TaxTMI 
TaxTMI 
2006 (3) TMI 304
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....; No. of shares ------------------------------------------ Govt. of Maharashtra 17,760 Weaver Members 16,620 Weaver Co-operatives 3 Co-op. Societies 20 -------- 34,403 ------------------------------------------ The main object of the Society for which it was ....
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....e quota rights. The assessee-Society had been supplying the yarn to its members since 1979 at a price slightly above the cost but below the market price. The quota and its price was being fixed by a sub-committee of the Board of Directors. The quota was distributed amongst the members by issue of the quota slips. Some times the members were selling the quota slips in the market. The members approached the Mill with the representation dated 9-11-1989 and requested it to sell the quota allotted to them in the market and pass on the rate difference between the quota price and the market price to them. The assessee passed a Resolution in its General Body Meeting on 12-11-1989 resolving to sell the quota yarn on behalf of the members and distribute the rate difference to its members. Before the Assessing Officer the assessee contended that there was a clear legal obligation on the assessee to pay to each member the surplus arising out of the quota rights allotted to them. This legal obligation arose simultaneously or, in other words, even before the receipt of money and, therefore, the assessee did not have any title to the income relatable to the quota rights which at all the material ....
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....s, 40s, 60s) of yarn in bulk (at the most 756). The commercial production of the assessee-Society started in 1977 and in the first few years of its existence, its products were being sold directly in the market. Having achieved its objective of establishing a credible presence in the market, the assessee thereafter switched over to a system known as "quota system" for the benefit of its members. Under the quota system, the Board of Directors chalked out monthly quota to be allotted to its Members. Depending upon the manufacturing pattern and schedule of the assessee Mill and the type of yarn manufactured from time to time, the Board of Directors of the assessee Mill would allot a quota of yarn of different counts as per shares held by each member. Under the quota system, the member could lift the quota allotted to him at the price determined by the Board of Directors. The price was determined by the Board of Directors by generally fixing it at a price consistent with the cost of production and prevailing market price. However, as the entire production of the Mill was to benefit the members of the assessee Society, the price fixed would always be lower than the market price but neve....
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.... same both to the members of the assessee Society and others according to the type, quality and count of the yarn. As a result of third party getting involved in this system, the real benefit which was to accrue to the members was getting diverted to the traders, who on one hand, would not give reasonable price for the quota slips issued and on the other hand, after cornering the quota slips, the yarn speculate and rise price resulting in huge profits accruing to such traders, brokers instead of members of the assessee-Society. Our attention was drawn to the appeal submitted by the members to the Society and submissions made before the Assessing Officer. 7. Shri Dastur brought to our notice that since 1986, due to recession in the textile market, the yarn rates were higher than the rate of cloth and therefore, there was poor demand for the yarn allotted by the assessee Society. Therefore, even though the Society declared the quota at a particular rate, members did not lift the same. Due to non-lifting of yarns by the members, the stock levels of the yarn with the Mill used to go very high due to which, it had to suffer loss in two ways, loss on account of depressed market as wel....
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.... determines the "quota right distribution kgs." that each member is entitled to depending on his shareholding. It also decides on the 'quota right distribution rate'. Thereafter, it sanctions the sale of the said yarn of member's quota right through the Mill's sales depot as well as through agents and authorises the credit of the difference into the individual members account. 11. Shri Dastur submitted that the similarity between the old method and the new method is that in both there is a determination of the member's quota entitlement depending on the expected production of yarn and the number of shares held. In both methods, there is also a determination of the quota price. The difference is only that while in the former method, the quota used to be physically distributed amongst the members, the quota is now sold on behalf of the members and the difference is distributed amongst the members. The change-over from the 'quota distribution' system to the 'quota price distribution' system was effected to benefit the assessee and its members. According to the learned counsel, the new system overcomes problems of the earlier system and there were genuine commercial benefits. Our at....
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....pplied to the Members should cover the cost plus some marginal profit. As against this, some yarn was also sold in the market at market rates so that the Society is able to recover sufficient funds for creating reserves as well as repayment of bank loans and for ensuring that if the yarn is supplied to outsider at sufficient profit, it can give the yarn at the lower rates to the Member Mills. 13. As regards the observation of the Assessing Officer that the assessee Society had no authority as per the objects or obligation or as per the Resolution to sell on behalf of all the members yarn of the quota allocated to the Member Mills, Shri Dastur pointed out that how there is a difference between the distribution of yarn amongst the Members (who in turn would buy and consume themselves or buy and exchange or sell to make it useful to them) or alternatively, the Society collectively on behalf of all the Member Mills, sell the yarn quota (allocable to the members) through agent to outsiders and distributes the surplus as per their quota, who in turn use such surplus for their benefits. The purpose by both methods was to ensure the benefit to the Members. The learned counsel emphasized....
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.... the Society distributes the yarn amongst the members or distributes the surplus, it is one and the same. Shri Dastur pointed out that the monthly minutes of the Committee, detailed working of determination of cost of production, price for the quota, distribution of surplus amongst the Members crediting surplus to the account of individual Members and payment to individual Members was submitted to the Assessing Officer and he has not found any objection or deficiency in the procedure and the only thing he objected was the basis. Shri Dastur further submitted that the change in the basis of distribution of quota to distribution of surplus of the quota was specifically at the request of the Member Mills as per special resolution passed by them and this change was necessitated for the benefit of Members and not in the interest or for the benefit of the assessee Society. Since the interest of the Members was a paramount consideration, the procedure was changed and it was for valid commercial reason. He further submitted that the surplus, being the difference between the quota price and the market price which is realised by the assessee-Society is not the income of the assessee-Society ....
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....] 173 ITR 479, Union of India v. Play world Electronics (P.) Ltd. [1990] 184 ITR 306, Gujarat High Court in the case of Banyan & Berry v. CIT [1996] 222 ITR 831 and Mumbai Tribunal in the case of First WTO v. S.B. Garware [1986] 15 ITD 711. He submitted that the change was for commercial reason and accordingly, the ratio laid down by the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. is not applicable. Shri Dastur further submitted that the individual members had offered the yarn difference to tax and had been assessed. This shows that the object was not tax planning. Further, if the amount is assessed again in the hands of the assessee, there will be double assessment. 17. As regards the objection of the Assessing Officer that some of the Member Mills have confirmed to him that they do not even own or did not own at any time the looms for manufacture/weaving of cloth, Shri Dastur pointed out that these allegations do not seen to be correct for two reasons, (i) no weaver can become a member of the Mill unless he submits the declaration that he owns... (number) of looms at... (place), (ii) no opportunity was given to the assessee to cross-examine these people which the ....
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....ns and uses the power looms or not. Shri Dastur, therefore, concluded saying that the Society has to rely on the written declaration made by the Members. 19. Shri Rajkumar, ld. CIT (DR) strongly supported the orders of the authorities below and reiterated that the rate difference is the income of the assessee Society and it should be taxed in the hands of the Society only. He re-emphasised the arguments advanced by the Assessing Officer and confirmed by the CIT(A). According to the ld. CIT (DR), though the object of the Society is to supply A the yarn to its members, the Society has converted itself into a business organisation of manufacturing and selling yarn. The so-called payment of rate difference is nothing but payment of profit. Shri Rajkumar further submitted that the Society is not the agent of the members under the bye-laws. The obligation is created by the Resolution, which is against the bye-laws. The Society has abdicated its main object and relegated itself into a g business organisation. According to Shri Rajkumar, the Society is a consumer society; its bye-laws do not authorize the Society to sell the yarn in the market. Bye-law 7(1) merely authorises the sale by....
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....appreciation of the assistance given by both of them and in bringing out the various aspects of the case. We have gone through the detailed order of the ld. CIT(A) as well as that of the Assessing Officer. If we look to the background and the purpose of formation of the Society, it is clear that it is formed for the benefit of the members of the Society, i.e., who are power-loom owners. The fact that the Government has more than 50 per cent of the shareholding and has contributed finance to a substantial extent itself goes to show that the Government wanted to encourage co-operative movement for the benefit of the power-loom owners. In this Society the power-loom owners have joined together for obtaining yarn at concessional price and the required quantity of the required count. This has been brought out in the bye-laws of the Society. Therefore, if there is any action taken by the Society to improve the benefits to the members, or economical conditions of the Members, it can be treated as it is in the interest of the members of the Society. Earlier, almost up to 1985 the Society was distriburting yarn amongst the various members as per their shareholding in the Society. This has b....
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....ome earned, which was received by the promoter of the co-operative society. It was observed as under: "If the true character of the three promoters is considered in the right perspective, it would appear that they were really nominees or agents of the entirebody of the proposed shareholders entrusted with the task of taking the necessary steps for the formation and registration of the proposed cooperative society. If they were agents and there was a statutory obligation on them to deal with the funds of the proposed society in the manner prescribed by the Maharashtra Cooperative Societies Act, it would be impossible to treat the deposit made in the banks as made expressly with the object of earning income. If the promoters had not acted in the manner that they have done, then they would have exposed themselves to the penal provisions of the Maharashtra Co-op. Societies Act as will be clear from the provisions of section 146 thereof. Clauses (d) and (e) of section 146 which are relevant, read as follows: 'It shall be an offence under this Act, if- (a) any person collecting share money for a society in formation, does not within a reasonable period deposit the same in the St....
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....n to the consumers in future in such manner as the State Government might direct. During the accounting years relevant to the assessment years 1953-54 and 1954-55, the assessee set apart the sums of Rs. 42,1.48 and Rs. 77,138 respectively (which were under the provisions of the Act distributable to the consumers) and credited those sums to the "Consumers' Benefit Reserve Account"; and claimed deduction of those sums in computing its profits liable to income-tax. On these facts, the Hon'ble Supreme Court held as under: "(i) that the amounts credited by the appellant during the accounting years to the 'Consumers' Benefit Reserve Account', being a pail of the excess amount paid to it and reserved to be returned to the consumers, did not form part of the appellant's real profits; and to arrive at the taxable income of the appellant from the business under section 10(1) of the Indian Income-tax Act, 1922, the amounts had to be deducted." The Hon'ble Supreme Court further held that: "That, as the appellant had adopted the mercantile system of accounting, the amounts so reserved for future payments were deductible in computing the income, profits and gains from the appellant's bu....
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....rson is obliged to apply out of his own income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where, by obligation, income is diverted before it reaches the assessee, it is deductible, but where the income is required to be applied to discharge an obligation which is self-imposed, after such income reaches the assessee, then, such income is taxable. Diversion of income by overriding title can be created by a contract between two parties before the income reaches the hands of the assessee. These are the basic principles which are required to be kept in mind. In the case of CIT v. Madras Race Club [1997] 219 ITR 39 (Mad.), the assessee was a company carrying on the business of horse racing. At the instance of the Government, the assessee was asked to conduct races for two days on behalf of the Chief Minister's Relief Fund and for one day on behalf of the Beggars' Rehabilitation Fund. The assessee claimed that the net collections for the above three days were not assessable as income in its hands as the assessee had no power to deal with the said collections. The department did not accept the claim of the assessee. The ma....
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....ty and the corporate body of a company. Society is formed collectively by the Members for their own benefit which is not the case in the case of a Company. Similarly, if the revenue has accepted in earlier years that distribution of yarn amongst the Members is legally permissible, how does it make a difference when there is a distribution of sale proceeds to Member on the sale of yarn as per directions of the Members. As regards invoking of principle/ratio laid down by the Hon'ble Supreme Court in McDowell & Co. Ltd.'s case, we find that the ratio is not applicable to the facts of the case before us. It is only if there is a commercial reason or justification of any transaction entered into, the ratio laid down by the Apex Court in McDowell & Co. Ltd.'s case cannot be applied, as held by the Supreme Court in the case of Arvind Narottam (Individual), Playworld Electronics (P.) Ltd., Gujarat High Court in Banyan & Berry's case and Mumbai Tribunal in the case of S.B. Garware. In our opinion, switching over from distribution of yarn quota to sale of yarn/yarn quota allotted to the Members on their behalf is for commercially valid justification and was with a view to maximise the benefi....
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....d here i.e., order in ITA Nos. 92 and 93/PN/1995 for assessment years 1991-92 and 1992-93 and assessee's application dated 3-10-2001 along with annexures. I hope that the above meets your query. With best wishes, Yours sincerely, Sd/- (B.L. Chhibber)" 28. Since additional evidence as sought to be admitted has not been admitted by the learned Accountant Member as per the proposed order and clarified as above, I fully agree and concur with his conclusions in not admitting the additional evidence but I have my own reasons for the same which are given a....
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.... assessment that statements of seven of the members of the assessee-society (named in the assessment order) were recorded which were duly shown to the assessee during the course of assessment proceedings and a chance was also given to comment on such statements which was not availed of by the assessee as no reaction came from the assessee's side. So at the stage of the second appeal, assessee's assertion that proper opportunity was not given to it, is of no consequence, especially in the absence of any affidavit having been filed to contradict such stand of the Assessing Officer or otherwise to substantiate such claim made during the course of arguments before the Tribunal. Moreover, rule 29 of the I.T.A.T. Rules does not confer any right on the parties to appeal to produce any additional evidence either oral or documentary before the Tribunal. Such a right has been specifically taken away by prohibiting the production of additional evidence by the parties. Therefore, the question of party claiming a right to adduce additional evidence cannot arise. The power has been vested only in the Tribunal to require production of any document or evidence if it is of the opinion that it is ne....
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....ting on 12-11-1989 resolving to sell the quota yarn on behalf of the members and distribute the rate difference to its members. The assessee contended that there was a clear legal obligation on the assessee to pay to each member the surplus arising out of the quota rights allotted to them. This legal obligation arose simultaneously or in other words, even before the receipt of money and therefore, the assessee did not have any title lo the income relatable to the quota rights which at all the material times really vested in the members. 32. It is the case of the department that the Assessing Officer rejected all the contentions as raised before him on the ground that the events that have taken place over the years it is clear that the object of the company to supply yarn to its members but the society has converted itself into a business organization of manufacturing and selling and the so-called payment of rate difference is nothing but payment of profit. Since the society is not an agent of the members under the bye-laws, therefore, the obligation, which is self-created through resolution, is totally against the bye-laws. The society has abdicated its main object and relegated....
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....d on oath after summoning them by the Assessing Officer. The statements, so recorded by the Assessing Officer, were shown to the assessee's representatives and were given an opportunity to comment on such statements. Assessee has not submitted the comments on facts given in the statement. The Assessing Officer noticed from the few statements recorded that "... some of the members are not holding any power looms at any point of time; some of them are having power looms which they have let out to others and hence not utilising the yarn allocated to them; and some of them were occasionally utilising the yarn allocated to them on the power looms run by them and most of the time they were selling the quota slips in the open market on premium. One thing common with all the above three categories of members is that whenever the quota was allocated to them through slips they were selling the same in the open market at a premium. Some of the members do not know the very term 'rate difference' and they do not know how it is worked out. One of the members Shri S.M. Jadhav has stated that he is holding 10 shares from the inspection of the mill and he never owned power looms at any point of ....
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....essing Officer further' noted that the assessee has used this device of paying the rate difference to members for avoiding its income-tax liability. It was further noted that of all the years this device has been brought to use in this year because, assessee would be having surplus profit after adjusting all its carry forward business losses, depreciation and investment allowance and as a result it would be liable to pay income-tax. They had started this practice from November, 1989 on the basis of the representation received from the members who never bothered about this earlier, because the mill was running in losses. Since the mill has earned huge profit during the year which the society cannot distribute fully amongst the members because of its Bye-Laws and Co-operative Societies Act, they have used this method to distribute its profits amongst its members and hence it is a colourful device to avoid payment of income-tax. 35. Against the above noted facts and conclusions as arrived at by the Assessing Officer assessee has not come forward either to show that it applied for seeking cross examination of the members whose statements were recorded by the Assessing Officer or by ....
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....it is observed that since the bye-laws of the society do not contemplate such arrangement neither there is any statutory obligation to divert any part of income of the assessee nor society is authorized to create a trust, therefore, the decision of the society to apply a portion of what it received as sale consideration could not be regarded as an instance of diversion by overriding title when amount received by the assessee and allowed by it to be paid to the members of the society. Moreover, diversion of income has taken place after and not before the income had reached the assessee. 38. So far as case law cited and relied upon by the learned counsel for the assessee of jurisdictional High Court in the case of CIT v. Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. [2000] 245 ITR 498 (Bom.) is concerned, same is found to have held similar type of issue involved in favour of the department rather than in favour of the assessee wherein it has been opined that principle of diversion of income by overriding title would squarely apply where various directions given by the State Government show that the karkhana is required to deduct from the cane price the amounts towards certain fun....
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....e first and then it claimed deduction. So applying the ratio of this decision such difference in price is part of the trading receipt and as such taxable. 40. To the same effect, in another case CIT v. Madras Race Club [2002] 255 ITR 98, Hon'ble Madras High Court has opined that when assessee is under not under statutory obligation and the rule is framed by an assessee for its own internal management same cannot be elevated to the level of a statutory rule and what is received for benevolent purposes could not be regarded as instance of diversion by overriding title when the amounts received by the club and allowed by it to be used by the fund were not amounts, which had been paid voluntarily with the object of making those payments for charitable purposes. Diversion of the income took place after and not before the income had reached the assessee. So applying ratio of this decision, receipts coming into the pocket of the assessee before discharging any self-created obligations is nothing but taxable in the hands of the assessee. 41. Yet, in another case CIT v. Salem Co-op. Sugar Mills Ltd. [1998] 229 ITR 285, the Madras High Court held that the position would be contrary whe....
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...., the rate difference has rightly been taken as part of the trading receipt and claim of deduction is found to have justifiably been rejected by the authorities below. Their action being in conformity with law is liable to be upheld. 45. So far as assessee's counsel's strong reliance on the decision in the case of Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC), CIT v. Y.S. Desale [1982] 137 ITR 117 (Bom.), the issues relate to statutory obligations and the ratio of these decisions cannot be held to be applicable to the facts of the present case. 46. Therefore, in view of facts and circumstances of the case and case law cited and discussions as held above, I uphold the orders of the authorities below and dismiss the grounds taken by the assessee in this regard for both the years. 47. As a result, both the appeals of the assessee get dismissed. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Per U.B.S. Bedi, Judicial Member.- As there is a difference of opinion between the Members on the Bench, following point of difference is being referred to Hon'ble President for hearing on such point or for nominating the Third Member or to pass such orders as ....
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.... the assessee if the count and quality were suitable to the requirements of the members. If it was not suitable, they would sell the quota to anyone whom they liked. This system though worked, created certain difficulties. Considering the installed spindle capacity, a number of members were not in a position to get the quantity of yarn required by them. Hence, they were forced to sell the quota in the market and by selling in the market, third parties intervened and the maximum benefits were not available to the members as the third parties siphoned off the profit. To overcome this difficulty, members proposed a new system, i.e., assessee should sell the yarn quota allocable to the members in the open market for and on behalf of the members and the difference between the sale price and the price fixed for allotment should be made available to the members instead. A resolution was passed to this effect in the Annual General Meeting on 12-11-1989. Hence, it was submitted, under this system, though assessee sold the yarn, for and on behalf of its members, it had no right over the profit element. The assessee was acting as an agent and it had no interest therein. All that happened is t....
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....s. From 1986-87 to 1989-90, there was no quota yarn supply. Again in 1990-91, assessee allotted quota yarn to its members, but from A November 1989 onwards the assessee itself sold the yarn. Assessing Officer noticed, from 1981-82 to 1985-86 when the assessee supplied yarn to its members on quota, there was a steep rise in production every year; whereas there was a steep fall in the sale of yarn to its members on quota during those years. Assessee was again asked to explain why there was no sale of yarn to its members on quota basis during 1986-87 to 1989-90. It was g explained, the rate depends on demand for cloth in the market; and if the quota was declared at a particular rate and there was no demand for cloth in the market, the members were reluctant to lift it; hence it piled up with the assessee. This was the reason for stopping quota distribution. Assessee was again asked, how the assessee could sell the yarn in the market whereas bye-laws does not sanction such a thing. The reply was, the members requested the assessee to sell the quota allocable allotted to them on their behalf. Assessing Officer held, bye-law No. 7(i) authorises the assessee to sell only the finished prod....
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....ill there is a huge tax liability. Assessing Officer held, a consumer society cannot embark upon to sell its own products on behalf of its members. Its primary duty is to cater to the occupational needs of its members, which in the present case is spinning the yarn and supplying the same to its members for their consumption on active looms. He held, no doubt assessee can sell its products if its members do not consume them but it cannot allot the same to its members, yet hold the same on their behalf and sell it on their behalf, as it is beyond the purview of its bye-laws. He particularly noted that the figures arrived at by the assessee were after making commission payments to mill's agents. Except for this expense of commission, no other expenses have been deducted while considering the rate difference. Hence the Assessing Officer rejected the claim of the assessee. Aggrieved by the above order, assessee approached the first appellate authority. 9. CIT(A) held, the only pertinent point to be decided by him as to whether the members had any legal right of asking for the quota and whether the assessee was permitted by the Co-operative Societies Act and by its own bye-laws to sel....
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....ers whereas the assessee indulged in an activity contrary to the bye-laws and Maharashtra Co-op. Societies Act. Hence, he upheld the orders of the Assessing Officer for the years under consideration. Aggrieved by the above order, assessee approached the Tribunal. 10. The order of the CIT(A) was assailed by the assessee before the Tribunal, firstly, on the ground that with few years of experience, the working of the system resulted in certain difficulties. That is to say, it was not possible to distribute the yarn amongst the members in such a manner that every member would get the quantity required by him/them of required count. It was noticed that for running of set of four looms, the minimum quantity required of 40s count was 437 kgs. if it was to manufacture the cloth economically. However, the Society was producing meagre quantity, approximately 15 kg. per share of particular count. There were certain recessions in the textile market. Sometimes yarn was costlier than the cloth; hence, there was poor demand for the yarn allotted by the assessee Society to its members. Sometimes the quotas were not lifted under these circumstances. The stock piled up, which caused loss to the ....
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....make any difference. 11. By no stretch of imagination it could be presumed that the Society could lay claim to the difference between the market price and the quota price. In any case, assessee was not selling it as its product. Assessee was selling it on behalf of its members and therefore the fund was in the possession of the assessee as agent of the members within the meaning of section 182 of the Contract Act, it was contended. Assessee relied upon the decision of the jurisdictional High Court in the case of CIT v Y.S. Desale [1982] 137 ITR 117 (Bom.) for the above proposition and the decision of the Hon'ble Supreme Court in the case of Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521. If the assessee could not be treated as the agent, then the principle of diversion of overriding title, it was contended, is clearly applicable. Assessee again relied upon the following decisions:- (1) CIT v. Crawford Bayley & Co. [1977] 106 ITR 884 (Bom.) (2) Smt. Savita Mohan Nagpal v. CIT [1985] 154 ITR 449 (Raj.) (3) CIT v. M.D. Manohar Rao [1985] 155 ITR 696 (AP) (4) CIT v. A. Tosh & Sons [1987] 166 ITR 867 (Cal.). 12. Objecting the conclusion of the revenue authorit....
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....e agreement. Request of such members to pass a Resolution and acceptance of the same by the assessee is contrary to the bye-laws of the Society. Learned DR also contended that this was also not diversion of income by overriding title. For the above proposition, he relied upon the decision of the Hon'ble Supreme Court in the case of Motilal Chhadami Lal Jain v. CIT [1991] 190 ITR 1 and also the decision of the jurisdictional High Court in the case of CIT v. Smt. Kamal C. Mehboobbani [1995] 214 ITR 15 (Bom.) and submitted, merely because the income is taxed in one hand, it does not necessarily mean that the income should not be taxed in the hands of the recipient. 16. In the light of the above arguments, the learned Accountant Member came to the conclusion that the rate difference distributed amongst the members for the assessment years 1991-92 and 1992-93 cannot be treated as income of the assessee Society, whereas the learned Judicial Member held otherwise. 17. Before coming to the above conclusion and for taking a different view, the JM wrote a letter dated 16-5-2002, seeking clarification from the AM as to whether assessee's request for admission of additional evidence vide....
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....in the absence of any affidavit having been filed to contradict the stand of the findings of the revenue authorities. He further noted, rule 29 of the ITAT Rules does not confer any right on either of the party to produce any additional evidence, either oral or documentary, before the Tribunal. Learned JM held, "such right has been taken away by prohibiting the production of additional evidence by the parties". Therefore, he held, the question of any party claiming a right to adduce additional evidence cannot arise. Power has been vested only in the Tribunal to require production of any document or evidence, if it is of the opinion that it is necessary to do so to enable the Tribunal to pass order or for any other' substantial cause, which is not there in the case in hand. Therefore, he rejected the request for admission of additional evidence. 20. Coming to the Resolution dated 12-11-1989, which was passed on the basis of representation made by 93 members out of 3015 members, consisting of 3012 weavers, learned JM held that the bye-laws of the Society do not contemplate such arrangement, neither there is any statutory obligation to divert any part of the income of the assessee,....
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....on'ble Supreme Court in the case of Motilal Chhadami Lal Jain v. CIT [1991] 190 ITR 1 to hold that there was no overriding title in the instant case of the assessee as the obligation is self-imposed or gratuitous and it does not flow out of an antecedent and independent title of any third party. 23. In the light of the above discussion, the learned JM held, the rate difference collected by the assessee and subsequently passed on to its members has rightly been taken as a part of the trading receipt and the claim of deduction was justifiably rejected by the revenue authorities. 24. There is no dispute with regard to narration of facts by the learned AM. 25. The difference of opinion is with regard to the issue of admission of the additional evidence. No separate question has been referred to me on this point, which requires to be adjudicated by me, as Third Member. 26. Shri Dastur, learned senior counsel for the assessee submitted, this issue necessarily to be adjudicated. Without deciding this point, Third Member cannot decide the question referred to, properly and judiciously. Because- (a) in the order of the learned AM, in Para 18, there is no clear cut finding tha....
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....s that on the last day of the hearing, i.e., on 25-3-1994, which is also the date of the order, assessee was merely shown some statements. It is not certain from the order sheet, which statements were shown to the assessee; whether they were the same statements of seven persons whose statements were alleged to be recorded during the assessment proceedings; and whether there was anything in the statements adverse to the assessee, which would induce the assessee to ask for cross examination. Shri Dastur submitted, relying upon the Third Member decision in the case of Khopade Kisanrao Manikrao v. Asstt. CIT [2000] 74 ITD 25 (Pune)(TM), that once the issue is identified in the reference, the Third Member has the power to consider the entire material, the reasoning and the conclusion recorded by both the Members as well the contentions advanced by the parties before the Third Member. Hence he submitted, Third Member has the power to admit any new evidence, which is necessary to dispose off the question referred to. 28. Shri Dastur further invited my attention to Ground No. 7 before the Tribunal. Assessee did press seriously the admission of the new evidence. The view expressed in the....
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....e result of the same to him. This position has been made clear by sub-rule (4) which specifically provides that the restrictions placed on the production of additional evidence by the appellant would not affect the powers of the Appellate Assistant Commissioner to call for the production of any document or the examination of any witness to enable him to dispose of the appeal." 30. Shri Dastur submitted, at least the CIT(A) should have called for report on the basis of the observation of the Hon'ble jurisdictional High Court, which is binding on him. Hence, Shri Dastur submitted, first of all, CIT(A) should have accepted the evidence in the circumstances and the learned AM has already taken cognizance of the evidences, as clearly brought out vide Paras 17 and 18 of his order and the reply of the learned AM, after passing the order, denying the fact that he has admitted the additional evidence is incorrect. Shri Dastur further objected the reasoning given by the learned JM for not admitting the additional evidence. He further submitted, the Third Member has ample power to admit the additional evidence, even if it is not before the Division Bench, if it is necessary for the disposa....
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.... case of Smt. Mohindar Kaur v. Central Government [1976] 104 ITR 120 and the decision of the jurisdictional High Court in the case of Smt. Prabhavati S. Shah v. CIT [1998] 231 ITR 1 (Bom.), without any adverse comment. Shri Dastur reiterated, the letter dated 20-5-2002 written by the learned AM after passing the order dated March 2002, need to be ignored The decision cannot be amended except to the extent permitted by section 254(2). He also invited my attention to Page 1284 of Mulla on the Code of Civil Procedure, Volume No. II. Shri Dastur reiterated, hence definitely there is a difference of opinion on this point as well. Shri Dastur submitted, the case referred by the learned DR in the case of Jan Mohammed v. CIT [1953] 23 ITR 15 (All.) and in the case of A.N. Seth v. CIT [1969] 74 ITR 852 (Delhi) is misplaced. 33. Learned senior counsel Shri Dastur brought my attention to section 152 of the Mulla on the Code of Civil Procedure Act V of 1908, Volume I, which reads as under:- "152 [R.S.C., O 28. rule 11. Cf. S.206] Amendment of Clerical or arithmetical mistakes judgments, in judgments, decrees of orders or ....
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....usion but for different reasons. Referring to the above, the Hon'ble Delhi High Court held, "therefore, if the Members agree on the conclusion on a point, but differ in the reasoning or reasons for arriving at the conclusion, the provision in the sub-section does not apply, and the question of any reference to one or more of the other Members does not arise". Coming to the instant case of the assessee, whether the c evidence has been admitted or not is a fact to be ascertained so as to arrive at the right conclusion with regard to the question referred before the Third Member. 38. Coming to the case of H.P. Agro Industries Corpn. Ltd., Shri Dastur submitted, the Third Member is empowered to arrive at the same end result for a different reason/route. Hence, this decision is in assessee's favour. Referring to the decision of the Hon'ble Calcutta High Court in the case of Kali Charan Ram Chander v CIT [1978] 112 ITR 405, Shri Dastur submitted, the Tribunal is not debarred from asking the AAC to look into evidence even if the assessee did not ask for it in order to do substantial justice. Shri Dastur submitted, this decision is in assessee's favour and for the above relied upon the ....
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....ope of the powers conferred under the statute. Therefore, the rules do not have the effect of curbing the scope of power of the Third Member conferred upon him under section 255(4). The Supreme Court in the case of Saiyad Mohammad Bakar El-Edroos v. Abdulhabib Hasan Arab JT 1998 (3) SC 76, 81 held that procedural law is not to defeat the very object which is sought to be achieved and that it is always subservient to the substantive law. As nothing can be given by a procedural law what is not sought to be given by a substantive law, similarly nothing can be taken away by the procedural law what is given by the substantive law. Section 255(4) confers the power of reference to the Third Member in regard to the dispute arising between two Members of the Bench. Therefore, the rules cannot restrict the scope of the powers of the Third Member to the question(s) framed under the Rules. Once the issue is identified in the reference, the Third Member has the power to consider the entire material, the reasoning and the conclusions recorded by the Members as well as the contentions advanced on behalf of the parties and record his findings in such a manner that the difference of opinion amongst....
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....ity available to the assessee was before the CIT(A). Assessee has taken a specific ground as well, viz. Ground No. 7. The CIT(A), at Page 12 of his order records that the copies were shown to the assessee to comment. He records further "on this occasion, the appellant failed to avail any opportunity to cross examine the said seven members. He did not even bother to mention before the Assessing Officer that Shri S.M. Jadhav, one of the members had four looms as claimed before me. No such evidence was produced before the Assessing Officer. The evidence now produced before me during the course of hearing in this regard is not admitted as it is not covered by any exceptional clause of Rule 46A". 43. At Page 157 of the Paper Book is a letter dated 3-10-2001 stating that additional evidence in respect of confirmation of seven members about their holding of looms was placed before the CIT(A) but he has not admitted it. At Page 159 of the Paper Book is a certificate issued by Government of Maharashtra, Office of the Director of Handlooms, Powerlooms and Co-operative Textiles and State Textile Controller, MS, Nagpur dated 26-10-1982, stating that Shri S.M. Jadhav is holding four looms an....
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....here do exist a difference of opinion between the two Members with regard to the admission of the additional evidence. I have already held in the preceding Para that the learned AM, as rightly c contended by Shri Dastur, has admitted the additional evidence, impliedly. Even otherwise I have held that the Third Member has the power to take into evidence the additional evidence, if it is very essential to dispose off the question referred to the Third Member on merit, provided the additional evidence was at least tendered before the original Bench. 47. Coming to the decision relied upon by the learned DR in the case of Niraj Petrochemicals Ltd. v. ITO [2000] 73 ITD 1 (Hyd.)(TM), the Third Member held, wherein specific differences are referred to Third Member and the referral "order" does not express any difference at all, in identifying difference between the Members, Third Member cannot alter the questions referred to him and cannot modify the questions and/or reframe questions and then decide reframed questions instead of original questions. In that case the assessee argued that the real difference between the two Members had not been correctly brought out through the question r....
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....les depot, through agents. In selling the quota yarn in the market, the assessee is acting as the agent of the members. The amounts of sale proceeds (to the extent of difference) are received by the assessee on behalf of its members. The assessee has no right to receive the said funds by its own. Shri Dastur submitted, in the case of Y.S. Desale the promoters were nominated by the Executive Committee for a limited purpose of registering a Co-operative Society and the promoters collected a large amount from the persons who were to become members. There was a delay in formation of the Society and the amounts were deposited in the bank as required by law to avoid penal provision of the Co-operative Societies Act. Question arose - interest on deposits as to whether to be assessed in the hands of the promoters as AOP or BOI. The Court held, title to income vested in contributors right from the very beginning. The Court further observed "when income is received by an agent, he receives it for and on behalf of the principal and there is no question of any overriding title. Since the promoters received the income as agents of the shareholders within the meaning of section 182 of the Indian....
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....not an agent of the members under the bye-laws, therefore, the obligation, which is self-created through resolution, is totally against the bye-laws. The society has abdicated its main object and relegated itself into a business organization. The society is a consumer society; its bye-laws do not authorise the society to sell the yarn in the market. Bye-law 7(i) [not 7(1)] merely authorises the sale by the society of the members' finished products but not of their raw material." I find, this observation of the learned JM is not correct. Clause 7(i) reads as under:- "7. The objects of the Mill shall be to promote the economic interest of its members by undertaking spinning, dyeing, sizing, weaving and manufacturing of textile materials of all kinds, and supply of yarn of all types to the weavers and to others. When yarn is supplied to the weaver members the same shall be supplied at reasonable price consistent with the economic working of the Mill. For the purpose of attaining the objects, it shall be competent to the Mill - (b) ** (i) to enter into contract with Co-operative Societies. Government owned Companies/Corporations or individuals or others for the purchase and sa....
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.... 56. From the facts stated hereinabove, it is clearly established that the yarn counts supplied to its members were comparatively few and they were not having the required counts to use in their mill. So they were to sell it in the open market. To overcome this difficulty, they approached the assessee by way of a request by certain members and subsequently a Resolution was passed by the Society to that effect. Hence, Shri Dastur's contention that the assessee was acting as an agent is to be accepted. I agree with the finding of the learned AM on this point. This view is also supported by the decision of the Hon'ble jurisdictional High Court, relied upon by the learned AM in the case of Y.S. Desale. 57. Coming to the decision relied upon by the learned DR in the case of ITO v. Bachu Lal Kapoor [1966] 60 ITR 74 (SC), it was held that the income should be assessed in the hands-real hands. On the facts, this decision does not support the revenue. It is already noted that the assessee was selling yarn for a fixed price, i.e., a little above the cost price in the market and the difference between the two on the basis of the Resolution passed in the Meeting (sic). Assessee had no rig....
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....ng". From the facts narrated above, it is very difficult to come to the conclusion that the sale of yarn at the instance of its members is a device to reduce the tax liability of the assessee. The assessee is a Co-operative Society formed for the benefit of the members and acting on Resolution of the majority, cannot be treated as a mere device to avoid tax. In the case of Banyan & Berry v. CIT [1996] 222 ITR 831, the Hon'ble Gujarat High Court held that the decision in the case of McDowell & Co. Ltd. was solely for the purpose of reducing the tax liability and it was not a transaction in reality of receiving a price lower than the one which it was making. In view of the above, the Hon'ble Gujarat High Court distinguished the decision in the case of McDowell & Co. Ltd. observing "the Court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of the legitimacy or genuineness of the act. The principle enunciated in the above case has not affected the freedom of the citizen to act in a manner a....
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....clusion, that it is not diversion of income by overriding title and his finding that the case of CIT v. Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. [2000] 245 ITR 498 (Bom.) is not applicable in the instant case of the assessee because in the instant case of the assessee it is self-imposed obligation created by the assessee whereas in the case of Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. it was not so, is incorrect. A careful reading of the decision of the Hon'ble jurisdictional High Court in the case of Shri Chhatrapati Sahakari Sakhar Karkhana Ltd. will clearly show that the real issue is whether the income has accrued to the assessee and whether the profit on the scheme from income of the assessee. In the instant case of the assessee the yarns were at no time belonged to the assessee. The members were entitled for certain items. They were not picking up the entitled material as they found it uneconomical. In the above circumstances, some of the members requested and at their insistence, a Resolution was passed just to sell it in the market by the assessee, and the profit made out of it to be handed over to its members instead of the yarn itself. Assessee had never contro....