Friday, June 13, 2014

Sums collected by society for area development was for specific social purposes which couldn’t be held taxable

Where, assessee, a co-operative sugar factory, deducted certain Sum from bills payable to members and non-members towards supply of sugarcane on account of 'Area Development Fund', in view of fact that said sum was impressed with an obligation to spend it for specified social purposes approved in AGM, it could not be brought to tax in assessee's hands as income.


a)The assessee, a co-operative sugar factory, was engaged in the business of manufacturing and sale of sugar.

b)It deducted certain sum from the bills payable to the members and non-members towards the supply of sugarcane and the said deduction was shown under the head 'Area Development Fund' (ADF).

c)The Assessing Officer (‘AO’) held that the sum collected by the assessee towards the ADF was to be assessed as income in the hands of the assessee. On appeal, the CIF (A) confirmed the order of AO. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The ADF was used for giving incentive to primary schools, wrestlers, road developments, medical assistance and assistance for group marriages, etc. Initially the assessee was collecting funds on his own discretion and spending it on the different projects undertaken in the area of operation but, subsequently, the collection and use of fund were regulated by the Govt.

2)The assessee had maintained separate accounts in respect of ADF and it was seen that the assessee had been utilizing it on different projects as per the approval given in the annual general meeting (AGM).

3)It was not the case of the revenue that any money was diverted by assessee towards any other purpose other than approved in the AGM of the members. Merely because the sum collected was not kept separately in the bank account, the character of the amount would not change.

4)The assessee was required to submit the auditor's report to the Director of sugar, Govt. of Maharashtra, each year showing the opening balance of the ADF, amount collected and utilized during the year.

5)Therefore, the collection made by assessee towards the ADF was impressed with an obligation to spend it for the specified purposes approved in AGM and the members paying contribution to ADF were aware for what purposes the assessee was collecting the said fund and where the fund would be utilized. The assessee's role was like a trustee of the 'ADF'. The AO was, thus, directed to exclude the amount of 'ADF' from the income of assessee. - LOKNETE BALASAHEB DESAI SAHAKARI SAKHAR KARKHANA LTD. V. DY. CIT [2014] 45 366 (Pune - Trib.)