Itxa/997/2008 Of The Commissioner Of Income -Tax,Pune-Iv v. The Solapur Dist. Co-Op. Milk Producers Nd Process Union Limited

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO. 997 OF 2008 . " Whether on the facts and A few facts may now be set out from the case of ’ The Solapur District Cooperative Milk Producers distributed to the member primary milk co-operative societies. (d) It was made on the basis of theaccrued profits of the year and hence theamounted to distribution of profits; accordingly dismissed the appeal. which is affirmed by the C.I.T.(Appeals), the tribunal recorded as under : (i) The basic price itself was based onquality, any increase in basic pricewhich was provisional was automaticallylinked with quality e.g.if price paid onthe basis of fat and SNF content was X &Y final rate difference of say 25 paiseincreased theprice as X+ 25 paise &Y +25paise.(ii) The supply by non-members wasminiscule and that too only for twoyears. Therefore, non payment of finalrate difference to outsiders does notconvert the payments to members inrespect of milk as appropriation ofprofits. Here, we may mention the caseof Solapur District Cooperative MilkProducers and Process Union Ltd, afinding has been recorded that payment ismade to members as well as non-members. (iii) The government only fixes minimum price to be paid. The board hasauthority under bye laws to fix theprice of the milk purchased from time totime. In view of the cooperativeprinciples, assessee tend to pass on themaximum price to its member societies.Similar situation was obtaining inMehsana Districts case 282 ITR 24 whereinGujrat High Court has answered similarissue in favour of the assessee. (iv) The resolution to pay final ratedifference were always passed in themonth of March every year i.e. beforethe end of previous year and only theresolution to disburse the amounts werepassed after the year end. Ratedifference was paid only on the basis ofquantity of milk supplied during year notin proportion of shareholding so as toamount to distribution of profits. Thedates on which the resolutions is to paythe final milk rate difference arerecorded before the end of the year. Itaccordingly allowed the appeal andallowed deductions of final rate.At the hearing of these appeals, on behalf of allocation of the profits and this fact has remained uncontroverted. annual general meeting and in conformity with theAct, rules and bye-laws. From a reading of thisprovision, it is apparent that the net profitshave first to be determined and then only can beappropriated after the approval of the annualgeneral meeting. The net profits do not accruefrom day to day or from month to month and profitshave to be ascertained by comparison at two statedpoints of time. The assessee when it decided topass a resolution to pay the price difference hadnot ascertained the net profits nor was aresolution passed at its A.G.M. to distribute theprofits as by way of higher price difference. Inthe instant case, admittedly the decision to paythe additional purchase price was based on the resolution of the Board of Directors, approved at the general meeting. 11. From the facts on record and arguments advanced what emerges is as under : 3) Payment is made to suppliers not onthe basis of the shares held by them but,on the amounts of the milk supplied andon the basis of the fat content of themilk ; assessee’s claim. Various contentions were sought to be canvassed before the learned High Court.The learned bench noted the legal position as towhen accrual of profits can be said to haveaccrued. It considered the case of C.I.T. vsAshokbhai Chimanbhai (1965) 56 ITR 42 (SC)andnoted that the words "accrue" and " arise" areused to contradistinguish the word ’receive’.Income is said to be received when it reaches theassessee. When the right to receive the incomebecomes vested in he assessee, it is said to accrue or arise. Dealing with profits, this is what the learned Court said: advanced what emerges is as under : 3) Payment is made to suppliers not onthe basis of the shares held by them but,on the amounts of the milk supplied andon the basis of the fat content of themilk ; assessee’s claim. Various contentions were sought to be canvassed before the learned High Court.The learned bench noted the legal position as towhen accrual of profits can be said to haveaccrued. It considered the case of C.I.T. vsAshokbhai Chimanbhai (1965) 56 ITR 42 (SC)andnoted that the words "accrue" and " arise" areused to contradistinguish the word ’receive’.Income is said to be received when it reaches theassessee. When the right to receive the incomebecomes vested in he assessee, it is said to accrue or arise. Dealing with profits, this is what the learned Court said: " Profits do not accrue from day to dayor even from month to month and have tobe ascertained by a comparison of assetsat two stated points. Unless the rightto profits comes into existence there isno accrual of profits and the destinationof profits must be determined by thetitle thereto on the day on which theyarise. " affirmative in favour of assessee and against the the revenue. Appeals dismissed. { R.S.Mohite, J } { F.I.Rebello, J }