The Commissioner of Income Tax Aayakar Bhavan, Near Holy Cross School, Cantonment, Aurangabad vs Shetkari Sahakari Sakhar Karkhana Limited, Killari

D.G. Karnik, J.—Heard Learned Counsel for the parties. The issue, "Whether a difference between the market price of sale of a sugar and price of the sale of a small quantity of sugar by a sugar factory to it''s producer members and non-member suppliers, is taxable in the hands of the sugar factory u/s 40A(2) of the Income Tax Act, 1961?" has been decided by us in favour of an assessee and against the revenue in CIT Vs. Shetkari Sahakari Sakhar Karkhana Ltd. (Tax Appeal No. 25 of 2008, decided on 10.2.2012). Hence, that question is not required to be decided again in this appeal.

The other question of law that is urged by learned ASG is,

Whether the interest on non refundable deposits of the members is to be treated as an income of the sugar factory?

A similar question had arisen before this Court in the case of Commissioner of Income Tax Vs. Shree Panchaganga Sahakari Sakhar Karkhana Ltd., . In that case, a Division Bench of this Court, following its earlier decision in the case of Commissioner of Income Tax Vs. Chhatrapati Sahakari Sakhar Karkhana Ltd. and Rahuri Sahakari Sakhar Karkhana Ltd., , held that the non-refundable deposits constituted an important source of revenue of a cooperative sugar factory and those deposits were to be treated as the revenue receipts and consequently an income of the sugar factory. The Court also held that the interest on non-refundable deposits could also not be claimed as a deduction by the sugar factory and is to be treated as a revenue receipt.

In Siddheshwar Sahakari Sakhar Karkhana Ltd. Vs. Commissioner of Income Tax , Kolhapur and Others, , the Supreme Court had an occasion to consider the correctness of the view taken by this Court that the non-refundable deposits of the members of sugar factory were to be treated as the revenue receipts and income of the sugar factory. The Supreme Court considered bye-laws of the sugar factory and in particular, bye-law Nos. 60, 61-A and 60-B, which are part of the standard bye laws of almost all the sugar factories in the Maharashtra. After considering the bye-laws, the Supreme Court has held that the non-refundable deposits by a sugar factory from it''s members could not to be treated as an income of the assessee. Shri Sharma, learned ASG, however, submitted that though the deposits cannot be treated as an income of the sugar factory in view of the decision of the Supreme Court in the case of Siddeshwar Sahakari Sakhar Karkhana (supra), the interest earned on those deposits must be regarded as an income of the sugar factory. We are unable to agree.

In our view, the decision of this Court in the case of Shri Panchaganga stands over ruled by the decision of the Supreme Court in the case of Siddeshwar Sahakari Sakhar Karkhana Ltd. (supra). The Sugar factories in Maharashtra deduct certain sums from the sale price of sugarcane payable to their producer members and keep it as a non refundable deposit with them under its bye-laws. Bye law No. 61-A(2) which forms part of standard bye laws of almost all sugar factories in the State of Maharashtra, reads as under :

(2). The Deposits collected as above shall not be refundable to the members. However, the Board may convert such deposits into shares after repayment of loans taken towards capital expenditure from Maharashtra State Co-operative Bank, Government share capital and long term loans taken from other banks for capital expenditure. The amount of fixed deposits collected by the society from members shall not exceed three times the shares held by the members Thereafter, such fixed deposits shall not be accepted by the Karkhana. The Karkhana has to collect the deposits until it holds Government share capital and has other loans outstanding.

The non refundable deposits collected by a sugar factory by way of deduction from the purchase price of the sugar cane are treated as non-refundable deposits. These deposits are to be converted into capital share of the sugar factory after repayment of the loans taken from the Maharashtra State Cooperative Bank and the Government. The non-refundable deposits, thus, belongs to the members and are to be converted into the share capital of the sugar factory on a future date. If the money belongs to the shareholders/producer members it follows that interest earned on that money will also belong to that producer members. It is unconceivable that the money belongs to the member but the income thereon would accrue to the sugar factory. It is a normal rule that the interest, whether actually received or accrued, belongs to the person to whom the money belongs and not to the person with whom the money is deposited.

In this view of the matter, it must be held that the interest which is received by a sugar factor on the non-refundable deposits also belongs to a members and would be credited to their account by the sugar factory. Ultimately, the entire money would be converted into the share capital or paid back to the members after some period. The deposit does not belong to the sugar factory. Consequently, we hold that the interest earned on non-refundable deposits cannot be treated as an income of the sugar factory. For these reasons, there is no merit in the appeal, which is hereby dismissed.