, was assessed for the year 1961-62. During the accounting year (July 1, 1959, to June 30, 1960), the society added Rs. 5,15,863 to its 'Loss Equalisation and Capital Redemption Reserve Fund' by deducting this amount from the price payable to its members for sugarcane supplied. These deductions were made under bye-law 50. The Income-tax Officer and Assistant Commissioner held these deductions to be revenue receipts. The Income-tax Appellate Tribunal, however, ruled that a retrospective amendment to bye-law 50 made the deductions capital receipts. The High Court upheld the Tribunal's decision. The Commissioner of Income-tax appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the respondent society had no legal authority to amend its bye-law 50 with retrospective effect. Consequently, the amendment could not operate retrospectively. The deductions made from the price payable to members for sugarcane had to be dealt with under the provisions of bye-law 50 as it stood during the relevant accounting period. Applying the unamended bye-law, the deductions were made in the course of trading operations and constituted trading receipts. The Court emphasized that the true nature and quality of the receipt, not the head under which it was entered, is decisive, citing Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income-tax, West Bengal and Punjab Distilling Industries Ltd. v. Commissioner of Income-tax, Simla. The Court found that the amounts were not true deposits as they were primarily used to discharge the society's liabilities, not for issuing shares to members. Therefore, these receipts were revenue receipts and liable to be included in the taxable income of the assessee. The High Court was in error. The question referred was answered in favour of the revenue. The appeal was allowed.

What were the issues?

1. Whether a co-operative society registered under the Co-operative Societies Act, 1912, has the power to amend its bye-laws with retrospective effect, and if so, whether the amended bye-law is operative for a period previous to the accounting year (Section 19 of the Co-operative Societies Act, 1912, implicitly relevant). 2. Whether deposits made by members of the society by way of deductions under bye-law 50 of the society, as amended retrospectively, were in the nature of permanent liabilities and thus capital receipts, or revenue receipts liable to tax. Assessee's Contentions (as per Tribunal's finding): The amended bye-law was operative during the relevant previous year due to its retrospective amendment. Under the amended bye-law 50, the deductions were permanent liabilities and therefore capital receipts, not taxable income. Revenue's Contentions (as per Supreme Court's finding): The respondent society had no legal authority to amend its bye-law 50 with retrospective effect. The amendment could not have retrospective effect. Therefore, the deductions should be treated as per the unamended bye-law, making them revenue receipts.

Which sections of the Income-tax Act were involved?

Section 19

AI-generated summary — verify with the full judgment below

A B c 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. D 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- E 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 order continues below.

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