The Kopargaon SSK Ltd., Ahmednagar V. DCIT, Ahmednagar Circle, Ahmednagar

ITA 5/PUN/2013

• Counselvise Citation: 524514 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 1992-1993
• Appeal Filed On: 01-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI; S P WALIMBE
• Assessee Lawyers: N SRINIVASAN; PRASANN A L JOSHI
• Keywords: Business expenditure; Charitable institution; Diversion of income
• Section: 2; 11; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO S . 2065 TO 2075 / P N/ 20 12 ASSESSMENT YEAR S : 1991 - 92 TO 2001 - 02 LOKNETE BALAS AHEB DESAI SAHAKARI SAKHAR KARKHANA LTD., DAULATNAGAR, TAL. - PATAN, DIST. - SATARA VS. DY. COMMISSIONER OF INCOME TAX, SATARA CIRCLE, SATARA (APPELLANT) (RESPONDENT) PAN NO. AAAAB0362K ITA NO S . 2060 TO 2064 /PN/20 12 ASSESSMENT YEAR S : 1996 - 97 TO 20 01 - 02 YASHWANTRAO MOHITE KRISHNA SSK LTD. (FORMERLY KRISHNA SSK LTD.) RETHARE BK, TAL. - KARAD, DIST. - SATARA VS. DY. COMMISSIONER OF INCOME TAX, SATARA CIRCLE, SATARA (APPELLANT) (RESPONDENT) PAN NO. AAAAK0946L ITA NO S . 05 TO 11 /PN/20 1 3 ASSESSME NT YEAR S : 199 2 - 93, 1998 - 99 TO 2001 - 02 & 2008 - 09 TO 2009 - 10 THE KOPARGAON SAHAKARI SAKHAR KARKHANA LTD., AT. - GAUTAMNAGAR, POST - KOLPEWADI, TAL. - K OPARGAON, DIST. - AHMEDNAGAR VS. DY. COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE, AHMEDNAGAR (APPELLANT) (RESPONDENT) PAN NO. AAA TT3070H APPELLANT BY: SHRI PRASANNA L. JOSHI & SHRI N. SRINIVASAN RESPONDENT BY: SHRI A.K. MODI & SHRI S.P. W ALIMBE DATE OF HEARING : 07 - 02 - 2014 DATE OF PRONOUNCEMENT : 28 - 02 - 2014 2 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA ORDER PER BENCH : - THIS BA TCH OF TWENTY THREE APPEALS FILED BY THE THREE DIFFERENT ASSESSEES WHICH ARE RELATED TO THE A.YS. 1991 - 92 TO 2001 - 02 AND 2008 - 09 TO 2009 - 10. WE MAY LIKE TO MENTION HERE THAT THIS IS THE THIRD ROUND BEFORE THE TRIBUNAL. THE ISSUE IS COMMON IN ALL THE APPE ALS HENCE, THIS BATCH OF APPEALS ARE DISPOSED OF BY CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE . 2. FOR DECIDING THIS BATCH OF APPEALS , WE PREFER TO TAKE ITA NO. 2065/PN/2012 FOR THE A.Y. 1991 - 92 AS A LEAD APPEAL. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN THE APPEAL: 1. THE LEARNED CIT(A) ERRED IN HOLDING THAT RECEIPTS TOWARDS AREA DEVELOPMENT FUND CONSTITUT ED APPELLANT'S TRADING RECEIPTS. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE APPELLANT HAD USED THE MONEY COLLECTED TOWARDS AREA DEVELOP MENT ACTIVITIES FOR ITS BUSINESS PURPOSES DURING THE PERIOD OF DELAY IN UTILISATION OF THE MONEY. 3. THE LEARNED CIT(A) ERRED IN HOLDING THAT COLLECTIONS TOWARDS AREA DEVELOPMENT FUND WERE NOT IMPRESSED WITH A SPECIFIC LEGAL OBLIGATION TO SPEND THEM FOR PU RPOSES UNRELATED TO THE APPELLANT'S BUSINESS. 4. IT MAY BE HELD THAT DURING THE PERIOD THE APPELLANT CONTINUED TO HOLD THE COLLECTIONS TOWARDS AREA DEVELOPMENT FUND IN ITS CUSTODY, IT WAS LEGALLY LIABLE AND OBLIGED TO SPEND THESE COLLECTIONS FOR THE PURPOS ES THEY WERE COLLECTED AND THIS LIABILITY DID NOT GET EXTINGUISHED DUE TO POSTPONEMENT OF THE SPENDING OF THE SAID FUNDS. 3. THE BRIEFLY STATED FACTS WHICH EMERG E FROM THE RECORDS ARE AS UNDER. THE ASSESSEE , A CO - OPERATIVE SUGAR FACTORY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF SUGAR. THE ASSESSEE IS 3 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA DE DUCTED CERTAIN AMOUNT FROM THE BILLS PAYABLE TO THE MEMBERS AND NON - MEMBERS TOWARDS THE SUPPLY OF SUGARCANE AND THE SAID DEDUCTION IS MADE AND SHOWN UNDER THE HEAD AREA DEVELOPMENT FUND (IN SHORT ADF) . THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER BROUGHT TO TAX THE COLLECTION MADE BY THE ASSESSEE UNDER THE HEAD AREA DEVELOPMENT FUND (ADF) . IN THE FIRST ROUND OF APPEAL THE ASSESSEE SUCCEEDED IN GETTING THE RELIEF FROM THE ITAT AS WELL AS THE HON'BLE JURISDICTIONAL HIGH COURT AS IT WAS HELD THAT THE AMOUNT COLLECTED BY THE ASSESSEE UNDER THE HEAD ADF HAVE NEVER REACHED TO THE ASSESSEE BUT THE SAME WAS DIVERTED AT SOURCE AND HENCE, THE SAID AMOUNT CANNOT BE TREATED AS INCOM E IN THE HANDS OF THE ASSESSEE . 4. THE MATTER WAS CARRIED BY THE REVENUE BEFORE THE HON'BLE SUPREME COURT . T HIS ISSUE WAS ALSO PENDING IN MANY SUGAR FACTOR IES CASES , INCLUDING SIDDHESHWAR SAHAKARI SAKHAR KARKHANA LTD. AND THE HON'BLE SUPREME COURT D ISPOSED OF THIS BATCH OF APPEALS ON THIS ISSUE BY RENDERING THE DECISION IN THE CASE OF SIDDHESHWAR SAHAKARI SAKHAR KARKHANA LTD. VS. CIT 139 TAXMAN 434. THE HON'BLE SUPREME COURT DID NOT AGREE WITH THE VIEW TAKEN BY THE HON'BLE HIGH COURT AS WELL AS THE TRIBUNAL THAT THERE WAS A DIVERSION OF INCOME OVERRIDE THE TITLE AND HENCE, THE AMOUNT COLLECTED BY THE ASSESSEE SOCIETY FROM ITS MEMBERS AND NON - MEMBERS BY DEDUCTING THE SAME FROM THEIR BILLS IN RESPECT OF THE SUGARCANE SUPPLY CANNOT BE TREATED AS INCOME IN THEIR HANDS. THE HON'BLE SUPREME COURT REMITTED THE MATTER BACK TO THE FILE OF THE ITAT AND RELEVANT PART OF THE OBSERVATIONS AND FINDINGS ARE AS UNDER: 46. THE AREA DEVELOPMENT FUND, AS WE SEE FROM THE VARIOUS COMMUNICATIONS PLACED IN THE PAPER - BOOK, IS MEANT TO ENABLE THE CO - OPERATIVE SUGAR FACTORIES TO RENDER SOCIO - ECONOMIC SERVICES IN THE AREA OF OPERATION. THE AREA DEVELOPMENT PROGRAMMES MAY COVER AGRICULTURAL EXTENSION, IRRIGATION FACILITIES, EDUCATIONAL AND MEDICAL SERVICES, DEVELOPMENT OF ANIMA L HUSBANDRY AND POULTRY, DROUGHT RELIEF WORK AND SO ON. BY DOING SO, THE SUGAR CO - OPERATIVES WILL BE 4 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA SUPPLEMENTING THE EFFORTS OF THE GOVERNMENT IN PROMOTING THE SOCIO - ECONOMIC DEVELOPMENT OF THE AREA. THE BOARD OF DIRECTORS OF THE CO - OPERATIVE SOCIETY ARE REQUIRED TO PASS A RESOLUTION SPECIFYING THE DETAILS OF EXPENDITURE PROPOSED TO BE INCURRED FROM OUT OF THE AREA DEVELOPMENT FUND. THEY SHOULD OBTAIN THE SANCTION OF THE DIRECTORS OF SUGAR FOR INCURRING SUCH EXPENDITURE. SUCH INFORMATION IS ALSO REQUIRED TO BE PLACED BEFORE THE GENERAL BODY OF THE SOCIETY AND THE APPROVAL TO BE OBTAINED FROM THE GENERAL BODY. ON 21ST JUNE, 1988, THE AGRICULTURE AND CO - OPERATION DEPARTMENT OF THE GOVERNMENT OF MAHARASHTRA FRAMED CERTAIN DIRECTIVE PRINCIPLES LAYING DOWN THE MODALITIES OF UTILIZATION OF AREA DEVELOPMENT FUNDS. THE SAID ORDER WAS ISSUED IN EXERCISE OF THE POWER UNDER SECTION 79A OF THE MAHARASHTRA STATE CO - OPERATIVE SOCIETIES ACT. THIS ORDER PASSED DURING THE MIDDLE OF THE LAST ASSESSMENT YEAR RELEVANT TO THESE APPEALS GIVES STATUTORY BASIS FOR THE ALREADY EXISTING PRACTICE. IT IS DIFFICULT TO EQUATE THIS FUND TO THE OTHER CATEGORIES OF FUNDS, AS HAS BEEN DONE BY THE TRIBUNAL AND AFFIRMED BY THE HIGH COURT. UNLIKE THE OTHER FUNDS LIKE CHIEF MINISTERS RELIEF FUN D, THE AMOUNT COLLECTED TOWARDS AREA DEVELOPMENT FUND IS RETAINED BY THE SUGAR FACTORY ITSELF AND UTILIZED AS PER THE GUIDELINES ISSUED BY THE GOVERNMENT OR THE NATIONAL COOPERATIVES DEVELOPMENT CORPORATION. THE COLLECTIVE BODY OF THE SOCIETY AND ITS ELECT ED REPRESENTATIVES TAKE THE DECISION AS TO HOW MUCH AMOUNT HAS TO BE SPENT AND FOR WHAT PURPOSES. THE DIRECTOR OF SUGARS OR OTHER DESIGNATED OFFICIAL, NO DOUBT ACTS IN A SUPERVISORY CAPACITY TO OVERSEE THAT THE FUNDS ARE PROPERLY UTILIZED. ON THAT ACCOUNT, IT CANNOT BE SAID THAT THE COLLECTION IS MADE BY THE SOCIETY AS AN AGENT OF THE GOVERNMENT OR THE PROPRIETARY INTEREST IN THE FUNDS IS VESTED WITH THE GOVERNMENT. THE CONCLUSION HAS BEEN REACHED BY THE TRIBUNAL MAINLY ON THE BASIS OF REQUIREMENT OF PRIOR SANCTION OF THE DIRECTOR OF SUGARS FOR INCURRING THE EXPENDITURE. SUCH RESTRICTION PRESCRIBED IN THE LARGER INTEREST OF THE SOCIETY ITSELF DOES NOT IN ANY WAY DETRACT FROM THE FACT THAT THE SOCIETIES CONCERNED DO EXERCISE DOMINION OVER THE FUND AND DEAL WI TH THAT MONEY SUBJECT OF COURSE TO THE GUIDELINES AND RESTRICTIONS EVOLVED BY THE GOVERNMENT. THE TRIBUNAL FAILED TO APPROACH THE QUESTION IN PROPER PERSPECTIVE ON AN ANALYSIS OF THE RELEVANT CIRCULARS AND ORDERS. THE HIGH COURT TOO FELL INTO AN ERROR IN I NVOKING THE THEORY OF DIVERSION OF INCOME AT SOURCE. THE CRUX OF THE MATTER IS THAT THERE HAS NEVER BEEN A DIVERSION OF INCOME TO A THIRD PARTY (GOVERNMENT) BEFORE IT REACHED THE ASSESSEE. THE RECEIPTS IN 5 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA THE FORM OF AREA DEVELOPMENT FUND ALWAYS REMAINED W ITH THE ASSESSEE. 47. IT COULD STILL BE CONTENDED, AS HAS BEEN CONTENDED BY LEARNED SENIOR COUNSEL APPEARING FOR THE ASSESSEES, THAT THE REALIZATIONS MADE BY THE ASSESSEE TOWARDS AREA DEVELOPMENT FUND ARE IMPRESSED WITH A SPECIFIC LEGAL OBLIGATION TO SPEN D THE MONIES FOR SPECIFIED PURPOSES WHICH ARE UNRELATED TO THE BUSINESS OF THE SUGAR FACTORY AND THEREFORE SUCH RECEIPTS CANNOT BE TREATED AS INCOME OF THE ASSESSEE. THE ANALOGY OF COLLECTION OF AMOUNTS TOWARDS CHARITY, AS IN THE CASE OF CIT V. BIJLEE COTT ON MILLS (P.) LTD. [1979] 1 SCC 496, HAS BEEN INVOKED TO SUBSTANTIATE THE ARGUMENT. IT IS CONTENDED THAT THE REALIZATIONS TOWARDS AREA DEVELOPMENT FUND WOULD MORE OR LESS STAND ON THE SAME FOOTING AS DEPOSITS. THE CONTROVERSY HAS NOT BEEN APPROACHED IN THE LIGHT OF THE ABOVE ARGUMENTS. WE DO NOT CONSIDER IT APPROPRIATE TO EXPRESS OUR VIEW FOR THE FIRST TIME, ESPECIALLY WHEN THE DETERMINATION THEREOF MAY DEPEND ON THE CONSIDERATION OF CERTAIN FACTS. WE THEREFORE LEAVE THIS POINT OPEN FOR FRESH DETERMINATION BY THE TRIBUNAL. 5. IT IS PERTINENT TO NOTE HERE THAT ANOTHER ISSUE WAS ALSO BEFORE THE HON'BLE SUPREME COURT THAT WAS IN RESPECT OF DEDUCTION TOWARDS CANE DE VELOPMENT F UND (IN SHORT CDF) AND IT IS ALSO NECESSARY TO REPRODUCE THE FINDINGS OF THE SUPRE ME COURT IN RESPECT OF THE TREATMENT OF THE AMOUNT COLLECTED BY THE ASSESSEE TOWARDS CANE D EVELOPMENT F UND (CDF) : 48. AS FAR AS SUGAR CANE DEVELOPMENT FUND IS CONCERNED, THE CASE OF THE REVENUE SEEMS TO STAND ON A STRONGER FOOTING. IN THE PAPER - BOOK, WE FIND A CIRCULAR DATED 18TH AUGUST, 1986 IN WHICH CERTAIN DIRECTIVE PRINCIPLES HAVE BEEN LAID DOWN TO REGULATE THE EXPENDITURE TO BE INCURRED OUT OF CANE DEVELOPMENT FUND. THE ITEMS SPECIFIED IN THE DIRECTIVE PRINCIPLES ARE (1) GREEN MANURING, (2) LIFT IRR IGATION SCHEMES, (3) DISTRIBUTION OF CANE SEEDS AND (4) CONSTRUCTION OF NEW WELLS OR DEEPENING OF OLD WELLS. THE SUGAR FACTORY IS REQUIRED TO MAKE SURE THAT ANY PROJECT WHICH THEY WANT TO UNDERTAKE OUT OF THE CANE DEVELOPMENT FUND IS TECHNICALLY AND FINANC IALLY SOUND AND TO SEND THE PROPOSALS IN ADVANCE TO THE DIRECTORATE OF SUGAR FOR REQUISITE SANCTION. THE PROJECTS WILL DIRECTLY 6 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA BENEFIT THE MEMBERS AND AUGMENT THE SUGARCANE PRODUCTION WHICH WILL INCIDENTALLY HELP THE SOCIETY IN ITS MANUFACTURING OPERATION S. THE BENEFICIARIES UNDER THE SCHEME ARE NO OTHER THAN THE MEMBERS OF THE SUGAR CO - OPERATIVE SOCIETY CONCERNED AND THE ADVANTAGE OF ENHANCED PRODUCTION OF SUGARCANE WILL ULTIMATELY BE FELT BY THE SOCIETY ITSELF. UNLIKE THE AREA DEVELOPMENT FUND, THE MONIE S OUT OF CANE DEVELOPMENT FUND ARE NOT SPENT FOR PURPOSES UNCONNECTED WITH THE GROWTH AND FUNCTIONING OF THE SUGAR FACTORY. THE TRIBUNAL WAS INCLINED TO VIEW IT AS A COMPULSORY LEVY ON THE DEPOSITORS COLLECTED BY THE GOVERNMENT THROUGH THE AGENCY OF SUGA R FACTORY. THIS APPROACH IN OUR VIEW IS WHOLLY UNSUSTAINABLE AND IS IN THE REALM OF SURMISE. WE DO NOT ALSO SEE ANY SCOPE FOR THE APPLICATION OF PRINCIPLE OF DIVERSION OF INCOME AT SOURCE IN THE CASE OF COLLECTIONS MADE TOWARDS CANE DEVELOPMENT FUND. THE A MOUNTS REALIZED ON THIS ACCOUNT UNDOUBTEDLY REACH THE ASSESSEE AS ITS INCOME AND IS UTILIZED BY THE ASSESSEE FOR THE BENEFIT OF ITSELF AND ITS MEMBERS. AS ALREADY OBSERVED, THE SUPERVISORY ROLE OF THE DIRECTORATE OF SUGAR TO ENSURE THAT THE AMOUNT IS PROPE RLY UTILIZED TO PROMOTE THE OBJECTIVES WITH WHICH THE FUND WAS FORMED, DOES NOT MAKE A MATERIAL DIFFERENCE ON THE QUALITY AND CHARACTER OF THE RECEIPT. WE ARE THEREFORE OF THE VIEW THAT THE DEDUCTIONS MADE OUT OF CANE PRICE TOWARDS CANE DEVELOPMENT FUND SH OULD BE TREATED AS THE INCOME OF THE ASSESSEE. WE ARE, OF COURSE, NOT EXPRESSING ANY VIEW WHETHER IT IS A PERMISSIBLE DEDUCTION UNDER THE PROVISIONS OF THE INCOME - TAX ACT. IF ANY SUCH CLAIM IS MADE, THE TRIBUNAL SHALL EXAMINE THE SAME WHEN THE MATTERS ARE TAKEN UP BY IT TO CONSIDER THE ISSUE OF TAX LIABILITY IN RELATION TO AREA DEVELOPMENT FUND. THOUGH THE ITEM RELATING TO COLLECTIONS TOWARDS MEMBERS SMALL SAVINGS SCHEME HAS ALSO BEEN INCLUDED IN THE MEMORANDUM OF APPEAL, NO ARGUMENT HAS BEEN ADVANCED ON T HIS ASPECT AND THEREFORE WE NEED NOT DEAL WITH THIS. 49. WE THEREFORE ALLOW THE APPEALS OF THE COMMISSIONER OF INCOME - TAX PARTLY IN RESPECT OF THE AMOUNTS COLLECTED BY THE RESPONDENT - SOCIETIES TOWARDS CANE DEVELOPMENT FUND AND AREA DEVELOPMENT FUND. WE DE CLARE THAT THE AMOUNT COLLECTED TOWARDS CANE DEVELOPMENT FUND SHALL BE TREATED AS THE INCOME OF THE ASSESSEES AND ANY CLAIM FOR DEDUCTION SHALL BE ENTERTAINED AND DECIDED BY THE TRIBUNAL. AS REGARDS THE AREA DEVELOPMENT FUND, THE MATTERS ARE REMITTED TO TH E INCOME - TAX APPELLATE TRIBUNAL, PUNE 7 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA BENCH FOR FRESH DETERMINATION SUBJECT TO THE OBSERVATIONS MADE IN THIS JUDGMENT. IN RESPECT OF OTHER ITEMS, THE APPEALS SHALL STAND DISMISSED. 6. THE TRIBUNAL HEARD THE MATTER ON THIS ISSUE IN THE CASE OF PRESENT ASS ESSEE IN ITA NOS. 1538 TO 1541/PN/2007 AND VIDE ORDER DATED 27 - 02 - 2009 , T HE APPEALS OF THE ASSESSEES WERE DISPOSED OF RESTORING THE MATTER TO THE FILE OF THE ASSESSING OFFICER BY FRAMING FOUR QUESTIONS FOR FRESH DETERMINATION . THE OPERATIVE PART OF THE FI NDING OF THE TRIBUNAL IN THE SECOND ROUND IS AS UNDER : 9. WE FIRST DEAL WITH THE CITATION REFERRED FROM THE SIDE OF THE REVENUE NAMELY CIT VS. BAZPUR CO - OPERATIVE SUGAR FACTORY LTD. [1998] 172 ITR 321 (S.C.). HOWEVER, AT THE OUTSET WE CAN EXPRESS OUR OPI NION THAT THE RECEIPT BY WAY OF DEDUCTION WAS REGARDED AS REVENUE RECEIPT AND HELD TO BE INCLUDED IN THE TAXABLE INCOME OF THE ASSESSEE WAS MAINLY BECAUSE OF THE PECULIARITY OF THE FACTS THAT THE IMPUGNED FUND CALLED LOSS EQUALIZATION AND CAPITAL REDEMPTI ON FUND' WAS MEANT FOR THE PURPOSE OF MEETING THE LOSSES OF THE SUGAR FACTORY. AFTER ADJUSTING THE LOSSES, IF ANY, IN THE WORKING YEAR, THE DEPOSIT SHALL BE ALLOWED TO ACCUMULATE AND UTILIZE FOR REPAYMENT OF THE INITIAL LOAN FROM THE INDUSTRIAL FINANCE COR PORATION OF INDIA AND FINALLY REDEEMING THE GOVERNMENT SHARES. THE FACTS OF THE CASE HAVE ALSO REVEALED THAT THE AMOUNT OUTSTANDING TO THE CREDIT OF THIS FUND WAS TO BE USED FOR MAKING THE PARTLY PAID SHARES FULLY PAID UP. LASTLY THE BALANCE OF THE SAID AC COUNT WAS TO BE REFUNDED TO THE MEMBERS CONCERNED AFTER THE LIQUIDITY OF THE LOAN AND THEREAFTER THE FUND SHALL CEASE TO EXITS. THE FACTS ARE THUS FULLY DISTINGUISHABLE MAINLY BECAUSE OF THE REASON THAT THE RECEIPTS WERE MEANT FOR THE PURPOSE OF THE BUSINE SS OF THE ASSESSEE AND THE DOMAIN OVER THE FUND WAS EXCLUSIVELY WITHIN THE RIGHTS OF THE SUGAR FACTORY. SINCE THE FACTS OF THE APPEAL IN HAND ARE DISTINGUISHABLE, HENCE WE CAN SAY THAT THE REVENUE MISPLACED THE RELIANCE. 10. THERE ARE TWO DECISIONS NAMELY CIT V. BIJLEE COTTON MILLS [1979] 116 ITR 60 AND GODRA ELECTRICITY CO. LTD. [1997] 225 ITR 746 (SC) WERE CITED FROM THE SIDE OF THE APPELLANT. THESE TWO DECISIONS ARE FOR THE PROPOSITION THAT IN A SITUATION WHERE THE FUND IS 8 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA COMPULSORY IN NATURE ATTACHE D WITH AN OBLIGATION AND THE PERSON COLLECTING THE FUND HAD LIMITED DISCRETION AS REGARDS THE MANNER IN WHICH IT SHOULD BE SPENT THAN THE COLLECTION OF THE AMOUNT CANNOT BE SAID TO BE THE 'ACCRUAL OF INCOME' IN THE HANDS OF THE RECIPIENT AS UNDERSTOOD BY U S, BY READING THE DECISION OF CIT V. BIJLEE COTTON MILLS (SUPRA) LIKEWISE THE VERDICT IN GODHRA ELECTRICITY CO. LTD. (SUPRA) . 'INCOME - TAX IS A LEVY ON INCOME. NO DOUBT, THE INCOME - TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY LO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT; BUT THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK - KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME, WHICH DOES NOT MATERIALIZE. 10.1. THUS THE FINAL VERDICT OF THE HON'BLE COURT WAS THAT THE CLAIM AT THE INCREASED RATES AS MA D E BY THE ASSESSEE COMPANY ON THE BASIS OF WHICH NECESSARY ENTRIES WERE MADE REPRESENTED ONLY HYPOTHETICAL INCOME AND THE IMPUGNED AMOUNTS AS BRO UGHT TO TAX BY THE INCOME TAX OFFICER DID NOT REPRESENT THE INCOME WHICH HAD REALLY ACCRUED TO THE ASSESSEE - COMPANY, DURING THE RELEVANT PREVIOUS YEAR. THESE TWO DECISIONS, THUS PROVIDES GUIDELINES FOR THE PURPOSE OF ARRIVING AT A CONCLUSION OF ASSESSABILI TY, IF ANY, OF AREA DEVELOPMENT FUND. 11. AS FAR AS THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CHHATRAPATI SAHAKARI SAKHAR KARKHANA LTD. [2000] 245 ITR 498 (BOM) IS CONCERNED THE SAME WAS OVER RULED IN PART AND REMANDED IN PART BY THE HON 'BLE SUPREME COURT WHILE DECIDING THE CASE OF SIDDESHWAR SSK LTD. V. CIT [2004] 270 ITR 1 (S.C.) AND THIS IS THE DECISION WHICH IS TO BE FOLLOWED BY ALL THE SUB - ORDINATE AUTHORITIES INCLUDING THE TRIBUNAL. IN THE LIGHT OF THE ABOVE DISCUSSION AND IN OUR H UMBLE UNDERSTANDING ON THE PRECEDENTS CITED ANTE WE MAY LIKE TO CONCLUDE THAT THE OBSERVATION OF THE HON'BLE SUPREME COURT WERE TWO FOLD: FIRST OBSERVATION: - I. THE APEX COURT HAS HELD THAT THE HON'BLE HIGH COURT FELL INTO AN ERROR IN INVOKING THE THEORY OF D IVERSION OF 9 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA INCOME AT SOURCE AND IT WAS FURTHER HELD THAT THE CRUX OF THE MATTER WAS THAT IT NEVER HAD BEEN A DIVERSION OF INCOME OF A THIRD PARTY BEFORE IT REACHED THE ASSESSEE. THE COURT HAS ALSO MADE AN OBSERVATION THAT THE IMPUGNED RECEIPT IN THE FORM OF AREA DEVELOPMENT FUND ALWAYS REMAINED WITH THE ASSESSEE. SECOND OBSERVATION: II. THAT THE QUESTION ABOUT THE REALIZATION OF FUND BEING IMPRESSED WITH A SPECIFIC LEGAL OBLIGATION TO SPEND THE MONIES FOR SPECIFIED PURPOSE WHICH ARE UNRELATED TO THE BUSINESS O F THE SUGAR FACTORY COULD STILL BE CONTENDED. THE HON'BIE COURT HAS SAID THAT SUCH CONTENTION THAT THE IMPUGNED RECEIPTS COULD NOT BE TREATED AS INCOME OF THE ASSESSEE CAN BE ARGUED ON THE BASIS OF THE ANALOGY OF COLLECTION OF AMOUNTS TOWARDS CHARITY AS IN THE CASE OF CIT V. BIJLEE COTTON MILLS [1979] 116 ITR 60. 11.1. TO REMOVE ANY AMBIGUITY AND FOR THE SAKE OF READY REFERENCE WE HEREINBELOW REPRODUCE THE RELEVANT PARAGRAPH PERTAINED TO THE SECOND OBSERVATION: - IT COULD STILL BE CONTENDED, AS HAS BEEN CO NTENDED BY LEARNED SENIOR COUNSEL APPEARING FOR THE ASSESSEES, THAT THE REALIZATIONS BY THE ASSESSEE TOWARDS AREA DEVELOPMENT FUND ARE IMPRESSED WITH A SPECIFIC LEGAL OBLIGATION TO SPEND THE MONIES FOR SPECIFIC PURPOSES WHICH ARE UNRELATED TO THE BUS INESS OF THE SUGAR FACTORY AND THEREFORE SUCH RECEIPTS CANNOT BE TREATED AS INCOME OF THE ASSESSEE. THE ANALOGY OF COLLECTION OF AMOUNTS TOWARDS CHARITY, AS IN THE CASE OF CIT V. BIJLEE COTTON MILLS [1979] 116 ITR 60; [1979] SCC 496, HAS BEEN INVOKED TO S UBSTANTIATE THE ARGUMENT. IT IS CONTENDED THAT THE REALIZATIONS TOWARDS AREA DEVELOPMENT FUND WOULD MORE OR LESS STAND ON THE SAME FOOTING AS DEPOSITS. THE CONTROVERSY HAS NOT BEEN APPROACHED IN THE LIGHT OF THE ABOVE ARGUMENTS. WE DO NOT CONSIDER IT AP PROPRIATE TO EXPRESS OUR VIEW FOR THE FIRST TIME, ESPECIALLY WHEN THE DETERMINATION THEREOF MAY DEPEND ON THE CONSIDERATION OF CERTAIN FACTS. WE THEREFORE LEAVE THIS POINT FOR FRESH DETERMINATION BY THE TRIBUNAL. 10 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA 12. THUS THE HON'BLE COURT HAS CONCLUDE D THAT AS REGARDS AREA DEVELOPMENT FUND, THE MATTER TO BE REMITTED TO THE ITAT, PUNE BENCH FOR FRESH DETERMINATION SUBJECT TO THE OBSERVATIONS MADE IN THE JUDGMENT. IN OUR HUMBLE UNDERSTANDING IN THE ABSENCE OF THE RELEVANT FACTS THE HON'BLE COURT WAS NOT IN A POSITION TO DECIDE THE ISSUE AND CONTROVERSY PRIMARILY BECAUSE OF THE REASON THAT THE SAID CONTROVERSIES WERE NOT APPROACHED BY THE LOWER COURTS IN THE LIGHT OF THE MAIN ARGUMENTS THAT THE REALIZATION OR COLLECTION WAS NOT AN INCOME AT ALL BEING IMPRE SSED WITH A SPECIFIC LEGAL OBLIGATION. THEREFORE, THE LORDSHIPS HAVE SAID THAT IT WAS NOT APPROPRIATE TO EXPRESS THEIR VIEW FOR THE FIRST TIME, ESPECIALLY WHEN THE DETERMINATION MAY DEPEND ON CERTAIN CONSIDERATION OF FACTS NOT SO FAR BROUGHT ON RECORD. DEF INITELY, THE FACTS WERE ABOUT THE SCHEME UNDER WHICH THE AREA DEVELOPMENT FUND WAS COLLECTED AND THE OBLIGATION ATTACHED WITH THE SAID SCHEME EARLIER WHEN THIS ISSUE HAD COME UP BEFORE THE RESPECTED CO - ORDINATE BENCHES EITHER IT WAS REMITTED BACK TO THE FI LE OF THE A.O OR IT WAS CONCLUDED WITH FOR WANT OF INFORMATION IN THOSE PARTICULAR CASES, THE AREA DEVELOPMENT FUND WAS AN INCOME OF THE ASSESSEE, SINCE IT WAS NOT PROVED OTHERWISE IN THE ABSENCE OF AVAILABILITY OF FUNDS. IN ONE OF THE DECISION AS CITED FR OM THE SIDE OF THE REVENUE, IT IS TRUE THAT THE RESPECTED CO - ORDINATE BENCH HAS TAKEN A VIEW THAT ONCE THE HON'BLE SUPREME COURT HAS PRONOUNCED THAT THERE WAS NO DIVERSION OF INCOME AND THE RECEIPT REMAINED WITH THE ASSESSEE THEREFORE, THE FUND WAS INCOME IN THE HANDS OF THE ASSESSEE; BUT WE HAVE TO STATE WITH RESTRAIN THAT THE VIEW SO EXPRESSED WAS ONLY ONE PART OF THE DECISION OF THE HON'BLE SUPREME COURT AND THE OTHER PART OF THE DECISION OF THE HON'BLE SUPREME COURT HAS ESCAPED THE ATTENTION, AS IS EVID ENT FROM THE RELEVANT PARAGRAPHS REPRODUCED ABOVE FROM THE SAID ORDER OF THE HON'BLE SUPREME COURT. WHATEVER WAS IMPLICIT IN THE QUOTED DECISION OF THE HON'BLE SUPREME COURT, AN ATTEMPT WAS MADE BY US TO MAKE IT EXPLICIT. OUR ENDEAVOR IN THIS JUDGMENT IS S IMPLY TO GIVE GUIDELINES EXPLICITLY TO THE AUTHORITIES BELOW TO CORRECTLY FOLLOW THE VERDICT OF THE HON'BLE APEX COURT. FOR THAT REASON WE HEREINBELOW SET FEW QUESTIONS SO AS TO FIND THE ANSWER BY THE REVENUE AUTHORITIES: I. WHAT WAS THE EXACT NATURE OF TH E SCHEME PARTICULARLY IN THE LIGHT OF SECTION 79A OF MAHARASHTRA CO - OPERATIVE SOCIETIES ACT? 11 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA II. WHAT WAS THE OBLIGATION OF THE SUGAR FACTORY IMPOSED AND ATTACHED WITH THE SAID COLLECTION? III. WHAT WAS THE RESOLUTION IN EACH CASE BY THE BOARD OF DIRECTORS AND THE MANNER IN WHICH THE RESOLUTION WAS FOLLOWED BY THE SUGAR FACTORY AND FINALLY WHETHER AREA DEVELOPMENT FUND WAS UTILISED BY SUGAR FACTORIES; AND IV. WHETHER AREA DEVELOPMENT FUND RECEIPTS WERE AT ALL AN INCOME OF THE ASSESSEE SPECIALLY IF IT WAS IMPRESSED WITH A SPECIFIC LEGAL OBLIGATION TO BE SPEND FOR SPECIFIED PURPOSES. 13. ONCE THE A.O. SHALL GET THE ANSWER TO THESE QUESTIONS HE SHALL AUTOMATICALLY ARRIVE AT THE CORRECT CONCLUSION AS TO WHETHER AREA DEVELOPMENT FUND AT ALL IS IN THE NATURE OF REAL INCOM E FOR THE PURPOSE OF ASSESSMENT IN THE HANDS OF THE SUGAR FACTORY. THEREFORE, WE REMIT THIS ISSUE BACK TO THE STAGE OF THE A.O. TO DECIDE AFRESH AND GET THE ANSWERS OF THESE QUESTIONS BY EXAMINING THE FACTS OF EACH CASE. SINCE THE MATTER HAS BEEN RESTORE D BACK TO THE FILE OF THE A.O. HENCE THESE APPEALS MAY BE TREATED AS ALLOWED TO STATISTICAL PURPOSES. 7. THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER AND DECIDED THE QUESTIONS FRAMED BY THE TRIBUNAL AND HELD THAT THE AMOUNT COLLECTED BY THE ASSESSEE T OWARDS THE ADF BY DEDUCTING THE SAME FROM THE BILLS PAYABLE TO THE MEMBERS AND NON - MEMBERS IS TO BE ASSESSED AS INCOME IN THE HANDS OF THE ASSESSEE. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT(A). THE LD. CIT(A) EXAMINED THE ISSUE AND HELD THAT THE RECEIPT S TOWARDS THE ADF CONSTITUTE D THE TRADING RECEIPT AND THE SAME IS EQUATED WITH THE C ANE DEVELOPMENT FUND. HE ALSO HELD THAT THE SAID FUND IS NOT IMPRESSED WITH A SPECIFIC LEGAL OBLIGATION TO BE S P ENT ONLY FOR THE SPECIFIED PURPOSES. THE FINDING O F THE LD. CIT(A) ON THIS ASPECT IS IN PARA NO. 8.5 WHICH READS AS UNDER: 8.5 THE SECOND IMPORTANT QUESTION THAT ARISES IS WHETHER THE AREA DEVELOPMENT FUND WAS IMPRESSED WITH A SPECIFIC LEGAL OBLIGATION TO BE SPENT FOR SPECIFIED PURPOSES. ACCORDING TO THE LEARNED A.R., IN CASE OF AREA DEVELOPMENT FUND, IT WAS IMPRESSED WITH A SPECIFIC 12 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA LEGAL OBLIGATION TO BE SPENT FOR SPECIFIED PURPOSES UNLIKE CANE DEVELOPMENT FUND . IN FACT, THE LEARNED A.R. PLEADED THAT A CLEAR FINDING OF FACT BE GIVEN ON THIS ASPECT OF TH E MATTER AS DIRECTED BY THE SUPREME COURT IN THE CASE REFERRED ABOVE. AS PER THE GUIDELINES IN THE ABOVE ORDER OF STATE GOVT . DEDUCTIONS MADE TOWARDS THE FUND ARE TO BE GENERALLY USED IN ACCORDANCE WITH THE GUIDELINES ISSUED FROM TIME TO TIME BY NATIONAL O PERATIVE DEVELOPMENT CORPORATION, NEW DELHI, AND BY THE STATE GOVERNMENT FOR CERTAIN SPECIFIED PURPOSES AS PER PRIORITY TO BE DECIDED BY THE BOARD OF DIRECTORS OF A SUGAR FACTORY. THE ORDER ALSO PROVIDES THAT THE FUND CAN ALSO BE UTILIZED FOR A PURPOSE NOT SPECIFIED IN THE BYE LAWS AFTER OBTAINING SANCTION FROM DIRECTOR OF SUGAR [CLAUSE 3(G) OF THE ORDER]. IT IS THUS CLEAR FROM THE ORDER OF THE STATE GOVT., THE SUGAR FACTORIES CAN UTILIZE THE FUND FOR ANY PURPOSES WITH THE APPROVAL OF THE DIRECTOR OF SUGAR AND THEREFORE IT CANNOT BE SAID THAT THE RECEIPTS ARE TO BE EARMARKED FOR ANY SPECIFIC PURPOSE. WHEN THE OBJECTS ON WHICH THE RECEIPTS ARE TO BE SPENT ARE TO BE DECIDED BY THE APPELLANT ITSELF AND SUCH OBJECTS ARE ONLY TO BE REPORTED TO THE GOVERNMENT; IT IS DIFFICULT TO INFER THAT THE SAID FUND IS IMPRESSED WITH A SPECIFIC LEGAL OBLIGATION TO BE SPENT FOR SPECIFIED PURPOSES. FURTHER, IT IS OBLIGATORY ON THE PART OF THE APPELLANT THAT IT SHOULD SPEND THE MONEY COLLECTED TOWARDS THE FUND WITHIN ONE YEAR AND IF THAT IS NOT DONE WITHIN THE NEXT YEAR. BUT, AS POINTED OUT BY THE ASSESSING OFFICER, THERE WAS INORDINATE AND CONSISTENT DELAY ON THE PART OF THE APPELLANT IN UTILIZING THE FUNDS FOR THE PURPOSES FOR WHICH IT WAS COLLECTED TOWARDS AREA DEVELOPMENT ACTIV ITIES AND THE APPELLANT WAS NEVER PENALIZED NOR QUESTIONED FOR SUCH DELAY IN UTILIZING THE MONEY BY ANY REGULATORY AUTHORITY AND ALSO BY ITS MEMBERS WHO WERE AMONGST THE CONTRIBUTORS TO AREA DEVELOPMENT FUND. THE APPELLANT HAD FULL DISCRETION ON THE UTILIZ ATION OF THE SUMS AND THE APPELLANT HAD USED THE MONEY COLLECTED TOWARDS AREA DEVELOPMENT ACTIVITIES FOR ITS BUSINESS PURPOSES DURING THE PERIOD OF DELAY IN UTILIZATION OF MONEY. AS OBSERVED BY THE APEX COURT, THE SSKS CONCERNED EXERCISE DOMINION OVER THE FUND AND CAN DEAL WITH THE MONEY SUBJECT OF COURSE TO THE GUIDELINES AND RESTRICTIONS EVOLVED BY THE GOVERNMENT. THERE IS NO HARD AND FAST RULE PRESCRIBED - BY THE GOVT. FOR THE SOCIETY AS TO HOW MUCH MONEY SHOULD BE APPLIED FOR EACH AND EVERY OBJECT SELECTE D BY THE SOCIETY AND THE QUANTUM OF BENEFIT TO BE EXTENDED TO INDIVIDUAL BENEFICIARIES. AFTER THE INITIAL APPROVAL BY THE GOVT. UNDER SECTION 79A OF THE MAHARASHTRA CO - OPERATIVE SOCIETIES ACT, THE 13 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA COLLECTION AND THE UTILIZATION OF THE FUND IS ALWAYS LEFT T O THE DISCRETION OF THE APPELLANT. IN SUCH CIRCUMSTANCES, IN MY HUMBLE UNDERSTANDING, THE FUND IS NOT IMPRESSED WITH A SPECIFIC LEGAL OBLIGATION TO BE SPENT ONLY FOR SPECIFIED PURPOSES. 8. NOW AGAIN THE ISSUE HAS TRAVELLED TO THE TRIBUNAL AT THE INSTANCE O F THE ASSESSEE . SHRI PRASANNA L. JOSHI, LD. COUNSEL FOR THE ASSESSEE SUBMIT S THAT THE DEDUCTION MADE BY THE ASSESSEE IS CONTROLLED AND REGULATED U/S. 79A OF THE MAHARASHTRA COOPERATIVE SOCIETIES ACT. HE SUBMITS THAT THERE IS A SPECIFIC OBLIGATION ON THE AMOUNT COLLECTED BY THE ASSESSEE AND THE FUNDS COLLECTED CANNOT BE DIVERTED FOR ANY OTHER USE SAVE SPECIFIED IN THE GOVERNMENTS ORDER DATED 18 - 09 - 1989 ISSUED BY THE DEPARTMENT OF CO - OPERATIVE AND TEXTILE, GOVT. OF MAHARASHTRA. HE REFERRED TO THE PAPER BO OK NO S . 3 TO 7 OF THE COMPILATION AND SUBMITS THAT THE ASSESSEE IS BOUND TO FOLLOW THE SAID DIRECTIONS AND THE SAID FUND IS IN THE CUSTODY OF THE ASSESSEE IN THE CAPACITY AS A TRUSTEE. HE SUBMITS THAT THE AMOUNT S COLLECTED UNDER THE ADF ARE SPECIFICALLY I DENTIFIED IN THE BALANCE SHEET THOUGH THE SAME ARE NOT KEPT IN THE SEPARATE BANK ACCOUNT. HE SUBMITS THAT THE RECEIPT IN THE HANDS OF THE ASSESSEE CANNOT BE TREATED AS INCOME BECAUSE THE ASSESSEE CANNOT ENJOY SAID FUND AND THE ASSESSEE HAS NOT USED A SING LE RUPEES F ROM THE ADF . HE ALSO FILED THE CHART SHOWING THAT THE AMOUNT S FROM THE ADF ARE SPENT ON THE HOSPITALS, SCHOOLS, I NCENTIVE TO THE WRESTLERS , H ELP TO THE PERSONS AFFECTED BY THE FIRE, I NCENTIVE FOR DIGGING WELLS ETC. IT IS ARGUED THAT ENTIRE FUN D IS UTILISED ON SOCIO - ECONOMIC PROGRAMMES/PROJECTS. HE SUBMITS THAT THE ORDER PASSED U/S. 79A OF THE MCS ACT HAS PUT OBLIGATION ON THE ASSESSEE AND IT IS THE STATUTORY DUTY O F THE ASSESSEE TO UTILISE THE FUND S FOR THE SPECIFIED PURPOSES ONLY IN THE AREA OF OPERATION OF THE SUGAR FACTORY. HE SUBMITS THAT THE AMOUNT COLLECTED BY THE ASSESSEE CANNOT BE TREATED AS INCOME UNDER THE CHARGING PROVISION OF THE INCOME - TAX ACT. HE FINALLY SUBMITS THAT EVEN THOUGH THE AMOUNTS 14 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA COLLECTED BY THE ASSESSEE TOWARDS THE ADF IS TREATED AS INCOME IN THE HANDS OF THE ASSESSEE , A T THE SAME TIME THE ASSESSING OFFICER HAS ALLOWED THE EXPENDITURE WHENEVER THE AMOUNT HAS BEEN SPENT ON SPECIFIED PURPOSES TREATING THE SAME AS BUSINESS EXPENDITURE. 9. LD. COUNSEL SHRI N. SRINIVASA N IN HIS SUPPORTING ARGUMENT SUBMITS THAT EVEN IF THE HON'BLE SUPREME COURT HAS HELD THAT THE DOCTRINE OF DIVERSION OF THE INCOME OVERRIDING THE TITLE IS NOT APPLICABLE TO THE AMOUNTS COLLECTED UNDER THE ADF BUT THE HON'BLE SUPREME COURT HAS OBSERVED THAT THERE IS POSSIBILITY THAT THERE MAY BE OTHER STATUTORY OBLIGATIONS ON THE ASSESSEE TO USE THE FUND. HE SUBMITS THAT NOWHERE IT IS DISPUTED BY THE DEPARTMENT ALSO THAT THE FUNDS ARE UTILISED FOR SPECIFIC PURPOSE ONLY AS PER THE ORDER ISSUE D BY THE GOVT. OF MAHARASHTRA AND THE ADF WITH THE ASSESSEE IS LIKE A LIABILITY EVEN IF THERE IS DELAY IN SPENDING FUND IN THE SPECIFIC TIME LIMIT BUT AS PER THE RECORD S, IT IS DEMONSTRATED THAT THE ASSESSEE IS S P ENDING THE AMOUNT YEAR TO YEAR ON THE SPECIFIED OBJECT S AND PURPOSES ONLY . 10. PER CONTRA, THE LD. CIT (DR) SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AND SUBMITS THAT THE AMOUNT S COLLECTED BY THE ASSESSEE TOWARDS THE ADF ARE NOT KEPT SEPARATELY IN ANY BANK ACCOUNT BUT ARE MERGE D WITH THE REGULAR WORKING CAPITA L OF THE ASSESSEE AND SAID AMOUNT IS ALSO USED BY THE ASSESSEE FOR HIS BUSINESS PURPOSES. HE SUBMITS THAT IT IS TRUE THE ASSESSEE HAS SPENT THE AMOUNT ON THE PROJECTS BUT IT IS ALSO TR UE THAT THE SUBSTANTIAL AMOUNT HAS REMAIN ED WITH THE ASSESSEE. HE SUBM ITS THAT THERE IS NO LIABILITY ON THE ASSESSEE TO REFUND THE AMOUNT TO THE MEMBERS BUT IT IS GOING BE REMAINED WITH THE ASSESSEE. HE SUBMITS THAT THE DEPARTMENT HAS ALREADY ALLOWED THE DEDUCTION IN RESPECT OF THE AMOUNTS SPENT BY THE ASSESSEE BY TREATING THE SAME AS BUSINESS EXPENDITURE. 15 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA 1 1 . ON PERUSAL OF THE JUDGMENT OF THE HON'BLE SUPREME COURT, WE FIND THAT DIFFERENT DEDUCTIONS AND LEVIES MADE AND COLLECTED BY THE ASSESSEE SUGAR FACTOR IES W HERE SUBJECT MATTER S OF THE ADJUDICATION AND THOSE WERE (I) CHIE F MINISTERS RELIEF FUND, (II) LATE SHRI Y. B. CHAVAN MEMORIAL FUND, (III) HUTMENT FUND, (IV) AREA DEVELOPMENT FUND, (V) CANE DEVELOPMENT FUND AND (VI) MEMBERS SMALL SAVINGS FUND. SO FAR AS CHIEF MINISTERS RELIEF FUND, LATE SHRI Y. B. CHAVAN MEMORIAL FU ND AND HUTMENT FUND , THE IR LORDSHIPS CONFIRMED THE DECISION OF THE HON'BLE HIGH COURT BY HOLDING THAT SAID LEVIED AND COLLECTION CANNOT BE TREATED AS INCOME AS T HE ASSESSEE MERELY ACTED AS AN AGENT OF THE GOVT. IN COLLECTING TH OSE A MOUNTS AND REMITTED THE SAME TO THE GOVERNMENT/TRUSTEES. THE IR LORDSHIPS FURTHER OBSERVED THAT IN TRUTH AND IN SUBSTANCE , THE MONEY COLLECTED BY THE ASSESSEE SUGAR FACTORY WAS NOT REACHING THE ASSESSEE AS PART OF ITS INCOME, BUT THE COLLECTION WAS MADE FOR AND ON BEHALF OF THE PERSON TO WHOM IT IS PAYABLE AS HELD IN THE CASE OF CIT VS. S I TALDAS TIRATHDAS 41 ITR 367 (SC). IN SUM AND SUBSTANCE THE IR LORDSHIPS CONCU R R ED WITH THE VIEW TAKEN BY THE HIGH COURT THAT THE ASSESSEE WAS MERELY ACTING AN AGENT OF THE GOVERNMENT. 1 2 . SAME WAY WHILE DECIDING THE ISSUE OF SUGARCANE DEVELOPMENT FUND AFTER CONSIDERING THE PURPOSE FOR WHICH THE FUND IS TO BE USED , THEIR LORDSHIPS HELD THAT EVEN IF TO SOME EXTENT THERE WAS A CONTROL OF THE DIRECTOR OF SUGAR BUT AT THE END RESULT THE PROJECTS ON W HICH THE FUND WOULD BE SPENT THERE IS A DIRECT BENEFIT TO THE MEMBERS AND AUGMENT THE SUGARCANE PRODUCTION WILL HELP THE SOCIETY IN HIS MANUFACTURING OPERATI O NS. IN SUM AND SUBSTANCE THE IR LORDSHIPS HELD THAT THE SAID COLLECTION FOR SUGAR DEVELOPMENT FUND BY THE ASSESSEE SUGAR FACTORY IS AN INCOME AND THE PRINCIPLES OF DIVERSION OF INCOME AT SOURCE CANNOT BE APPLIED TO THE SAID FUND. WE ARE TAKING THE NOTE OF THE IMPORTANT OBSERVATIONS OF THE IR LORDSHIPS THAT UNLIKE THE ADF , THE 16 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA MON EY OUT OF CANE DEVELOP MENT FUND ARE NOT SPENT FOR PURPOSE UNCONNECTED WITH THE GROWTH AND FUNCTIONING OF THE SUGAR FACTORY. IN SUM AND SUBSTANCE THE IR LORDSHIPS HELD THAT THE PROJECTS ON WHICH ADF IS UTILISED NOT CONNECTED WITH THE GROWTH AND FUNCTIONING OF THE ASSESSEE SUGAR FACTORY (PARA NO. 48 OF THE JUDGMENT). IT IS ALSO SEEN THAT THE IR LORDSHIPS HAVE CONSIDERED SEC. 79A OF THE MAHARASHTRA CO - OPERATIVE SOCIETY ACT IN WHICH THE ORDER WAS ISSUE D GIVING DIRECTIONS TO THE SUGAR FACTORIES IN RESPECT OF UTILIZATION OF THE ADF . THE IR LORDSHIPS ALSO CONSIDERED S O ME OF THE FACTS PERTAINING TO THE ISSUE. THE HON'BLE SUPREME COURT HAS NOT APPROVED THE DECISION OF THE HIGH COURT THAT THE DEDUCTION WAS MADE ON THE DIRECTIONS OF THE GOVERNMENT AND HENCE, THE ASSESSEE SUGAR FACTORY ACT ED AS AN AGENT AND COLLECTIONS WERE MADE AS PER THE DIRECTIONS OF THE GOVERNMENT TO BE SPENT ON THE PURPOSES SPECIFIED BY THE STATE GOVERNMENT AND THOUGH THE AMOUNT IS DEBITED BY WAY OF RETENTION OF MONEY FROM THE CANE PRICE PAYABLE , THOSE RECEIPTS CANNOT BE TREATED AS A TRADING RECEIPTS AND HENCE, THE PRINCIPLES OF DIVERSION OF INCOME AT SOURCE IS APPLICABLE TO THE MONEY DEDUCTED AND RET AINED BY THE ASSESSEE SUGAR FACTORY. 1 3 . BEFORE THE HON'BLE SUPREME COURT THE ASSESSEE TOOK THE CONTENTION THAT THE COL LECTION MADE BY THE ASSESSEE TOWARDS THE ADF ARE IMPRESSED WITH THE SPECIFIC LEGAL OBLIGATION TO SPEND THE MON EY FOR SPECIFIED PURPOSES ONLY WHICH ARE UNRELATED TO THE BUSINESS OF THE ASSESSEE SOCIETY AND THEREFORE SUCH RECEIPTS CANNOT BE TREATED AS AN INC OME OF THE ASSESSEE. THE ASSESSEE ALSO RELIED ON THE DECISION IN THE CASE OF CIT VS. BIJLEE COTTON MILLS (P.) LTD. 1 16 ITR 60 ( SC ). THE IR LORDSHIPS EXPRESSED THE OPINION THAT THE DETERMINATION OF THE SAID CONTENTION MAY DEPEND ON CERTAIN FACTS AND HENCE, THE ISSUE WAS LEFT UPON FOR FRESH DETERMINATION BY THE TRIBUNAL. IN SUM AND SUBSTANCE THE IR LORDSHIPS DISPROVED THE VIEW TAKEN BY THE HIGH COURT THAT SO FAR AS 17 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA THE COLLECTION MADE TOWARDS ADF IS CONCERNED THE ASSESSEE SUGAR FACTORY IS MERELY AGENT OF THE GOVERNMENT AS IN THE CASE OF CHIEF MINISTERS RELIEF FUND, LATE SHRI Y. B. CHAVAN MEMORIAL FUND AND HUTMENT FUND. NOW WE HAVE TO EXAMINE THIS ISSUE IN THE LIGHT OF PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF BIJLEE COTTON MILLS (P.) LTD. ( S UPRA). 1 4 . IN THE CASE OF BIJLEE COTTON MILLS (P.) LTD. (SUPRA) , THE ASSESSEE COMPANY USED TO REALIZE A SPECIFIED AMOUNT ON ACCOUNT OF D HARMADA FROM ITS CUSTOMERS ON SALES OF YARN AND BALES OF COTTON, AND THE SAID AMOUNT WAS CREDITED IN A SEPARATE ACCOUNT UNDER THE HEAD D HARMDA ACCOUNT, AND THE SAME WAS NOT TREATED AS A TRADING RECEIPT S . SUBSEQUENTLY, THE TRUST WAS ALSO CONSTITUTED AND THE SAID LEVY WAS TREATED AS A TRUST FUND WHICH WAS TO BE UTILISED FOR THE RELIGIOUS AND CHARITABLE PURPOSES. THE SAID ASSESSEE CLAIMED THAT THE AMOUNTS LEVIED AND COLLECTED UNDER THE HEAD D HARMADA WERE HELD FOR THE TRUST BY IT WHICH WERE EARMARKED FOR CHARITY AND AS SUCH THE SAID RECEIPTS WERE NOT ITS INCOME FROM BUSINESS. THE ASSESSING OFFICER AND THE AAC REJ ECTED THE CLAIM OF THE ASSESSEE BUT THE HIGH COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING THAT THE D HARMADA WAS A CUSTOMARY LEVY PREVAILING IN CERTAIN PARTS OF THE COUNTRY AND WHERE IT WAS PAID BY THE CUSTOMERS TO A TRADING CONCERN , THE AMOUNT WAS NOT PAID AS A PRICE FOR THE COMMODITY SOLD TO THE CUSTOMER. THE REVENUE CARRIED THE ISSUE BEFORE THE HON'BLE SUPREME COURT. THE REVENUE CHALLENGED THE NATURE OF LEVY ITSELF BY TAKING THE CONTENTION THAT THE OBJECT WAS VERY VAGUE AND THE MONEY WAS LYING WITH THE SAID ASSESSEE AND THERE WAS NO TIME LIMIT FOR SPEN DING T HE AMOUNT. THE HON'BLE SUPREME COURT HELD THAT THE PURPOSE FOR WHICH THE AMOUNT WAS LEVIED I.E. D HARMADA CANNOT BE REGARDED AS INVALID CUSTOMARY LEVY ON ACCOUNT OF VAGUENESS AND OR UNCERTAINTY AND THE SAID PAYMENTS PAID BY THE CUSTOMERS / BROKERS WERE 18 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA VALIDLY EARMARKED FOR CHARITABLE PURPOSES. THE APEX COURT ALSO NEGATIVATED THE CONTENTION OF THE REVENUE THAT BECAUSE OF THE COMPULSOR Y NATURE OF THE LEVY THE IMPUGNED AMOUNTS CHARGE D TO THE CUSTOMERS AND RECEIVED BY THE ASSESSEE COULD BE REGARDED AS A PART OF THE PRICE OR A SURCHARGE ON THE PRICE LE VIED BY THE ASSESSEE. THE APEX COURT NEGATIVATED THE SAID CONTENTION ALSO BY REFERRING TO THE DECISION OF THE HON'BLE SUPREME COURT IN T HE CASE OF CIT VS. TOLLYGUNGE CLUB LTD. 107 ITR 776. THE CONCLUDING PART OF THE SAID DECISION IS AS UNDER: ON PARITY OF REASONING THE DHARMADA AMOUNTS PAID BY THE CUSTOMERS CANNOT BE REGARDED AS PART OF PRICE OR A SURCHARGE ON R PRICE OF GOODS PURC HASED BY THE CUSTOMERS. THE AMOUNT OF DHARMADA IS UNDOUBTEDLY A PAYMENT WHICH A CUSTOMER IS I REQUIRED TO PAY IN ADDITION TO THE PRICE OF THE GOODS WHICH HE PURCHASES FROM THE ASSESSEE BUT THE PURCHASE OF THE GOODS BY THE CUSTOMER WOULD BE THE OCCASION AND NOT THE CONSIDERATION FOR THE DHARMADA AMOUNT TAKEN FROM THE CUSTOMER. IT IS TRUE THAT WITHOUT PAYMENT OF DHARMADA AMOUNT THE CUSTOMER MAY NOT BE ABLE TO PURCHASE THE GOODS FROM THE ASSESSEE BUT THAT WOULD NOT MAKE THE PAYMENT OF DHARMADA AMOUNT INVOLUNTA RY INASMUCH AS IT IS OUT OF HIS OWN VOLITION THAT HE PURCHASES YARN AND COTTON FROM THE ASSESSEE. THE DHARMADA AMOUNT IS, THEREFORE, CLEARLY NOT A PART OF THE PRICE, BUT A PAYMENT FOR THE SPECIFIC PURPOSE OF BEING SPENT ON CHARITABLE PURPOSES. THE TWO DECI SIONS ON WHICH RELIANCE WAS PLACED BY COUNSEL FOR THE REVENUE, NAMELY, POOSARLA SAMBAMURTHI'S CASE [1956] 7 STC 652 (AP) AND PANDARIA PIILAI'S CASE [1973] 31 STC 108 (MAD) ARE CLEARLY DISTINGUISHABLE AND INAPPLICABLE TO THE FACTS OF THIS CASE INASMUCH AS B OTH THE DECISIONS WERE RENDERED UNDER SALES TAX LEGISLATION WHERE THE QUESTION THAT WAS REQUIRED TO BE CONSIDERED WAS WHETHER THE REALISATIONS FOR DHARMAM (CHARITABLE PURPOSE) IN THE FORMER CASE OR MAHIMAI (RELIGIOUS PURPOSE) IN THE LATTER CASE WOULD FALL WITHIN THE DEFINITION OF 'TURNOVER' AS CONTAINED IN THE CONCERNED LEGISLATION AND IT WAS HELD THAT SUCH REALISATIONS WERE INCLUDIBLE IN THE ASSESSEE'S TURNOVER. WE DO NOT WISH TO EXPRESS ANY OPINION ON THE CORRECTNESS OF THESE DECISIONS. SUFFICE IT TO STAT E THAT THE RATIO OF THESE DECISIONS CANNOT APPLY TO THE INSTANT CASE. SINCE THE REALISATIONS IN QUESTION IN THE PRESENT CASE ARE NOT A PART OF THE 19 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA PRICE OR SURCHARGE ON THE PRICE BUT PAYMENTS FOR THE SPECIFIC PURPOSE OF BEING SPENT ON CHARITABLE PURPOSES, THEY CANNOT BE REGARDED AS TRADING RECEIPTS OF THE ASSESSEE. DEALING WITH THE FACTUAL ASPECTS ON THE BASIS OF WHICH COUNSEL FOR THE REVENUE SOUGHT TO SUPPORT THE TRIBUNAL'S FINDING THAT NO TRUST COULD BE SAID TO HAVE BEEN CREATED BY THE CUSTOMERS IT WILL B E APPARENT FROM THE ABOVE DISCUSSION THAT NONE OF THE ASPECTS ARE SUCH AS WOULD LEND SUPPORT TO THE INFERENCE DRAWN BY THE TRIBUNAL. WE HAVE ALREADY DEALT WITH THE ALLEGED_ COMPULSORY NATURE OF THE LEVY AND HAVE POINTED OUT THAT THE DHARMADA AMOUNTS CANNOT BE SAID TO HAVE BEEN PAID INVOLUNTARILY BY THE CUSTOMERS AND IN ANY THE COMPULSORY NATURE OF THE PAYMENTS, IF THERE BE ANY, CANNOT IMPRESS RECEIPTS WITH THE CHARACTER OF BEING TRADING RECEIPTS. FURTHER, IT IS NOT POSSIBLE TO ACCEPT THE SUBMISSION THAT THE CUSTOMERS BEING ILLITERATE DID NOT APPRECIATE THAT THEY WERE PAYING THE AMOUNTS WITH A VIEW TO CREATE A TRUST, ESPECIALLY WHEN IT HAS BEEN FOUND THAT SUCH PAYMENTS WERE MADE PURSUANT TO A CUSTOM WHICH OBTAINED IN THE COMMERCIAL AND TRADING COMMUNITY; INDE ED, BEING A CUSTOMARY LEVY THE CONSTITUENTS OR CUSTOMERS, WHETHER LITERATE OR ILLITERATE, WOULD BE KNOWING THAT THE ADDITIONAL PAYMENTS OVER AND ABOVE THE PRICE WERE MEANT FOR BEING SPENT BY THE ASSESSEE FOR CHARITABLE PURPOSES. FURTHER, THE FACT THAT THE ASSESSEE WOULD BE HAVING SOME DISCRETION AS REGARDS THE MANNER IN WHICH AND THE TIME WHEN IT SHOULD SPEND THE DHARMDA AMOUNTS FOR CHARITABLE PURPOSES WOULD NOT DETRACT FROM THE POSITION THE ASSESSEE HELD QUA SUCH AMOUNTS, NAMELY, THAT IT WAS UNDER AN OBLI GATION TO UTILIZE THEM EXCLUSIVELY FOR CHARITABLE PURPOSES. IT IS TRUE THAT THE ASSESSEE DID NOT KEEP THESE AMOUNTS IN A SEPARATE BANK ACCOUNT BUT ADMITTEDLY A SEPARATE DHARMADA ACCOUNT WAS MAINTAINED IN THE BOOKS IN WHICH EVERY RECEIPT WAS CREDITED AND P AYMENT MADE THEREOUT ON CHARITY WAS DEBITED AND THE HIGH COURT HAS CLEARLY FOUND THAT THESE AMOUNTS WERE NEVER CREDITED IN THE TRADING ACCOUNT NOR WERE CARRIED TO THE PROFIT AND LOSS STATEMENT. HAVING REGARD TO THIS POSITION, IT SEEMS TO US CLEAR THAT THE TRIBUNAL'S FINDING THAT NO TRUST COULD BE SAID TO HAVE BEEN CREATED BY THE CUSTOMERS IN RESPECT OF THE IMPUGNED AMOUNTS WILL HAVE TO BE REGARDED AS ERRONEOUS. IN THE RESULT, AFTER CONSIDERING BOTH THE ASPECTS, WE ARE OF THE VIEW THAT THE IMPUGNED REALISATI ONS MADE BY THE ASSESSEE FROM 20 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA ITS CUSTOMERS FOR DHARMADA BEING VALIDLY EARMARKED FOR CHARITY OR CHARITABLE PURPOSES COULD NOT BE REGARDED AS THE ASSESSEE'S INCOME CHARGEABLE TO INCOME - TAX. THE ULTIMATE CONCLUSION OF THE HIGH COURT IS, THEREFORE, CONFIRMED AND THE APPEALS ARE DISMISSED WITH COSTS. 1 5 . BEFORE US THE ARGUMENT OF THE ASSESSEE IS THAT THE COLLECTION MADE BY THE ASSESSEE TOWARDS THE ADF IS IMPRESSED WITH THE SPECIFIC OBLIGATION TO SPEND THE SAME FOR SPECIFIC PURPOSES . THE DIRECTOR OF SUGAR, MAH ARASHTRA STATE VIDE LETTER DATED 28 - 03 - 1974 INFORMED THE MAHARASHTRA RAJYA SAHAKARI SAKHAR KARKHANA SANGH LTD. (FEDERATION OF THE SUGAR FACTOR IES ) THAT IN THE MINISTERS COMMITTEE MEETING HELD ON 27 - 08 - 1973 , A DECISION WAS TAKEN THAT THE CO - OPERATIVE SUGAR FACTORIES SHOULD DEDUCT ADF FROM THE FINAL CANE PRICE AT RS.1/ - PER M.T. FROM MEMBERS AND NON - MEMBERS AND THE FACTORIES HAVE BEEN ADVISED NOT TO UTILIZE THE FUND UNLESS SPECIFIC PERMISSION OF THIS DIRECTORATE IS OBTAINED. IN THE SAID LETTER THE VIEW OF TH E SUGAR FACTORIES WERE ALSO CALLED FOR . S O THIS IS A BEGINNING WHEN THE GOVT. MACHINERY STARTED TO HAVE THE CONTROLLED AND THE COLLECTIONS MADE BY THE SUGAR FACTORIES TOWARDS ADF . THE NATIONAL CO - OPERATIVE DEVELOPMENT CORPORATION (SUGARCANE DIVISION), NE W DELHI VIDE LETTER DATED 28 - 04 - 1977 ISSUE D TO ALL THE CO - OPERATIVE SUGAR FACTORIES HAD MADE A DIFFERENCE IN RESPECT OF AREA DEVELOPMENT PROGRAMME. IT IS IMPRESSED IN THE SAID LETTER THAT THE SUGAR CO - OPERATIVE S ARE INVOLVED IN CANE DEVELOPMENT PROGRAMME IN THE AREA OF OPERATION BUT AT THE SAME TIME THE OTHER MAJOR CROPS IN THE AREA ALSO SHOULD BE SUPPORTED. IT WAS ALSO IMPRESSED THAT THE FUNDS CAN BE UTILIZED FOR THE IRRIGATION FACILITIES, EDUCATIONAL AND MEDICAL SERVICE, ANIMAL HUSBANDRY AND POULTRY PRO GRAMMES AND GENERAL SERVICES LIKE CONTRIBUTION TOWARDS HOUSING TO THE HO ME LESS POOR PEOPLE , PROVIDING RELIEF FOR DIFFERENT NATIONAL CALAMITIES ETC. DEPARTMENT OF CO - OPERATION AND TEXTILE, GOVT. OF MAHARASHTRA ISSUE D ORDER DATED 18 - 09 - 1989 U/S. 21 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA 79A OF THE MCS ACT AND GAVE THE DIRECTIONS IN RESPECT OF THE MODALITY OF THE COLLECTION OF THE FUND AND ITS USES. THE SUGAR CO - OPERATIVES WERE DIRECTED THAT THE DEDUCTIONS MADE TOWARDS THE ADF ARE TO BE GENERALLY USED IN ACCORDANCE TO THE GUIDELINES FROM TIME TO TIM E ISSUED BY NATIONAL CO - OPERATIVE DEVELOPMENT CORPORATION (NCDC), NEW DELHI AS WELL AS BY THE GOVT. FOR FOLLOWING PURPOSES AS PER PRIORITY DECIDED BY THE BOARD OF DIRECTORS OF THE FACTORY: (A). AGRICULTURAL DEVELOPMENT AND CANE DEVELOPMENT. (B). WATER SUP PLY AND IRRIGATION, MINOR IRRIGATION AND KT WEIRS, INCLUDING IN PARTNERSHIP OR OTHERWISE WITH THE GOVERNMENT (NOTE FOR KT WEIRS FOLLOW ORDER OF THE GOVERNMENT ISSUED BY IRRIGATION DEPT. SR. NO. 1088/636/88/LI - 1 DATED 31/7/1988 AND ORDERS ISSUED FROM TIME T O TIME BY THAT DEPT.) (C). EDUCATIONAL OR CULTURAL PROGRAMMES, MEDICAL ASSISTANCE, SOCIAL SECURITY PROGRAMMES AND SANATORIUMS. (D). DAIRY AND POULTRY FARMING (E). FINANCIAL ASSISTANCE FOR DROUGHT RELIEF, NATURAL CALAMITIES AND VARIOUS ECONOMIC DEVELOPMENT PROGRAMMES IMPLEMENTED BY CENTRAL AND STATE GOVERNMENTS AS PER THEIR POLICIES. (F). FOR PURPOSES (A) TO (E) ABOVE BUT OUTSIDE AREA OF OPERATION AND FINANCIAL ASSISTANCE FOR OTHER SPECIFIED PROGRAMMES. (G. PROGRAMMES FOR BENEFIT OF MEMBERS. 1 6 . THE SUGAR FACTORIES WERE DIRECTED TO COMPLY THE FOLLOWING TERMS AND CONDITIONS: (A). MEMBERS SHOULD BE INFORMED IN GENERAL MEETING AS TO HOW AND FOR WHAT PURPOSES THE DEDUCTIONS ARE PLANNED TO BE USED AND APPROVAL FOR THE MEETING BE OBTAINED. (B). THE FUNDS SO COLLECTED SHALL BE SPENT BY THE BOARD OF DIRECTORS AS PER THE POLICY APPROVED IN THE GENERAL MEETING. FOR SPENDING MONEY PERSONALLY FOR AN INDIVIDUAL, PRIOR 22 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA PERMISSION OF DIRECTOR OF SUGAR MAY BE TAKEN. HOWEVER, IF A PERSON SUFFERS DAMAGE IN NATURAL CAL AMITIES, THE BOARD OF DIRECTORS CAN UTILIZE THESE FUNDS ON THE BASIS OF A CERTIFICATE FROM LOCAL REVENUE OFFICER NOT BELOW THE RANK OF A TAHSILDAR. (C). THE SAID FUND, AS FAR AS POSSIBLE, BE USED WITHIN ONE YEAR FROM THE TIME THEY ARE CREDIT WITH THE FACTO RY. IF FOR ANY REASON THEY CANNOT BE SO UTILIZED, THEY MAY BE UTILIZED IN NEXT YEAR. (D). SEPARATE ACCOUNT BE MAINTAINED FOR THIS FUND AND THE SAME SHOULD BE GOT AUDITED FROM THE AUDITOR. (E). EVERY YEAR INFORMATION ON UTILIZATION OF THIS FUND SHOULD BE S UBMITTED TO THE DIRECTOR OF SUGAR, GOVERNMENT OF MAHARASHTRA, PUNE. (F). IF THE FUNDS ARE TO BE USED OUTSIDE AREA OF OPERATION OR AS AN EXCEPTION FOR A PURPOSE NOT APPROVED BY THE GENERAL MEETING, PRIOR PERMISSION OF DIRECTOR OF SUGAR SHOULD BE OBTAINED. ( G). IF THE FUND IS TO BE UTILIZED FOR A PURPOSE NOT SPECIFIED IN THE BY LAWS, PERMISSION OF DIRECTOR OF SUGAR SHOULD BE OBTAINED. 1 7 . IN SUM AND SUBSTANCE THE DIRECTOR OF SUGAR, GOVT. OF MAHARASHTRA WAS THE SUPERVISING AUTHORITY ON THE COLLECTION AND USE OF ADF . WE HAVE PERUSED THE ANNUAL STATEMENTS OF THE ACCOUNT AND WE FIND THAT THE ASSESSEE HAS TRANSFERRED THE FUND IN THE BALANCE SHEET UNDER SPECIFIC HEAD I.E. AREA DEVELOPMENT FUND. WE ALSO FIND THAT THE ASSESSEE SUGAR FACTORY HAS TO GET THE APPROVAL OF THE MEMBERS OF THE ASSESSEE SOCIETY IN THE ANNUAL GENERAL MEETING AND THEN ONLY THE ADF CAN BE UTILIZED. THE ASSESSEE HAS FILED SOME OF THE RESOLUTION IN THE COMPILATION FROM WHICH IT IS SEEN THAT THE ADF IS USED FOR GIVING INCENTIVE FOR PRIMARY SCHOOL , INCENTIVE FOR WRESTLERS, HELP TO PERSONS AFFECTED BY FIRE, INCENTIV E FOR WAGE, ROAD DEVELOPMENTS, M EDICAL ASSISTANCE, SUBSIDIARY FOR DIGGING 23 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA WELLS, ASSISTANCE FOR GROUP MARRIAGES ETC. IN THIS CASE, THE ASSESSEE HAS NOT KEPT THE AMOUNT DEDUCTED FROM THE BILLS PAYABLE TO THE MEMBERS AND NON - MEMBERS IN SEPARATE BANK ACCOUNT BUT SEPARATE ACCOUNT IS MAINTAINED IN THE BOOKS. WE HAVE TO KEEP IN MIND THAT IN RESPECT OF THE NATURE OF THIS FUND THE HON'BLE SUPREME COURT HAS ALREADY OBSERVED THAT PURPOSES FOR WHIC H THIS FUND IS UTILIZE D I.E. ADF IS UNCONNECTED WITH THE GROWTH OF SUGAR FACTORY AND THIS FUND IS PROMOTED FOR SOCIO - ECONOMIC DEVELOPMENT IN THE AREA OF OPERATION AND THIS FUND IS DISTINCT FROM THE CANE DEVELOPMENT FUND. 1 8 . NOW THE QUESTION BEFORE US IS WHETHER THIS COLLECTION MADE TOWARDS ADF BY THE ASSESSEE SUGAR FACTORY IS IMPRESSED WITH THE SPECIFIC O BLIGATION OR ASSESSEE HOLD THIS MONEY AS A TRUSTEE AS HELD IN THE CASE OF BIJLEE COTTON MILLS (P.) LTD. (SUPRA )? OUR ANSWER IS YES. IN THIS CASE, EVE N IF INITIALLY IT WAS BY WAY OF DISCRETION THE SUGAR CO - OPERATIVE FACTORIES WERE COLLECTING THE FUND AND SPENDING THE SAME ON THE DIFFERENT PROJECTS UNDERTAKEN IN THE AREA OF OPERATION BUT S UBSEQUENTLY THE COLLECTION AND USE OF FUND WAS REGULA TED BY THE IN TERVENTION OF THE GOVT. BY ISSUING THE ORDER U/S. 79A OF THE MAHARASHTRA CO - OPERATIVE SOCIETY ACT. THE ASSESSEE HAS MAINTAINED THE SEPARATE ACCOUNT IN RESPECT OF THIS FUND AND AS PER THE STATEMENT FILED BEFORE US IT IS SEEN THAT THE ASSESSEE SUGAR FACTORY IS UTILIZING THE ADF ON DIFFERENT PROJECTS AS PER THE APPROVAL GIVEN IN THE ANNUAL GENERAL MEETING (AGM) . THE ASSESSEE HAS TO SUBMIT THE REPORT EVERY YEAR IN RESPECT OF THE COLLECTION AND UTILIZATION OF THE AMOUNT UNDER THE ADF TO THE GOVERNMENT. N OWHER E , IT IS THE CASE OF THE REVENUE THAT ANY MONEY IS DIVERTED BY THE ASSESSEE SUGAR FACTORY FOR ANY OTHER PURPOSE OTHER THAN APPROVED IN THE AGM OF THE MEMBERS. M ERELY BECAUSE THE AMOUNT COLLECTED IS NOT KEPT SEPARATELY IN THE BANK ACCOUNT, THE CHARACTER OF THE AMOUNT WILL NOT CHANGE AS HELD IN THE CASE OF BIJLEE COTTON MILLS (P.) LTD. (SUPRA). AS 24 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA SUBMITTED BEFORE US THE ASSESSEE IS REQUIRED TO SUBMIT THE AUDITORS REPORT TO THE DIRECTOR OF SUGAR , GOVT. OF MAHARASHTRA EACH YEAR SHOWING THE OPENING BALANCE O F THE ADF , AMOUNT COLLECTED DURING THE YEAR AND UTILIZ ED DURING THE YEAR (PAGE NO. 29 OF THE COMPILATION) . W E, THEREFORE, HOLD THAT THE COLLECTION MADE BY THE ASSESSEE TOWARDS THE ADF BY WAY OF DEDUCTION MADE FROM THE SUGARCANE BILLS PAYABLE TO THE MEMBER S AND NON - MEMBERS IS IMPRESSED WITH A N OBLIGATION TO SPEND THE SAME FOR THE SPECIFIED PURPOSES AND THE PERSONS/MEMBERS PAYING CONTRIBUTION TO ADF ARE AWARE BEFORE THE DEDUCTION IS MADE THAT FOR WHAT PURPOSE THE ASSESSEE CO - OPERATIVE FACTORY IS COLLECTING T HE SAID FUND AND WHERE THE FUND WILL BE UTILIZED . IN OUR HUMBLE OPINION THE ASSESSEES ROLE IS LIKE A TRUSTEE OF THE AREA DEVELOPMENT FUND. WE, ACCORDINGLY, DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. IT WAS SUBMITTED BEFORE US THAT THE DEPARTMENT HA S ALLOWED THE EXPENDITURE INCURRED BY THE ASSESSEE OUT OF THE ADF ON THE ACTUAL BASIS TREATING THE SAME AS A BUSINESS EXPENSES . AS WE HAVE HELD THAT THE AMOUNT COLLECTED UNDER THE ADF IS NOT A TRADING RECEIPT IN THE HANDS OF THE ASSESSEE HENCE, THE DEDUCT ION GIVEN BY THE ASSESSING OFFICER IN THE RESPECTIVE ASSESSMENT YEARS TOWARDS ADF IS TO BE WITHDRAWN. THE ASSESSING OFFICER IS ACCORDINGLY DIRECT TO EXCLUDE FULLY THE AMOUNT INCLUDED TOWARDS AREA DEVELOPMENT FUND IN THE INCOME OF THE ASSESSEE AND ALSO T O WITHDRAW THE AMOUNT ALLOWED AS A BUSINESS EXPENDITURE TOWARDS ADF . ACCORDINGLY THE ASSESSEE SUCCEEDS ON THIS ISSUE. 19. IN OTHER APPEALS I.E. ITA NOS. 2060, 2061, 2062, 2063, 2064, 2066, 2067, 2068, 2069, 2070, 2071, 2072, 2073 2074, 2075/PN/2012 AND I TA NOS. 05 TO 11/PN/2013, FOLLOWING OUR DECISION IN ITA NO. 2065/PN/2012 FOR THE A.Y. 1991 - 92 AS THE FACTS ARE IDENTICAL DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO EXCLUDE FULLY THE AMOUNT OF AREA DEVELOPMENT FUND INC LUDED IN THE 25 ITA NOS. 2060 TO 2075/PN/2012 & 05 TO 11/PN/2013, LOKNETE BALASAHEB DESAI SSK LTD. & ORS., SATARA INCOME OF THE ASSESSEE AND ALSO TO WITHDRAW THE AMOUNT ALLOWED AS A BUSINESS EXPENDITURE. 20 . IN THE RESULT, ALL THE APPEALS ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 28 - 02 - 20 1 4 SD/ - SD/ - ( R.K. PANDA ) ( R.S. PADVEKAR ) ACC OUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 28 TH FEBRUARY, 20 1 4 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - III, PUNE 4 THE CIT - III, PUNE 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COP Y// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE