Sangamner Bhag Sahakari Sakhar Karkhana Ltd., Amrutnagar V. ACIT, Ahmednagar Circle, Ahmednagar, Ahmednagar

ITA 539/PUN/2007

• Counselvise Citation: 53924514 RSA 2007
• Duration Of Justice: 7 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2000-2001
• Appeal Filed On: 17-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S NAIK
• Assessee Lawyers: K SRINIVASAN
• Keywords: Business expenditure; Charitable institution; Diversion of income
• Section: 143(3)

Judgement Text

INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER (ITA NOS. 535 TO 540/PN/2007) (ASSESSMENT YEARS : 1993-94, 1994-95, 1998-99 TO 20 01-02) SANGAMNER BHAG SAHAKARI SAKHAR KARKHANA LTD., AMRUNAGAR, POST : SANGAMNER AHMEDNAGAR-422 608 .. APPELLANT PAN NO. AAAAS3893G VS. ACIT, AHMEDNAGAR CIRCLE, AHMEDNAGAR .. RESPONDENT ASSESSEE BY : SHRI K. SRINIVASAN DEPARTMENT BY : SHRI P.S. NAIK DATE OF HEARING : 17-10-2014 DATE OF PRONOUNCEMENT : 20-10-2014 ORDER PER BENCH : THIS BATCH OF SIX APPEALS ARE FILED BY THE ASSESSEE , CHALLENGING THE RESPECTIVE IMPUGNED ORDERS OF LD.CI T(A)-I, PUNE AND ASSESSMENT YEARS INVOLVED BEFORE US ARE 1993-9 4, 1994-95, 1998-99 TO 2001-02. THE ISSUES AND FACTS ARE IDENT ICAL IN ALL THESE APPEALS, HENCE THIS BATCH OF THE APPEALS ARE DISPOSED OFF BY A COMMON ORDER. 2. WE FIRST TAKE APPEAL FOR A.Y. 1993-94 BEING ITA NO.535/PN/2007 AS THE LEAD APPEAL. THE ASSESSEE HA S TAKEN THE FOLLOWING GROUNDS : THE ITAT, PUNE PASSED ORDER DATED 26 TH DECEMBER, 2005 SETTING ASIDE THE APPELLANT'S CASE FOR A.Y.I993-94. THE ASSESSING OFFICER THEREAFTER PASSED ORDER DATED 20 TH OCTOBER, 2006 U/S. 143(3) R.W.S.254. CIT(A) HAS PAS SED AN ORDER DT.22 ND FEBRUARY, 2007, IN RESPECT OF APPEAL FILED AGAINST ACIT'S ORDER DT.20 TH OCTOBER, 2006. CIT(A) HAS ERRED IN : 2 1. ADDING TO INCOME RS.63,25,492/- BEING COLLECTION TOWARDS AREA DEVELOPMENT FUND DURING THE YEAR. 2. CONCLUDING THAT ALLOWABILITY OF EXPENDITURE O F RS. 1,24,59,518/- OUT OF AREA DEVELOPMENT FUND HAS NOT ARISEN OUT OF THE ORDER PASSED BY ITAT AND HENCE NOT PASSI NG ANY ORDER IN REGARD TO THE ALLOWABILITY OF EXPENDITURE OF RS.1,24,59,518/- INCURRED OUT OF AREA DEVELOPMENT F UND. HON. ITAT IN ITA NO.L325/PN/05 FOR A.Y.I993-94 HAD IN PA RA 4 OF THE SAID ORDER DIRECTED THE A.O. TO CONSIDER ALLOWA BILITY OF EXPENDITURE OUT OF AREA DEVELOPMENT FUND ALSO. 3. NOT ALLOWING RS.1,24,59,518/- BEING EXPENDI TURE INCURRED OUT OF AREA DEVELOPMENT FUND DURING THE YE AR. 4. NOT CONSIDERING THE EVIDENCE PLACED BEFORE A.O. AND CIT(A) IN SUPPORT OF CLAIM OF RS.1,24,59,518/- IN R ESPECT OF EXPENDITURE INCURRED OUT OF AREA DEVELOPMENT FUND. 2.1 THE SOLITARY ISSUE WHICH ARISES FOR OUR CONSIDE RATION IS IN RESPECT OF THE AREA DEVELOPMENT FUNDS (IN SHORT AD F). FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE A SSESSEE IS ENGAGED IN THE MANUFACTURE OF SUGAR AND ALLIED PROD UCTS FROM THE SUGARCANE. THE ASSESSEE WAS COLLECTING THE AMOUNTS FROM FARMERS, MEMBERS AS WELL AS NON-MEMBERS TOWARDS THE AREA DEVELOPMENT FUND (ADF). IT WAS CLAIMED BY THE ASS ESSEE THAT PRINCIPLES OF DIVERSION OF INCOME OVERRIDING THE TI TLE ARE APPLICABLE AND HENCE, SAID RECEIPTS CANNOT BE BROUGHT TO TAX I N THE HANDS OF THE ASSESSEE. THE REVENUE REJECTED THE PLEA OF THE ASSESSEE AND TREATED SAID AMOUNTS/RECEIPTS AS REVENUE RECEIPTS A ND BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. WHEN THE MATTER REACHED BEFORE THE TRIBUNAL IN THE FIRST ROUND, THE MATTER WAS SET-ASIDE TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRE CTIONS FOR DECIDING THE ISSUE AFRESH. 2.2 IN THE FIRST ROUND OF APPEAL THE OBSERVATION OF THE TRIBUNAL IN A.Y. 1993-94 ARE AS UNDER : THE AMOUNT COLLECTED TOWARDS AREA DEVELOPMENT FUND USED TO BE RETAINED BY THE SUGAR FACTORY ITSELF AND TO BE UTIL IZED AS PER THE GUIDELINES OF THE GOVERNMENT OR THE NATIONAL CO-OPE RATIVE DEVELOPMENT CORPORATION. SO, DUE TO VARIOUS FACTORS , IT WAS 3 REQUIRED TO INVESTIGATE WHETHER COLLECTION TOWARDS AREA DEVELOPMENT FUND WAS MADE BY THE SOCIETY AS AN AGEN T OF THE GOVERNMENT OR THAT THE PROPRIETORY INTEREST IN THE SAID FUNDS HAS FACTUALLY BEEN INVESTED WITH THE ASSESSEE. THE HON' BLE COURT HAS OBSERVED THAT THE CRUX OF THE MATTER WAS THAT THERE HAD NEVER BEEN A DIVERSION OF INCOME TO A THIRD PARTY I.E. TH E GOVERNMENT BEFORE IT REACHED THE ASSESSEE. THE RECEIPTS IN THE FORM OF AREA DEVELOPMENT FUND ALWAYS REMAINED WITH THE ASSESSEE. SO THE REALIZATION MADE BY THE ASSESSEE WERE IMPRESSED WIT H A SPECIFIC LEGAL OBLIGATION TO SPEND THE COLLECTED AMOUNT FOR SPECIFIC PURPOSES WHICH WERE UN-RELATED TO THE BUSINESS OF THE SUGAR FACTORY. HOWEVER, THE HON'BLE COURT HAS NOT COMMENTED ON THE ANALOGY DRAWN FROM THE DECISION OF CIT VS. BIJLEE COTTON MI LLS, 161ITR 60 AND CONSIDERED IT APPROPRIATE NOT TO EXPRESS ITS VIEW O N THE SAID ANALOGY. SINCE THE GUIDELINES LAID DOWN BY THE HON'BLE COURT S ARE NOT AVAILABLE ON RECORD AND THE INVESTIGATING AUTHORITY HAS NOT T AKEN INTO ACCOUNT THE GUIDELINES LAID DOWN BY THE HON'BLE COU RT, HENCE WE DEEM IT APPROPRIATE TO REMAND THIS MATTER BACK TO T HE FILE OF THE A. O, SO THAT THE RELEVANT FACTS SHOULD BE BROUGHT ON RECORD AFTER EXAMINING THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE OBSERVATIONS OF HON'BLE APEX COURT. WITH THE RESULT, THIS GROUND OF THE ASSESSEE MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES BEING RESTORED TO THE A.O.' 2.3 THE ASSESSING OFFICER PASSED ORDER U/S.143(3) R .W. SECTION 254 AS PER DIRECTIONS OF THE TRIBUNAL AND REJECTED THE CLAIM OF THE ASSESSEE. THE LD.CIT ALSO DISMISSED THE APPEAL FIL ED BY THE ASSESSEE ON THIS ISSUE. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE GRIEVANCE OF THE ASSESSEE IS MAINLY IN RESPECT OF O NE ADDITION OF RS.63,25,492/- WHICH WAS THE COLLECTION MADE BY THE ASSESSEE TOWARDS AREA DEVELOPMENT FUND (ADF) DURING THE YEAR . IT IS CLAIMED BY THE ASSESSEE THAT THE ASSESSEE HAS SPENT AN AMOUNT TO THE EXTENT OF RS.1,24,59,518/- OUT OF THE AREA D EVELOPMENT FUND WHICH IS TO BE ALLOWED AS EXPENDITURE IF THE A DDITION IS SUSTAINED. 3.1 SO FAR AS THE FIRST ISSUE IS CONCERNED WHETHER THE ADDITION CAN BE SUSTAINED IN RESPECT OF THE AMOUNT COLLECTED FROM THE FARMERS (MEMBERS AS WELL AS NON-MEMBERS) TOWARDS TH E AREA 4 DEVELOPMENT FUND, WE FIND THAT AN IDENTICAL ISSUE H AS COME FOR OUR CONSIDERATION BEFORE THE TRIBUNAL IN THE CASE OF LO KNETE BALASAHEB DESAI SAHAKARI SAKHAR KARKHANA LTD., DAULATNAGAR AN D OTHERS VS. DCIT, SATARA IN ITA NOS. 2065 TO 2075, 2060 TO 2064 /PN/2012 AND ITA NOS. 05 TO 11/PN/2013 ORDER DATED 28-02-201 4. IN THE SAID CASE, AS PER THE DIRECTIONS OF THE HONBLE SUP REME COURT IN THE CASE OF SIDDESHWAR SAHAKARI KARKHANA LTD. VS. C IT REPORTED IN 139 TAXMANN 434, THE TRIBUNAL EXAMINED THE ISSUE AN D DECIDED THE SAME IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE AMOUNT COLLECTED BY THE SUGAR FACTORIES BY MAKING DEDUCTIO NS FROM THE BILLS PAYABLE TO THE FARMERS, MEMBERS AS WELL AS NO N-MEMBERS TOWARDS THE AREA DEVELOPMENT FUND (IN SHORT ADF) IS NOT A TRADING RECEIPT IN THE HANDS OF THE ASSESSEE NOR TH E INCOME OF THE ASSESSEE. THE OPERATIVE PART OF THE DISCUSSION AND FINDINGS OF THE TRIBUNAL IN THE CASE CITED (SUPRA) ARE AS UNDER : 11. ON PERUSAL OF THE JUDGMENT OF THE HON'BLE SUPR EME COURT, WE FIND THAT DIFFERENT DEDUCTIONS AND LEVIES MADE A ND COLLECTED BY THE ASSESSEE SUGAR FACTORIES WHERE SUBJECT MATTERS OF THE ADJUDICATION AND THOSE WERE (I) CHIEF MINISTERS RE LIEF FUND, (II) LATE SHRI Y. B. CHAVAN MEMORIAL FUND, (III) HUTMENT FUND, (IV) AREA DEVELOPMENT FUND, (V) CANE DEVELOPMENT FUND AN D (VI) MEMBERS SMALL SAVINGS FUND. SO FAR AS CHIEF MINIS TERS RELIEF FUND, LATE SHRI Y. B. CHAVAN MEMORIAL FUND AND HUTM ENT FUND, THEIR LORDSHIPS CONFIRMED THE DECISION OF THE HON'B LE HIGH COURT BY HOLDING THAT SAID LEVIED AND COLLECTION CANNOT B E TREATED AS INCOME AS THE ASSESSEE MERELY ACTED AS AN AGENT OF THE GOVT. IN COLLECTING THOSE AMOUNTS AND REMITTED THE SAME TO T HE GOVERNMENT/TRUSTEES. THEIR LORDSHIPS FURTHER OBSER VED 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 T HE PERSON TO WHOM IT IS PAYABLE AS HELD IN THE CASE OF CIT VS. SITALDAS TIRATHDAS 41 ITR 367 (SC). IN SUM AND SUBSTANCE TH EIR LORDSHIPS CONCURRED WITH THE VIEW TAKEN BY THE HIGH COURT THA T THE ASSESSEE WAS MERELY ACTING AN AGENT OF THE GOVERNME NT. 12. 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 WHICH THE FUND WOULD BE SPEN T THERE IS A DIRECT BENEFIT TO THE MEMBERS AND AUGMENT THE SUGAR CANE PRODUCTION WILL HELP THE SOCIETY IN HIS MANUFACTURI NG OPERATIONS. IN SUM AND SUBSTANCE THEIR LORDSHIPS HELD THAT THE SAID COLLECTION FOR SUGAR DEVELOPMENT FUND BY THE ASSESSEE SUGAR FA CTORY IS AN 5 INCOME AND THE PRINCIPLES OF DIVERSION OF INCOME AT SOURCE CANNOT BE APPLIED TO THE SAID FUND. WE ARE TAKING THE NOT E OF THE IMPORTANT OBSERVATIONS OF THEIR LORDSHIPS THAT UNL IKE THE ADF, THE MONEY OUT OF CANE DEVELOPMENT FUND ARE NOT SPEN T FOR PURPOSE UNCONNECTED WITH THE GROWTH AND FUNCTIONING OF THE SUGAR FACTORY. IN SUM AND SUBSTANCE THEIR LORDSHI PS HELD THAT THE PROJECTS ON WHICH ADF IS UTILISED NOT CONNECTED WITH THE GROWTH AND FUNCTIONING OF THE ASSESSEE SUGAR FACTOR Y (PARA NO. 48 OF THE JUDGMENT). IT IS ALSO SEEN THAT THEIR LORDS HIPS HAVE CONSIDERED SEC. 79A OF THE MAHARASHTRA CO-OPERATIVE SOCIETY ACT IN WHICH THE ORDER WAS ISSUED GIVING DIRECTIONS TO THE SUGAR FACTORIES IN RESPECT OF UTILIZATION OF THE ADF. TH EIR LORDSHIPS ALSO CONSIDERED SOME OF THE FACTS PERTAINING TO THE ISSU E. THE HON'BLE SUPREME COURT HAS NOT APPROVED THE DECISION OF THE HIGH COURT THAT THE DEDUCTION WAS MADE ON THE DIRECTIONS OF TH E GOVERNMENT AND HENCE, THE ASSESSEE SUGAR FACTORY ACTED AS AN A GENT AND COLLECTIONS WERE MADE AS PER THE DIRECTIONS OF THE GOVERNMENT TO BE SPENT ON THE PURPOSES SPECIFIED BY THE STATE GOV ERNMENT AND THOUGH THE AMOUNT IS DEBITED BY WAY OF RETENTION OF MONEY FROM THE CANE PRICE PAYABLE, THOSE RECEIPTS CANNOT BE TR EATED AS A TRADING RECEIPTS AND HENCE, THE PRINCIPLES OF DIVER SION OF INCOME AT SOURCE IS APPLICABLE TO THE MONEY DEDUCTED AND R ETAINED BY THE ASSESSEE SUGAR FACTORY. 13. BEFORE THE HON'BLE SUPREME COURT THE ASSESSEE T OOK THE CONTENTION THAT THE COLLECTION MADE BY THE ASSESSEE TOWARDS THE ADF ARE IMPRESSED WITH THE SPECIFIC LEGAL OBLIGATIO N TO SPEND THE MONEY FOR SPECIFIED PURPOSES ONLY WHICH ARE UNRELAT ED TO THE BUSINESS OF THE ASSESSEE SOCIETY AND THEREFORE SUCH RECEIPTS CANNOT BE TREATED AS AN INCOME OF THE ASSESSEE. TH E ASSESSEE ALSO RELIED ON THE DECISION IN THE CASE OF CIT VS. BIJLEE COTTON MILLS (P.) LTD. 116 ITR 60 (SC). THEIR LORDSHIPS E XPRESSED THE OPINION THAT THE DETERMINATION OF THE SAID CONTENTI ON MAY DEPEND ON CERTAIN FACTS AND HENCE, THE ISSUE WAS LEFT UPON FOR FRESH DETERMINATION BY THE TRIBUNAL. IN SUM AND SUBSTANC E THEIR LORDSHIPS DISPROVED THE VIEW TAKEN BY THE HIGH COUR T THAT SO FAR AS 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. CHAVA N MEMORIAL FUND AND HUTMENT FUND. NOW WE HAVE TO EXAMINE THIS ISSU E IN THE LIGHT OF PRINCIPLES LAID DOWN BY THE HON'BLE SUPREM E COURT IN THE CASE OF BIJLEE COTTON MILLS (P.) LTD. (SUPRA). 14. IN THE CASE OF BIJLEE COTTON MILLS (P.) LTD. (S UPRA), THE ASSESSEE COMPANY USED TO REALIZE A SPECIFIED AMOUNT ON ACCOUNT OF DHARMADA FROM ITS CUSTOMERS ON SALES OF YARN A ND BALES OF COTTON, AND THE SAID AMOUNT WAS CREDITED IN A SEPAR ATE ACCOUNT UNDER THE HEAD DHARMDA ACCOUNT, AND THE SAME WAS NOT TREATED AS A TRADING RECEIPTS. SUBSEQUENTLY, THE T RUST WAS ALSO CONSTITUTED AND THE SAID LEVY WAS TREATED AS A TRUS T FUND WHICH WAS TO BE UTILISED FOR THE RELIGIOUS AND CHARITABLE PURPOSES. THE SAID ASSESSEE CLAIMED THAT THE AMOUNTS LEVIED AND C OLLECTED UNDER THE HEAD DHARMADA WERE HELD FOR THE TRUST B Y IT WHICH WERE EARMARKED FOR CHARITY AND AS SUCH THE SAID REC EIPTS WERE NOT ITS INCOME FROM BUSINESS. THE ASSESSING OFFICER AN D THE AAC REJECTED THE CLAIM OF THE ASSESSEE BUT THE HIGH COU RT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING THAT T HE DHARMADA 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 SO LD TO THE CUSTOMER. THE REVENUE CARRIED THE ISSUE BEFORE THE HON'BLE SUPREME COURT. THE REVENUE CHALLENGED THE NATURE O F LEVY ITSELF BY TAKING THE CONTENTION THAT THE OBJECT WAS VERY V AGUE AND THE MONEY WAS LYING WITH THE SAID ASSESSEE AND THERE WA S NO TIME 6 LIMIT FOR SPENDING THE AMOUNT. THE HON'BLE SUPREME COURT HELD THAT THE PURPOSE FOR WHICH THE AMOUNT WAS LEVIED I. E. DHARMADA CANNOT BE REGARDED AS INVALID CUSTOMARY LEVY ON ACC OUNT OF VAGUENESS AND OR UNCERTAINTY AND THE SAID PAYMENTS PAID BY THE CUSTOMERS/BROKERS WERE VALIDLY EARMARKED FOR CHARIT ABLE PURPOSES. THE APEX COURT ALSO NEGATIVATED THE CONT ENTION OF THE REVENUE THAT BECAUSE OF THE COMPULSORY NATURE OF TH E LEVY THE IMPUGNED AMOUNTS CHARGED TO THE CUSTOMERS AND RECEI VED BY THE ASSESSEE COULD BE REGARDED AS A PART OF THE PRICE O R A SURCHARGE ON THE PRICE LEVIED BY THE ASSESSEE. THE APEX COUR T NEGATIVATED THE SAID CONTENTION ALSO BY REFERRING TO THE DECISI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. TOLLYGUNGE CLU B LTD. 107 ITR 776. THE CONCLUDING PART OF THE SAID DECISION IS AS UNDER: ON PARITY OF REASONING THE DHARMADA AMOUNTS PAID B Y THE CUSTOMERS CANNOT BE REGARDED AS PART OF PRICE OR A SURCHARGE ON R PRICE OF GOODS PURCHASED BY THE CUSTOMERS. THE AMOU NT OF DHARMADA IS UNDOUBTEDLY A PAYMENT WHICH A CUSTOMER IS I REQUIRED TO PAY IN ADDITION TO THE PRICE OF THE GOO DS WHICH HE PURCHASES FROM THE ASSESSEE BUT THE PURCHASE OF THE GOODS BY THE CUSTOMER WOULD BE THE OCCASION AND NOT THE CONS IDERATION 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 TH AT WOULD NOT MAKE THE PAYMENT OF DHARMADA AMOUNT INVOLUNTARY INA SMUCH AS IT IS OUT OF HIS OWN VOLITION THAT HE PURCHASES YAR N AND COTTON FROM THE ASSESSEE. THE DHARMADA AMOUNT IS, THEREFOR E, CLEARLY NOT A PART OF THE PRICE, BUT A PAYMENT FOR THE SPEC IFIC PURPOSE OF BEING SPENT ON CHARITABLE PURPOSES. THE TWO DECISIO NS ON WHICH RELIANCE WAS PLACED BY COUNSEL FOR THE REVENUE, NAM ELY, POOSARLA SAMBAMURTHI'S CASE [1956] 7 STC 652 (AP) AND PANDAR IA PIILAI'S CASE [1973] 31 STC 108 (MAD) ARE CLEARLY DISTINGUIS HABLE AND INAPPLICABLE TO THE FACTS OF THIS CASE INASMUCH AS BOTH THE DECISIONS WERE RENDERED UNDER SALES TAX LEGISLATION WHERE THE QUESTION THAT WAS REQUIRED TO BE CONSIDERED WAS WHE THER THE REALISATIONS FOR DHARMAM (CHARITABLE PURPOSE) IN TH E FORMER CASE OR MAHIMAI (RELIGIOUS PURPOSE) IN THE LATTER CASE W OULD FALL WITHIN THE DEFINITION OF 'TURNOVER' AS CONTAINED IN THE CO NCERNED 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 T O STATE THAT THE RATIO OF THESE DECISIONS CANNOT APPLY TO THE INSTAN T CASE. SINCE THE REALISATIONS IN QUESTION IN THE PRESENT CASE ARE NO T A PART OF THE PRICE OR SURCHARGE ON THE PRICE BUT PAYMENTS FOR TH E 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 WH ICH COUNSEL FOR THE REVENUE SOUGHT TO SUPPORT THE TRIBUNAL'S FINDIN G THAT NO TRUST COULD BE SAID TO HAVE BEEN CREATED BY THE CUSTOMERS IT WILL BE APPARENT FROM THE ABOVE DISCUSSION THAT NONE OF THE ASPECTS ARE SUCH AS WOULD LEND SUPPORT TO THE INFERENCE DRAWN B Y THE TRIBUNAL. WE HAVE ALREADY DEALT WITH THE ALLEGED_ C OMPULSORY NATURE OF THE LEVY AND HAVE POINTED OUT THAT THE DH ARMADA AMOUNTS CANNOT BE SAID TO HAVE BEEN PAID INVOLUNTAR ILY BY THE CUSTOMERS AND IN ANY THE COMPULSORY NATURE OF THE P AYMENTS, IF THERE BE ANY, CANNOT IMPRESS RECEIPTS WITH THE CHAR ACTER OF BEING TRADING RECEIPTS. FURTHER, IT IS NOT POSSIBLE TO AC CEPT THE SUBMISSION THAT THE CUSTOMERS BEING ILLITERATE DID NOT APPRECIATE THAT THEY WERE PAYING THE AMOUNTS WITH A VIEW TO CR EATE A TRUST, ESPECIALLY WHEN IT HAS BEEN FOUND THAT SUCH PAYMENT S WERE MADE PURSUANT TO A CUSTOM WHICH OBTAINED IN THE COMMERCI AL AND TRADING COMMUNITY; INDEED, BEING A CUSTOMARY LEVY T HE CONSTITUENTS OR CUSTOMERS, WHETHER LITERATE OR ILLI TERATE, WOULD BE 7 KNOWING THAT THE ADDITIONAL PAYMENTS OVER AND ABOVE THE PRICE WERE MEANT FOR BEING SPENT BY THE ASSESSEE FOR CHAR ITABLE PURPOSES. FURTHER, THE FACT THAT THE ASSESSEE WOUL D BE HAVING SOME DISCRETION AS REGARDS THE MANNER IN WHICH AND THE TIME WHEN IT SHOULD SPEND THE DHARMDA AMOUNTS FOR CHARIT ABLE PURPOSES WOULD NOT DETRACT FROM THE POSITION THE AS SESSEE 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 B ANK ACCOUNT BUT ADMITTEDLY A SEPARATE DHARMADA ACCOUNT WAS MAIN TAINED 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 STA TEMENT. HAVING REGARD TO THIS POSITION, IT SEEMS TO US CLEAR THAT THE TRIBUNAL'S FINDING THAT NO TRUST COULD BE SAID TO HAVE BEEN CR EATED BY THE CUSTOMERS IN RESPECT OF THE IMPUGNED AMOUNTS WILL H AVE TO BE REGARDED AS ERRONEOUS. IN THE RESULT, AFTER CONSIDERING BOTH THE ASPECTS, WE ARE OF THE VIEW THAT THE IMPUGNED REALISATIONS MADE BY THE ASS ESSEE FROM ITS CUSTOMERS FOR DHARMADA BEING VALIDLY EARMARKED FOR CHARITY OR CHARITABLE PURPOSES COULD NOT BE REGARDED AS THE AS SESSEE'S INCOME CHARGEABLE TO INCOME-TAX. THE ULTIMATE CONCL USION OF THE HIGH COURT IS, THEREFORE, CONFIRMED AND THE APPEALS ARE DISMISSED WITH COSTS. 15. 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, MAHARASHTRA STATE VIDE LETTER DATED 28-03-1974 INFORMED THE MAHARASHTRA RAJYA SAH AKARI SAKHAR KARKHANA SANGH LTD. (FEDERATION OF THE SUGAR FACTORIES) THAT IN THE MINISTERS COMMITTEE MEETING HELD ON 27 -08-1973, A DECISION WAS TAKEN THAT THE CO-OPERATIVE SUGAR FACT ORIES 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 VIE W OF THE SUGAR FACTORIES WERE ALSO CALLED FOR. SO THIS IS A BEGIN NING WHEN THE GOVT. MACHINERY STARTED TO HAVE THE CONTROLLED AND THE COLLECTIONS MADE BY THE SUGAR FACTORIES TOWARDS ADF. THE NATIO NAL CO- OPERATIVE DEVELOPMENT CORPORATION (SUGARCANE DIVISI ON), NEW DELHI VIDE LETTER DATED 28-04-1977 ISSUED TO ALL TH E 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-OPERATIVES ARE INVOLVED IN CANE DEVELO PMENT PROGRAMME IN THE AREA OF OPERATION BUT AT THE SAME TIME THE OTHER MAJOR CROPS IN THE AREA ALSO SHOULD BE SUPPOR TED. IT WAS ALSO IMPRESSED THAT THE FUNDS CAN BE UTILIZED FOR T HE IRRIGATION FACILITIES, EDUCATIONAL AND MEDICAL SERVICE, ANIMAL HUSBANDRY AND POULTRY PROGRAMMES AND GENERAL SERVICES LIKE CONTRI BUTION TOWARDS HOUSING TO THE HOMELESS POOR PEOPLE, PROVID ING RELIEF FOR DIFFERENT NATIONAL CALAMITIES ETC. DEPARTMENT OF C O-OPERATION AND TEXTILE, GOVT. OF MAHARASHTRA ISSUED ORDER DATED 18 -09-1989 U/S. 79A OF THE MCS ACT AND GAVE THE DIRECTIONS IN RESPE CT OF THE MODALITY OF THE COLLECTION OF THE FUND AND ITS USES . THE SUGAR CO- OPERATIVES WERE DIRECTED THAT THE DEDUCTIONS MADE T OWARDS THE ADF ARE TO BE GENERALLY USED IN ACCORDANCE TO THE G UIDELINES FROM TIME TO TIME ISSUED BY NATIONAL CO-OPERATIVE DEVELO PMENT CORPORATION (NCDC), NEW DELHI AS WELL AS BY THE GO VT. FOR FOLLOWING PURPOSES AS PER PRIORITY DECIDED BY THE B OARD OF DIRECTORS OF THE FACTORY: 8 (A). AGRICULTURAL DEVELOPMENT AND CANE DEVELOPMENT. (B). WATER SUPPLY AND IRRIGATION, MINOR IRRIGATION AND KT WEIRS, INCLUDING IN PARTNERSHIP OR OTHERWISE WITH THE GOVE RNMENT (NOTE FOR KT WEIRS FOLLOW ORDER OF THE GOVERNMENT I SSUED BY IRRIGATION DEPT. SR. NO. 1088/636/88/LI-1 DATED 31/7/1988 AND ORDERS ISSUED FROM TIME TO TIME BY TH AT DEPT.) (C). EDUCATIONAL OR CULTURAL PROGRAMMES, MEDICAL AS SISTANCE, SOCIAL SECURITY PROGRAMMES AND SANATORIUMS. (D). DAIRY AND POULTRY FARMING (E). FINANCIAL ASSISTANCE FOR DROUGHT RELIEF, NATUR AL 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 PROGRA MMES. (G). PROGRAMMES FOR BENEFIT OF MEMBERS. 16. 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 B OARD OF DIRECTORS AS PER THE POLICY APPROVED IN THE GENERAL MEETING. FOR SPENDING MONEY PERSONALLY FOR AN INDI VIDUAL, PRIOR PERMISSION OF DIRECTOR OF SUGAR MAY BE TAKEN. HOWEVER, IF A PERSON SUFFERS DAMAGE IN NATURAL CALA MITIES, THE BOARD OF DIRECTORS CAN UTILIZE THESE FUNDS ON T HE BASIS OF A CERTIFICATE FROM LOCAL REVENUE OFFICER NOT BEL OW THE RANK OF A TAHSILDAR. (C). THE SAID FUND, AS FAR AS POSSIBLE, BE USED WIT HIN ONE YEAR FROM THE TIME THEY ARE CREDIT WITH THE FACTORY. IF FOR ANY REASON THEY CANNOT BE SO UTILIZED, THEY MAY BE UTIL IZED IN NEXT YEAR. (D). SEPARATE ACCOUNT BE MAINTAINED FOR THIS FUND A ND THE SAME SHOULD BE GOT AUDITED FROM THE AUDITOR. (E). EVERY YEAR INFORMATION ON UTILIZATION OF THIS FUND SHOULD BE SUBMITTED TO THE DIRECTOR OF SUGAR, GOVERNMENT OF MAHARASHTRA, PUNE. (F). IF THE FUNDS ARE TO BE USED OUTSIDE AREA OF OP ERATION OR AS AN EXCEPTION FOR A PURPOSE NOT APPROVED BY THE GENE RAL MEETING, PRIOR PERMISSION OF DIRECTOR OF SUGAR SHOU LD BE OBTAINED. (G). IF THE FUND IS TO BE UTILIZED FOR A PURPOSE NO T SPECIFIED IN THE BY LAWS, PERMISSION OF DIRECTOR OF SUGAR SHOULD BE OBTAINED. 9 17. IN SUM AND SUBSTANCE THE DIRECTOR OF SUGAR, GOV T. OF MAHARASHTRA WAS THE SUPERVISING AUTHORITY ON THE CO LLECTION AND USE OF ADF. WE HAVE PERUSED THE ANNUAL STATEMENTS OF THE ACCOUNT AND WE FIND THAT THE ASSESSEE HAS TRANSFERR ED THE FUND IN THE BALANCE SHEET UNDER SPECIFIC HEAD I.E. AREA DEV ELOPMENT 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 UTILIZ ED. THE ASSESSEE HAS FILED SOME OF THE RESOLUTION IN THE CO MPILATION FROM WHICH IT IS SEEN THAT THE ADF IS USED FOR GIVING IN CENTIVE FOR PRIMARY SCHOOL, INCENTIVE FOR WRESTLERS, HELP TO PE RSONS AFFECTED BY FIRE, INCENTIVE FOR WAGE, ROAD DEVELOPMENTS, MED ICAL ASSISTANCE, SUBSIDIARY FOR DIGGING WELLS, ASSISTANC E FOR GROUP MARRIAGES ETC. IN THIS CASE, THE ASSESSEE HAS NOT KEPT THE AMOUNT DEDUCTED FROM THE BILLS PAYABLE TO THE MEMBE RS AND NON- MEMBERS IN SEPARATE BANK ACCOUNT BUT SEPARATE ACCOU NT IS MAINTAINED IN THE BOOKS. WE HAVE TO KEEP IN MIND T HAT IN RESPECT OF THE NATURE OF THIS FUND THE HON'BLE SUPREME COUR T HAS ALREADY OBSERVED THAT PURPOSES FOR WHICH THIS FUND IS UTILI ZED I.E. ADF IS UNCONNECTED WITH THE GROWTH OF SUGAR FACTORY AND TH IS FUND IS PROMOTED FOR SOCIO-ECONOMIC DEVELOPMENT IN THE AREA OF OPERATION AND THIS FUND IS DISTINCT FROM THE CANE D EVELOPMENT FUND. 18. NOW THE QUESTION BEFORE US IS WHETHER THIS COLL ECTION MADE TOWARDS ADF BY THE ASSESSEE SUGAR FACTORY IS IMPR ESSED WITH THE SPECIFIC OBLIGATION 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, EVEN IF INITIALLY IT WAS BY WAY OF DISCRETION THE SUGAR CO-OPERATIVE FACTORIES WERE CO LLECTING THE FUND AND SPENDING THE SAME ON THE DIFFERENT PROJECT S UNDERTAKEN IN THE AREA OF OPERATION BUT SUBSEQUENTLY THE COLLE CTION AND USE OF FUND WAS REGULATED BY THE INTERVENTION OF THE GOVT. BY ISSUING THE ORDER U/S. 79A OF THE MAHARASHTRA CO-OPERATIVE SOCI ETY ACT. THE ASSESSEE HAS MAINTAINED THE SEPARATE ACCOUNT IN RES PECT OF THIS FUND AND AS PER THE STATEMENT FILED BEFORE US IT IS SEEN THAT THE ASSESSEE SUGAR FACTORY IS UTILIZING THE ADF ON DIFF ERENT PROJECTS AS PER THE APPROVAL GIVEN IN THE ANNUAL GENERAL MEETIN G (AGM). THE ASSESSEE HAS TO SUBMIT THE REPORT EVERY YEAR IN RES PECT OF THE COLLECTION AND UTILIZATION OF THE AMOUNT UNDER THE ADF TO THE GOVERNMENT. NOWHERE, 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 MEMBE RS. MERELY BECAUSE THE AMOUNT COLLECTED IS NOT KEPT SEPARATELY IN THE BANK ACCOUNT, THE CHARACTER OF THE AMOUNT WILL NOT CHANG E AS HELD IN THE CASE OF BIJLEE COTTON MILLS (P.) LTD. (SUPRA). AS SUBMITTED BEFORE US THE ASSESSEE IS REQUIRED TO SUBMIT THE AU DITORS REPORT TO THE DIRECTOR OF SUGAR, GOVT. OF MAHARASHTRA EACH YEAR SHOWING THE OPENING BALANCE OF THE ADF, AMOUNT COLLECTED DU RING THE YEAR AND UTILIZED DURING THE YEAR (PAGE NO. 29 OF THE CO MPILATION). WE, THEREFORE, HOLD THAT THE COLLECTION MADE BY THE ASSESSEE TOWARDS THE ADF BY WAY OF DEDUCTION MADE FROM THE S UGARCANE BILLS PAYABLE TO THE MEMBERS AND NON-MEMBERS IS IMP RESSED WITH AN OBLIGATION TO SPEND THE SAME FOR THE SPECIFIED P URPOSES 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 THE SAID FUND AN D WHERE THE FUND WILL BE UTILIZED. IN OUR HUMBLE OPINION THE A SSESSEES ROLE IS LIKE A TRUSTEE OF THE AREA DEVELOPMENT FUND. WE, ACCORDINGLY, DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. IT WA S SUBMITTED BEFORE US THAT THE DEPARTMENT HAS ALLOWED THE EXPEN DITURE INCURRED BY THE ASSESSEE OUT OF THE ADF ON THE ACTU AL BASIS TREATING THE SAME AS A BUSINESS EXPENSES. AS WE HA VE HELD THAT THE AMOUNT COLLECTED UNDER THE ADF IS NOT A TRADING RECEIPT IN THE 10 HANDS OF THE ASSESSEE HENCE, THE DEDUCTION GIVEN BY THE ASSESSING OFFICER IN THE RESPECTIVE ASSESSMENT YEAR S TOWARDS ADF IS TO BE WITHDRAWN. THE ASSESSING OFFICER IS ACCOR DINGLY DIRECT TO EXCLUDE FULLY THE AMOUNT INCLUDED TOWARDS AREA DEV ELOPMENT FUND IN THE INCOME OF THE ASSESSEE AND ALSO TO WIT HDRAW THE AMOUNT ALLOWED AS A BUSINESS EXPENDITURE TOWARDS AD F. ACCORDINGLY THE ASSESSEE SUCCEEDS ON THIS ISSUE. 3.2 SO FAR AS THE PRESENT CASE IS CONCERNED, THE FA CTS ARE IDENTICAL AS IN CASE OF LOKNETE BALASAHEB DESAI SAH AKARI SAKHAR KARKHANA LTD., (SUPRA). WE THEREFORE FOLLOWING THE DECISION IN THE SAID CASE HOLD THAT THE AMOUNT COLLECTED BY THE ASS ESSEE SUGAR FACTORY FROM THE FARMERS, MEMBERS AS WELL AS NON-ME MBERS TOWARDS AREA DEVELOPMENT FUND (ADF) CANNOT BE TREAT ED AS A TRADING RECEIPT OR INCOME OF THE ASSESSEE. ACCORD INGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. 4. THE NEXT ISSUE IS IN RESPECT OF THE ALLOWABILITY OF THE EXPENDITURE. AS THE ASSESSEE HAS SUCCEEDED ON THE FIRST ISSUE, THE ALLOWABILITY OF THE EXPENDITURE BEING ALTERNATE PLEA DOES NOT SURVIVE. ACCORDINGLY, THE RELEVANT GROUNDS TAKEN B Y THE ASSESSEE ARE DISMISSED AS INFRUCTUOUS. 5. IN OTHER APPEALS, BEING ITA NOS. 536 TO 540/PN/2 007, AS THE ISSUE IS IDENTICAL, WE, THEREFORE, FOLLOWING OU R REASONING AND DECISION IN A.Y. 1993-94 (ITA NO.535/PN/2007) FOR DELETING THE ADDITION TOWARDS ADF ALSO DELETE THE ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS ADF AND IN THESE APPEALS ALSO THE RELEVANT GROUNDS TAKEN BY THE ASSESSEE ARE ALLOWED ON THIS ISSUE. 6. THE ASSESSEE HAS ALSO TAKEN ALTERNATE PLEA IN RE SPECT OF THE EXPENDITURE MADE BY THE ASSESSEE, WHICH IS THE AMOU NT SPENT BY THE ASSESSEE OUT OF THE AREA DEVELOPMENT FUND. AS THE BASIC ADDITION ITSELF IS DELETED, THEN THE QUESTION OF AL LOWING FURTHER 11 DEDUCTION TOWARDS EXPENDITURE BECOMES INFRUCTUOUS. IN ANY CASE, IF THE ASSESSING OFFICER HAS ALLOWED EXPENDITURE IN RESPECT OF THE AMOUNT SPENT BY THE ASSESSEE OUT OF THE ADF, THEN T HE ASSESSING OFFICER IS DIRECTED TO WITHDRAW THE SAID DEDUCTION AS ASSESSEE CANNOT ENJOY THE DOUBLE DEDUCTION. 7. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE A RE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 20 TH OCTOBER, 2014 SD/- SD/- (R.K. PANDA) (R.S. PA DVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMB ER PUNE DATED: 20 TH OCTOBER, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-I,PUNE 4. CIT-I, PUNE 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR, ITAT, PUNE BENCHES, PUNE