2009 (12) TMI 9 - HC - Income Tax

Allahabad High Court: Deposits for Capital Redemption Fund Not Taxable Income

CIT & Another Versus M/s The Kisan Cooperative Sugar Factory Ltd.

The High Court of Allahabad heard Income Tax Appeals concerning the classification of deposits collected by the assessee as income or capital receipts. ... Revenue versus Capital - the deductions made from the cane growers at the rate of 35 paise per quintal towards loss equivilisation and capital redemption fund - in reassessment proceeding, the revenue has sought to treat the above amount as income of the assessee who is a co-operative society. In response to show cause notice, a written reply was submitted on the ground that the said amount of collection towards loss equivilisation and capital redemption fund is contribution by the farmers towards share capital and the same being a capital receipt is not at all taxable – held that - the non-refundable and refundable deposits cannot be treated as income of the assessee Society. It has also taken into consideration that there are two kinds of deposits namely special deposit and general deposit. It has found that the obligation to repay is stood annexed to the deposited amount at the time it was received by the assessee subject of course to the occurrence on contingency satisfied by bye laws itself - Shri Chatrapati Sahakari Shakar Karkhana Ltd [2008 -TMI - 6148 - SUPREME Court] Issues:1. Interpretation of the nature of receipts - capital or income.2. Applicability of previous judgments on similar cases.3. Examination of relevant bye laws and their impact on the case.4. Comparison with previous legal precedents.5. Final decision on the appeals.The High Court of Allahabad heard multiple Income Tax Appeals filed by the Commissioner of Income Tax, Meerut, against the order of the Income Tax Appellate Tribunal. The appeals pertained to assessment years ranging from 1972-73 to 1978-79. The primary issue raised was whether certain deposits collected by the assessee from cane growers were to be treated as income or capital receipt. The department argued that the deposits should be considered income based on a previous Supreme Court judgment. In contrast, the assessee contended that a subsequent Supreme Court judgment clarified the nature of such deposits as capital receipts. The Court noted that the department did not challenge the findings of the lower authorities but disputed the characterization of the receipts. The Tribunal and CIT (Appeals) found that the deposits were towards capital redemption fund and were to be adjusted towards share capital of the cane growers. The Court analyzed the relevant bye laws, emphasizing that the deposits were never treated as income of the Society but remained the property of the cane growers. Drawing parallels with previous judgments, the Court concluded that the deposits were akin to non-refundable and refundable deposits, not constituting income of the Society. Therefore, the Tribunal's decision to reject the appeals was upheld, and the appeals were dismissed with no costs awarded.In summary, the judgment revolved around the classification of deposits collected by the assessee as income or capital receipts for the relevant assessment years. The Court extensively analyzed the bye laws, previous legal precedents, and the specific circumstances of the case to determine the nature of the receipts. Ultimately, the Court upheld the Tribunal's decision, emphasizing that the deposits were to be considered capital receipts and not taxable income.