Co-operative sugar society procurement was held to be a sale, not agency, and the cultivation arrangement was not a partnership.

A co-operative sugar society's procurement of sugarcane from grower-members was treated as a sale, not an agency arrangement, because the bye-laws showed the society acquired the cane for its own manufacturing activity, fixed prices, and sold the finished product without members controlling the resale. Co-operative management features did not by themselves create agency. A separate agreement for cultivation on members' lands also did not amount to a partnership, as there was no mutual agency or real joint business intent. The main supply transaction therefore remained liable to purchase tax, and the cultivation arrangement could not alter that tax position by treating the crop as sold by a partnership.

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Issues: (i) Whether, on the true construction of the bye-laws of the co-operative sugar societies, the supply of sugarcane by grower-members to the society was a transaction of sale and purchase liable to purchase tax, or an agency arrangement in which the society acted as collective agent of the members. (ii) Whether the arrangement for cultivation of sugarcane on members' lands under the separate agreement constituted a partnership so as to treat the crop as being sold by a partnership firm to the society.

Issue (i): Whether, on the true construction of the bye-laws of the co-operative sugar societies, the supply of sugarcane by grower-members to the society was a transaction of sale and purchase liable to purchase tax, or an agency arrangement in which the society acted as collective agent of the members.

Analysis: The bye-laws showed that the society was a body corporate with power to acquire and hold property, manufacture sugar from cane supplied by members and others, fix the price of cane, and sell the manufactured product in the market. The members did not control the sale of the end-product, the third parties to whom it was sold were not disclosed to them, and the society was not shown to be merely an intermediary. The arrangement therefore lacked the essential incidents of agency. The Court distinguished the earlier cotton case on the footing that there the goods were entrusted to the society for collective sale as the members' goods, whereas here the sugarcane was supplied to the society for its own manufacturing activity and the property passed to it for a price. The presence of co-operative principles and member control in management did not by itself convert the transaction into agency.

Conclusion: The supply of sugarcane by grower-members to the society amounted to a sale and purchase transaction and was liable to purchase tax.

Issue (ii): Whether the arrangement for cultivation of sugarcane on members' lands under the separate agreement constituted a partnership so as to treat the crop as being sold by a partnership firm to the society.

Analysis: The agreement mainly placed the members' lands at the society's disposal for scientific cultivation and improvement of sugarcane production. It provided for sharing of profit or loss, but there was no real joint business, no mutual agency, and no material showing that the parties intended to create a partnership. The arrangement was better understood as the society's cultivation of its own crop on land made available for consideration, not as a partnership venture.

Conclusion: The agreement did not create a partnership, and the Tribunal's view treating the crop as purchased from a partnership was incorrect.

Final Conclusion: The references were answered substantially in favour of the revenue on the main taxability issue, while the special land-cultivation arrangement did not displace that result by creating a partnership.

Ratio Decidendi: In determining whether a co-operative society's procurement of members' produce is a sale or agency, the decisive test is the true legal substance of the bye-laws and surrounding circumstances, especially whether the society acts as a mere intermediary for identifiable principals or acquires the goods for its own manufacturing and trading activity for a price.

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