1989 PLP 705 (PTD)

"In particular and, without prejudice to the generality of the foregoing power, such rules may regulate the manner in which funds may be raised by means of shares or debentures or otherwise."

8. Pursuant to the powers conferred under Section 43 of the Co-operative Societies Registration Act, 1912, the Government of U.P. framed certain rules known as United Provinces Co-operative Societies Rules, 1936 for registered societies and these rules were in force at the relevant time. The relevant portion of Rule 8 under heading "III-Bye-laws" ran as follows:- "A society shall, subject 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;' (4) the purposes for which its funds may be applied;" ,

9. Rule 10 conferred power on 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the amendment of rules runs as follows:- "An amendment may be made in the bye-laws i.e. a bye-law may be altered or rescinded or a new bye-law added by a resolution passed by the votes of at least two-thirds of the members present at a special meeting called for the purpose."

10. 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 rules which themselves were framed by the Government in exercise of power delegated to the Government by the legislature under Section 43 of the aforesaid Act of 1912. It was submitted by him that as there was no delegation of any power on the respondent society to make bye-laws with retrospective effect, it had no power to do so and the amendment of bye-law 50 made by the society, although purporting to be retrospective, could not be given any such effect. In support of this submission, Mr. Ahuja relied upon the decision of this Court in Income-tax Officer, Alleppey v. M.C. Poon-oose, (1970)

1. S C R 678: (A I R 1970 SC 385), in which the Court held as follows (at P. 387 of A I R ): "Where any rule or regulation, is made by any person or authority to whom such powers have been delegated by the legislature it may or may not be possible to make the same so as to give retrospective operation. It will depend on the language employed in the statutory provisions, which may in express terms or by necessary implication empower the authority concerned to make a rule or regulation with retrospective effect. But where no such language is to be found it has been held by the Courts that the person or authority exercising subordinate legislative functions cannot make a rule, regulation or bye-law which can operate with retrospective effect (See Subba Rao J., in Dr. Indramani Pyarelal Gupta v. W.R. Nathu, (1963) 1 SCR 721: (A I R 1963 SC 274) the majority not having expressed any different opinion on the point; Moodi Food Products Ltd. v. Commr. of Sales Tax, U.P., A I R 1956 All 35; India Sugar Refineries Ltd. v. State of Mysore, A I R 1960 Mys. 326 and General S. Shivdev Singh v. The State of Punjab, (1959) 61 Punj LR 514: (A I R 1959 Punj 453) (FB)".

11. The aforesaid observations have been cited with approval by this Court in Hukam Chand v. Union- of India, (1973) 1 S C R 896: (A I R 1972 SC 2427) where the Central Government was held to have acted in excess of its powers in so far as it gave retrospective effect to the Explanation to rule 49 framed under the Displaced Persons (Compensation and Rehabilitation) Act, 1954, exercising the powers conferred by Section 40 of the Act. We may also refer here to the decision of this Court in Co-operative Central Bank Ltd. v. Addl. Industrial Tribunal, Andhra Pradesh, (1970) 1 SCR 205: (A I R 1970 SC 245) where it has been stated by this Court as follows (at P. 252 of A I R): "We are unable to accept the submission that the bye-laws of a co operative society framed in pursuance of the provisions of the Act can be held to be law or to have he 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 apart 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 arc contemplated by the Act can be merely those which govern the internal management, business or administration of society."

12. We may mention that the Act under which the bye-laws were framed was the Andhra Pradesh Co-operative Societies Act, 196-1.

13. 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 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 United Provinces Co-operative Societies Act, 1912. There is nothing expressly or impliedly in Rule 11 which confers any power on the society to amend its bye-laws with retrospective effect and in the absence of any such power being conferred, either expressly or by implication, it cannot be said that the society had any power to amend its bye laws with retrospective effect. Mr. Manchanda, learned counsel for the respondent-society placed strong reliance on the decision of this Court in Dr. Indramani Pyarelal Gupta v. W.R. Nathu; (1963) 1 S C R 721: (A 1 R 1963 SC 274) where it was held that the substituted bye-law 52-A A of the East India Cotton Association made by the Central Government in exercise of the power conferred upon it under Section 12 of the, Forward Contracts (Regulation) Act, 1952 and which, very shortly stated, conferred power on the Forward markets Commission after notifying with the Chairman of the Board of the East India Cotton Association, to close hedge contracts in the eventualities mentioned in the said rule was not invalid in law or ultra vires the Constitution. On a proper construction, the amended or substituted bye-law applied not only to contracts to be entered into in future but also to subsisting contracts. This Court pointed out that, in that case, the power to make bye-laws so as to affect the rights in subsisting contracts followed as a necessary implication from the terms of Section 11 of the Forward Contracts (Regulation) Act, 1952. In the case before us, however, there is nothing in Section 43 of the U.P. Co-operative Societies Act, 1912 or Rule 11 of the United Provinces Co-operative Societies Rules 1936 to indicate that there is any power, express or by implication, in a cooperative society registered under that Act to make bye-laws with retrospective effect in respect of its business.

14. In view of the above discussion, in our view, the amendment of bye-late, 50 of the respondent society cannot have any retrospective effect and the amounts deducted from the amounts payable to members for the supply of sugarcane, will have to be dealt with as if they were deducted under the provisions of bye-law 50 as it stood in the, relevant accounting period.

15. If the provisions of the unamended bye-law are to be applied, it is clear that these amounts which were deducted by the respondent from the price payable to its members on account of supply of sugarcane were deducted in the course of the trading operations of the respondent and these deductions were a part of its trading operation. The receipts by way of these deductions must therefore be regarded as revenue receipts and arc 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. Commr of Income-tax. West Bengal, (1973) 87 I T R 542 (A I R 1973 SC 376) that it is the true nature and quality of the receipt and not the head under which it is entered in the account books as would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account nooks 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. Commr of Income-tax, Simla, (1959) 35 I T R 519: (A I R 1959 SC 34t>). 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 a scheme devised by the Government, the distiller (assessee) was entitled to charge the wholesalers a price for the bottles in which the liquor was supplied, at rates fixed by the Government, which he was bound to repay when the bottles were returned. In addition to the price fixed under the Government scheme, the assessee took from the wholesalers certain further amounts, described as security deposits without the Government's sanction and entirely as a condition imposed by the assessee itself for the sale of its liquor. The moneys described as security deposits were also returned as and when the bottles were returned but, in this case the entire sum taken in one transaction was refunded when 90 per cent of the bottles covered by it were returned. The price of the bottles received by the assessee was entered by it in its general trading account while the additional sum was entered in the general ledger under the heading "empty bottles return security deposit account". The question was whether the assessee could be assessed to tax on the balance of the amounts of these additional sums left after the refunds made out of the same. It was held that the additional amount described as security deposit by the assessee was really and extra price for the bottles and was a part of the consideration for the sale of liauor; it did not make any difference that the additional amount was entered in a separate ledger termed "empty bottles return deposit account". It was held that these additional amounts which remained after the refunds were made, were trading receipts of the assessee and liable to tax. Applying these principles to the present case, in our opinion, it makes no difference that in the bye-law, these amounts have been referred to as deposits and the account in which these receipts were entered has been called "Loss Equalisation and Capital Redemption Reserve Fund". The essence of a deposit is that there must be a liability to return it to the party by whom or on whose behalf (it) is made on the fulfilment of certain conditions. Under the amended bye-law, the amounts deducted from the Price and credited to the said fund were first liable to be used adjusting the losses of the respondent society in the working year; thereafter in the repayment of initial loan from the Industrial Finance Corporation of India and then for redeeming the Government share and only in the event of any balance being left, it was liable to be converted to share capital. The primary purpose for which the deposits were liable to be used were not to issue shares to the members iron whose amounts the deductions were made but for discharging the liabilities of the respondent society. In these circumstances, the receipts constituted by these deductions were really trading receipts of the assessee society and arc liable to be included in its taxable income. In our view, the learned Judges of the High Court were, with respect, in error in answering the question referred in the negative. In our opinion, the question referred must be answered in affirmative and in favour of the revenue.

16. In the result, the appeal succeeds and is allowed with costs. The respondent shall also pay to the appellant the costs incurred in Income-tax Reference No.07 of 1979. Civil Appeal No. 564 of 1975;

17. This is an appeal against the judgment of a Division Bench of the Allahabad High Court in Income-tax Reference No-724 of 1971. The question referred to us for determination is as follows:- "Whether on the facts and in the circumstances of the case, the sum of Rs.6,11,846 credited during the year of account to the loss equalisation and capital redemption reserve fund by deposits received from produces members of the society under C1, 50 of its bye-laws is of revenue nature assessable to tax?"

18. In view of our decision, the appeal must be allowed and the question referred answered in the affirmative and, in favour of the revenue. The appeal is allowed. No order as to costs. M.B.A./608/T Appeal allowed.