Business expenditure/loss : Assessee federal society of primary milk societies : Milk rate difference determined in March and paid in subsequent year : Is allowable business expenditure/loss.
CIT v. Solapur Distt. Co-op. Milk Producers & Process Union Ltd. (180 Taxman 533 (Bom.)
The assessees were federal societies of primary milk societies and their business was to purchase milk from their members and other producers at the rate to be fixed by their board of directors on the basis of fat content of milk and to sell the milk to various parties. The assessee fixed the rate of purchasing of milk at the beginning of the year on the basis of the price declared by the State Government and price which other buyers paid to the vendors. Those rates were revised from time to time and were provisional to the final milk rate difference which was to be determined in the month of March every year and was to be paid to primary milk societies in the following year. The Assessing Officer refused to allow deduction of the final rate difference on the ground that it was made on the basis of the accrued profit of the year and, hence, would amount to distribution of profit. The Tribunal allowed the claim and observed that the resolutions to pay final rate difference were always passed in the month of March every year, i.e., before profit could be said to accrue; and that rate difference was paid only on the basis of quantity of milk supplied during year and not in proportion of shareholding, so as to amount to distribution of profit.
On appeal by the Revenue the Bombay High Court upheld the decision of the Tribunal and held as under :
"(i) It was not the case of distribution of profit as the amount to be paid was not out of the profit ascertained at the annual general meeting. It was not paid to all shareholders. The amount was paid to the members who supplied milk and in some cases also to non-members. The payment was for the quantity of milk supplied and in terms of the quality supplied.
(ii) The commercial expediency for payment of that price were the market condition, and the need to procure more milk from the members and non-members to the assessee. Therefore, the amount paid, by no stretch of imagination, could be said to be dividend to the members or shareholders or payment in the form of bonus, as bonus also had to be paid from the accrued profits.
(iii) The Tribunal was justified in deleting the addition made by the Assessing Officer."