Agency in co-operative produce sales: entrusted goods sold for members do not become society purchases absent transfer of property for price.

A producers' co-operative society that receives members' cotton and cotton seeds for collective grading, storage, sale, and remittance of proceeds acts as an agent, not as a purchaser, where the bye-laws show mere entrustment of goods rather than transfer of property for price. Advances against estimated value, interest on advances, and payment after deduction of charges were treated as features consistent with agency. The society's profit-related bye-law provisions were confined to its own income and did not indicate purchase of members' produce. The governing arrangement and surrounding circumstances, not the parties' labels, determined the legal character of the transaction.

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Issues: Whether, on the terms of the society's bye-laws, the transactions in cotton and cotton seeds received from members were purchases by the society or merely sales effected by the society as agent of its members.

Analysis: The nature of the transaction had to be determined from the covenants of the governing arrangement and the surrounding circumstances, not from the label adopted by the parties. The bye-laws showed that the society was formed as a producers' society to facilitate collective disposal of members' goods, that the members merely entrusted their produce to the society, and that the society was authorised to pool, grade, insure, store, sell, and even pledge the goods for sale. Provisions for advances against the estimated value of entrusted goods, interest on such advances, and payment to members after deducting charges were inconsistent with a purchase by the society and were consistent with an agency arrangement. The bye-laws dealing with profits concerned the society's own income and did not indicate that the society bought the members' produce. The authorities relied upon by the revenue were distinguishable on their facts.

Conclusion: The society acted as agent of its members and did not purchase the cotton and cotton seeds from them; the question was answered in the negative, in favour of the assessee.

Ratio Decidendi: Where members of a producers' co-operative society entrust their goods to the society for collective grading, sale, and remittance of sale proceeds after deduction of charges, the society is an agent and not a purchaser unless the arrangement clearly transfers the property in the goods for price.

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