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The appellant in each of the appeals carries on the business of manufacturing sugar. Its members are predominantly sugarcane farmers. According to the policy of the Government, the sugarcane growing areas in the State of Maharashtra have been divided into different territorial units. Each unit 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 project cost of the appellant was met partly by share capital and partly by way of capital subsidy provided by either the Central Government (Ministry of Industrial Development) or financial institutions such as IDBI, IFCI etc. The share capital was contributed not only by the members but also by the State Government. So long as the State Government held share capital in the Society, the Government was entitled to fix the sugarcane price which it did. The bye-laws provided for deduction of amounts towards refundable and non- refundable deposits from the cane price payable to the grower members. There were also instructions of the Director of Sugars to this effect. Apart from that, pursuant to the orders passed or circulars issued by the State Government/Director of Sugars, amounts were being 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 are meant to be utilized either by the Society directly as per the guidelines issued by the Director 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. However, on the basis of the judgment in Bazpur Co- operative's case rendered in the year 1988, 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 deductions, by exercising the power under Section 263 of the Income Tax Act. As far as the following years were concerned, namely, assessment 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 Appellate Tribunal by the Sugar Co-operative Societies. The matter 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. At the instance of the Revenue, the Tribunal referred 15 questions to the High Court at Bombay under Section 256(1) of the Income Tax Act. The Division Bench of the High Court addressed itself to 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. The learned Judges of the High Court answered the questions by holding that the non-refundable and refundable deposits are 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. Accordingly, the References and appeals were disposed of by the High Court. The Sugar Co-operative Societies have impugned the decision of the High Court in so far as it decided the questions raised against them and the Revenue has preferred appeals in so far as the decision went against it.

The rate of cane supplied by the non-members at the gate will be fixed by the Board of Directors. It will not be more than the rate fixed for the Members' cane. If however, rate of cane for the non-members has to exceed the members', the approval of the State Government is necessary.

BYE-LAW NO.61-A (1) Every year the society shall collect from the members non-refundable deposits at the rate not less than Rs.1 per ton of sugarcane supplied by them. The rate of deposit will be decided by the Board of Directors. However, in determining such rate the board shall consider the amount required for the repayment of loan of I.F.C.I. and bank loan taken towards capital expenditure and the repayment of time deposits received from the members. The rate of interest on such deposit shall not exceed 12 percent so long as the Government share capital, the long term loans of IFCI, Maharashtra State Co-

Now, we shall take up the controversial issues for consideration.

Non-refundable deposits The taxability of 'non-refundable deposits' being the most contentious issue in these appeals, we shall first concentrate on that issue. At the outset, we would like to advert to the findings of the Tribunal and the High Court on this aspect.

First, we would like to setout the findings of the Tribunal in brief. The Tribunal, having noted the proposition that if a trader collects money from the customer as part of trading receipts, those receipts would constitute income, observed that the nature and object of the collection is equally material. The Tribunal observed: "what is relevant to see is not how the amount was collected but with what obligation it was collected".

As regards refundable deposits, the relevant bye-law is 61-B which has been quoted supra. In the light of what we have said about non-refundable deposits, it does not require further elaboration to conclude that these deposits cannot in any sense be treated as income of the assessee- Society. Though deducted from the cane price, they are pure and simple fixed deposits repayable on the expiry of a definite period of time with interest. The restrictions and conditions governing the non-refundable deposits are not incorporated in bye-law 61-B. These 'deposits' are akin to the transaction of loan. They are clearly liable to be excluded from taxable income.