TaxTMI 
TaxTMI 
1988 (5) TMI 4
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....al Redemption Reserve Fund ". On the opening day of the year of account, namely, July 1, 1959, a sum of Rs. 1,30,196 stood to the credit of this fund. During the relevant accounting year, the respondent-society added a sum of Rs. 5,15,863 to this fund by deduction from the price payable by the respondent to its members for the supply of sugarcane received from it's members. These deductions were made under the provisions of bye-law 50 of the bye-laws of the respondent-society, to which we shall presently come. Bye-law 50, under which the said amount was deducted from the price payable by the respondent to its members for the supply of sugarcane, at the relevant time ran as follows : " There shall be established a Loss Equalisation and Capital Redemption Reserve Fund in the society. Every producer-shareholder shall deposit every year a sum not less than 32 paise and not more than 48 paise per quintal of the sugarcane supplied by him to the society as may be determined by the Board. After adjusting the losses, if any, in the working year, the deposits shall be allowed to accumulate and utilised for repayment of the initial loan from the Industrial Finance Corporation of India ....
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.... holding that the case has to be decided on the basis of the bye-law as it stood during the relevant accounting year. The respondent-assessee went in appeal to the Income-tax Appellate Tribunal which took the view that the amended bye-law 50 must be held to be operative even during the relevant previous year in view of the retrospective amendment thereof and that in view of the said amended bye-law 50, the deposits made by the members by way of deductions from the price as contemplated by bye-law 50 were in the nature of permanent liabilities and hence they were capital receipts and not liable to be included in the taxable income of the respondent-assessee. The Tribunal allowed the appeal of the assessee and directed that the said amount of Rs. 5,15,863 should be deducted from the taxable income of the assessee as determined by the Income-tax Officer. At the instance of the Commissioner, a reference was made to the Allahabad High Court and the question framed for determination of the High Court was as follows : " Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the amount of Rs. 5,15,863 was not a revenue rec....
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.... to the provisions of the Act and of the rules, make bye-laws in respect of the following matters, namely:- (1) the name of the society; (2) its registered address ; (3) its aims and objects; and (4) the purposes for which its funds may be applied." Rule 10 conferred power on a society to make bye-laws in respect of any other matter incidental to the management of its business. Rule 11 which deals with the amendment of rules runs as follows : " An amendment may be made in the bye-laws, i.e., a bye-law may be altered or rescinded or a new bye-law added by a resolution passed by the votes of at least two-thirds of the members present at a special meeting called for the purpose." It was submitted by Mr. Ahuja, learned counsel for the appellant (Revenue), that the amendment of bye-law 50, although it was purported to be made with retrospective effect could, in fact, have no retrospective effect in law. It was submitted by him that a co-operative society governed by the Co-operative Societies Act, 1912, was not a body constituted by the said Act nor a statutory body. The power to make bye-laws was conferred upon the society by delegation under the rules which themse....
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.... to have the force of law. It has no doubt been held that, if a statute gives power to a Government or other authority to make rules, the rules so framed have the force of statute and are to be deemed to be incorporated as a part of the statute. That principle, however, does not apply to bye-laws of the nature that a co-operative society is empowered by the Act to make. The bye-laws that are contemplated by the Act can be merely those which govern the internal management, business or administration of a society." We may mention that the Act under which the bye-laws were framed was the Andhra Pradesh Co-operative Societies Act, 1964. In the light of the decisions discussed earlier, it appears to us that the respondent-society had no authority in law to amend bye-law 50 with retrospective effect as it purported to do. We have already pointed out that the power of the society to amend its bye-laws arises from the provisions of rule 11 of the United Provinces Co-operative Societies Rules, 1936, which rule has been made under the powers conferred by section 43 of the Co-operative Societies Act, 1912. There is nothing expressly or impliedly in rule 11 which confers any power on the....
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....operations. The receipts by way of these deductions must, therefore, be regarded as revenue receipts and are liable to be included in the taxable income of the respondent. It is urged by Mr. Manchanda, that these receipts have been described in the bye-law 50 as deposits, but we fail to see how they can really be regarded as deposits. It was held by this court in Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542, that it is the true nature and quality of the receipt and not the head under which it is entered in the account books that would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as a trading receipt. The same principle can be derived from the decision of this court in Punjab Distilling Industries Ltd. v. CIT [1959] 35 ITR 519. In that case, the assessee carried on business as a distiller of country liquor and sold the produce of its distillery to licensed wholesalers. Under scheme devised by the Government, the distiller (assessee) was entitled to charge the wholesaler a price for the bottles in which the liquor was supplied, at rates f....