Civil Appeal Nos
563  564 of 1975
From the Judgment and Orders dated 151171 and 9572 of the Allahabad High Court in ITR No 67 of 1969 and 724 of 1971
BB Ahuja Ms A Subhashini and KC Dua for the Appellants
SC Manchanda Mrs AK Verma and Joel Pares for the Respondents
The Judgment of the Court was delivered by KANIA J
This is an appeal against the judgment of a Division Bench of the Allahabad High Court in Income tax Reference No 67 of 1969
The appeal has been filed at the instance of the Commissioner of Income tax UP
The relevant facts are as follows The respondent assessee is a Co operative Society registered under the Co oprative Societies Act 1912
It carries on the business of manufacture and sale of sugar and runs at a Mill situated at Bazpur
The relevant assessment year is the assessment year 1961 62 the corresponding to the accounting year 1st July 1959 to 30th June 1960 which was the relevant co operative year
The assessee had established a fund called Loss Equalization and Capital Redemption Reserve Fund
On the opening day of the year of account namely 1st July 1959 a sum of Rs130196 stood to the credit of 1037 this fund
During the relevant accounting year the respondent society added a sum of Rs515863 to this fund by deduction from the price payable by the respondent to its members for the supply of sugarcane received from its members
These deductions were made under the provisions of bye law 50 of the Bye laws of the respondent society to which we shall presently come
Bye law 50 under which the said amount was deducted from the price payable by the respondent to its members for the supply of sugarcane at the relevant time ran as follows There shall be established a Loss Equalisation and Capital Redemption Reserve Fund in the Society
Every producer shareholder shall deposit every year a sum not less than 32 np and not more than 48 np per quintal of the sugarcane supplied by him to the society as may be determined by the Board
After adjusting the losses if any in the working year the deposits shall be allowed to accumulate and utilised for repayment of the initial loan from the Industrial Finance Corporation of India and thereafter for redeeming Government share
The balance of the said deposit after meeting losses shall be used in being converted into share capital in accordance with bye law 44xix and each producer share holder shall be issued shares of the society of the corresponding value in lieu thereof
 During the accounting year the respondent debited a sum of Rs234354 to the said fund by adjusting this amount against the loss brought forward from the previous year with the result that at the close of the said year on 30th June 1960 the account showed a credit balance of Rs411705
A meeting of the Sub Committee of the respondent society which was held on August 26 1964 took the view that bye law 50 was not clear as to whether the fund in question was perpetual or terminable and also that it was not clear as to how the liability for the loss of the respondent society can be fastened on the said fund
The Sub Committee recommended an amendment of the bye law 50 and pursuant to this recommendation at a general meeting of the respondent held on 30th June 1965 bye law 50 was amended to run as follows There shall be established a Loss Equalisation and Capital 1038 Redemption Reserve Fund in the Society
Every producer share holder shall deposit every year a sum not less than 32 paise and not more than 48 paise per quintal of the sugarcane supplied by him to the society as may be terminated by the Board until the shares to be subscribed by a member are fully paid up
The amounts standing to the credit of this fund presently or to be credited in future shall be used for making the partly paid shares fully paid up
The balance of the said account shall be refunded to the members concerned soon after the present loan from the Industrial Finance Corporation of India is repaid whereafter the fund shall cease to exist
This amended bye law shall be deemed to have come into force from 1st July 1958
 It may be mentioned here that the respondent society came into existence in 1958 59 and the original bye laws came into force from 1st July 1958
The Income tax Officer in assessing the respondent for the relevant assessment year held that the said sum of Rs515863 represented a revenue receipt and was liable to be included in the taxable income of the assessee
On appeal the Appellate Assistant Commissioner affirmed the view of the Income tax Officer holding that the case has to be decided on the basis of the bye law as it stood during the relevant accounting year
The respondent assessee went in appeal to the Income tax Appellate Tribunal which took the view that the amended Clause 50 must be held to be operative even during the relevant previous year in view of the retrospective amendment thereof and that in view of the said amended bye law 50 the deposits made by the members by way of deductions from the price as contemplated in bye law 50 were in the nature of permanent liabilities and hence they were capital receipts and not liable to be included in the taxable income of the respondent assessee
The tribunal allowed the appeal of the assessee and directed that the said amount of Rs515863 should be deducted from the taxable income of the assessee as determined by the Income tax Officer
At the instance of the Commissioner a reference was made to the Allahabad High Court and the question framed for determination of the High Court was as follows Whether on the facts and in the circumstances of the case the Income tax Appellate Tribunal was right in holding that the amount of Rs515863 was not a revenue receipt liable to tax 1039 The Division Bench of the High Court which disposed of the said reference agreed with the view of the Tribunal that the bye law 50 of the bye laws of the society was validly amended with retrospective effect and that retrospective effect must be given to that bye law
The Division Bench took the view that in view of the amended bye law the amount of Rs515863 was not an amount which the society could deal with as its income or according to its will and hence the source of the receipt was diverted
The High Court answered the question referred to it in affirmative and in favour of the assessee
The present appeal is directed against the said decision of the High Court
Before coming to the contentions urged by the respective counsel it will be useful to take note of the relevant statutory provisions and the relevant rules
The respondent society was registered under the Co operative Societies Act of 1912
Clause a of Section 2 of the said Act of 1912 defines bye laws as registered bye laws for the time being in force and includes a registered amendment of the bye laws
Section 6 deals with the conditions for the registration of a co operative society
Section 43 confers upon the State Government power to make rules for registered societies to carry out the purposes of the said Act
The relevant portion of clause c of sub Section 2 of Section 43 runs as follows In particular and without prejudice to the generality of the foregoing power such rules may prescribe the matters in respect of which a society may or shall make bye laws and the procedure to be followed in making altering and abrogating bye laws and the conditions to be satisfied prior to such making alteration or abrogation
 Clause e of Section 432 runs as follows 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 Pursuant to the powers conferred under Section 43 of the Co operative Societies Registration Act 1912 the Government of UP 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 1040 A society shall subject to the provisions of the Act and of the rules make bye law 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 Rule 10 conferred power on a 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 ie 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
 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 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 vs MC Poonnoose  Ors 1970 1 SCR p 678 in which the Court held as follows 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 1041 so as to give retrospective operation
It will depend on the language employed in the statutory provision 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 lenguage 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 vs WR Nathu  Others
 majority not having expressed any different opinion on the point Modi Food Products Ltd vs Commissioner of Sales Tax UP AIR 1956 All 356 India Sugar Refineries Ltd vs State of Mysore AIR 1960 Mys
326 and General section Shivedev Singh  Another vs The State of Punjab  Others The aforesaid observations have been cited with approval by this Court in Hukum Chand etc
vs Union of India  Others 1973 1 SCR p 896 where the Central Govenment 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  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  Ors
vs Additional Industrial Tribunal Andhra Pradesh  Ors 1970 1 SCRp
205 where it has been stated by this Court as follows 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 the 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 a part 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 are contemplated by the Act can be merely those which govern the internal management business or administration of a society
 We may mention that the Act under which the bye laws were framed was the Andhra Pradesh Co operative Societies Act 1964
1042 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 
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 vs WR Nathu and Others 1963 1 SCR p 721 where it was held that the substituted bye law 52AA 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 futute 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 UP or Rule 11 of the United Provinces Co operative Societies Rules 1936 to indicate that there is any power express or by implied in a co operative society registered under that Act to make bye laws with retrospective effect in respect of its business
In view of the above discussion in our view the amendment of bye law 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
If the provisions of the unamended bye law are to be applied it 1043 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 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 operations
The receipts by way of these deductions must therefore be regarded as revenue receipts and are 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 vs Commissioner of Income tax West Bengal 1973 87 ITR p 541 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 books 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 vs Commissioner of Income tax Simla 1959 35 ITR p 519
In that case the assessee carried on business as a distiller of country liquor and sold the produce of its distiller to licensed wholesalers
Under a scheme devised by the Government the distiller assessee was entitled to charge the wholesaler 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 an extra price for the bottles and was a part of the consideration for the sale of liquor 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 1044 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 is made on the fulfillment 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 in 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 from whose amounts the deductions were made but for the discharging liabilities of the respondent society
In these circumstances the receipts constituted by these deductions were really trading receipts of the assessee society and are 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
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 67 of 1979
CIVIL APPEAL No564 OF 1975 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 Rs611846 credited during the year of account to the loss equalisation and capital redemption reserve fund by deposits received from producer members of the society under Clause 50 of its bye laws is of revenue nature assessable to tax 1045 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
SL Appeal allowed


Summary:
The Appellant a company registered under the Companies Act had its registered office at Eloor in the erstwhile State of Travancore
On October 21 1948 the company entered into an agreement Exhibit P1 with the erstwhile princely State of Travancore for the supply of electrical energy under the terms and conditions particularised in the agreement
The price was fixed at Rs 110 per KW per annum
Subsequently the State of Tranvancore merged in and became part of the Kerala State and the Electricity Board was constituted for the State
On May 10 1965 a supplementary agreement was entered into between the appellant and the Electricity Board for supply of additional power for a period of 10 years at the rate of Rs140 per KW per year
On October 28 1966 the Electricity Board in exercise of the powers under Section 79j of the Electricity Supply Act 1948 framed and promulgated the Kerala State Electricity Board General Tariff Regulations 1966 by which the Board empowered itself to prescribe higher tariffs for different classes of consumers
Regulation 11 thereof empowered the Board to amend the terms and conditions of supply from time to time
926 The Board issued a Notification dated July 16 1968 Exhibit P 2 providing that the rates for supply of power at 66 KV to the appellant company availed of by them as per the agreement dated October 21 1948 be revised to Rs200 per KW per year
The supplemental agreement with the appellant dated May 10 1965 which pertained to the additional supply of power for a period of ten years at Rs140 per KW per year was however left undisturbed
The appellant in a writ petition before the High Court assailed the enhancement in the electricity tariff contending that the terms for the supply of electricity to the appellant s industrial unit were governed by the agreement dated October 21 1948 entered into by the company with the erstwhile Travancore State that the agreement in terms of Section 60 of the Electricity Supply Act should be deemed to have been entered into by the Electricity Board and that during the subsistence of the said agreement the rates fixed therein were immune from any unilateral upward revision even if the purported enhancement was pursuant to the statutory regulations made under Section 492
It was further contended that the enhancement being selective and discriminatory was violative of Article 14 of the Constitution
The writ petition having been dismissed by a Single Judge of the High Court and the Division Bench having confirmed the order of dismissal in appeal the appellant appealed to this Court by Special Leave
In the appeal it was contended on behalf of the appellant that the agreement Exhibit P I though one entered into prior to the constitution of the Board  was by virtue of Section 60 of the Act one which should be deemed to have been entered into by or with the Board and must also be held to be referable to Section 493 of the Act
Relying on the decision of this Court in Indian Aluminium Co vs Kerala Electricity Board  it was contended that the agreement must be regarded as having been entered into by the Board in exercise of its statutory powers under Section 493 of the Act and therefore immune from the operation of the Kerala State Electricity Board General Tariffs Regulations 1966
It was also submitted that power under Section 491 would be available to the statutory authority enabling an unilateral upward revision of the tariff only if the agreement itself enabled such revision that as long as the agreement did subsist and was not terminated a unilateral change was impermissible and that the appellant was subjected to a steep revision in the tariffs while other similarly circumstanced high tension consumers were left unaffected
927 On behalf of the respondent Board it was urged that Exhibit P 1 could not be held to fall under and be protected by Section 493 of the Act that the agreement having been anterior to the commencement of the Act  itself could not be held to have been entered into for purposes of the Act within the meaning of Section 60 that the agreement could not be deemed to be one entered into by the Board under Section 601 because it did not satisfy the essential requirement of having been entered into by the State Government that the Board had not done anything with reference to the agreement which could attract Section 60 to it and though the obligations of the State Government became the obligations of the Board the agreement itself did not qualify for recognition under Section 60 of the Act that there was not fixity of tenure with reference to and in the context of which alone any immunity from unilateral alteration under Section 491 and 2 could be conceived and measured
It was further contended that the additional agreement dated May 10 1965 was for an independent purpose and that the action of the Board in entering into this agreement did not constitute any such Act in relation to the original agreement as would constitute a conscious adoption by the Board of the original agreement so as to attract Section 601 that the essential quality of the agreement which qualified for recognition and protection as one made in exercise of the Board s power under Section 493 was its distinctiveness as to the period of operation and that the protection and immunity from unilateral increase of tariff could only be with reference to the period of the agreement
Two questions arose for consideration 1 Whether the agreement datecd October 21 1948 Exhibit P 1 should be held to be one which was deemed to have been entered into by the Board under Section 60 of the Act and whether it is required to be considered as one entered into by the Board in exercise of its powers under Section 493 of the Act and 2 Whether the enhancement under the Notification dated July 16 1968 Exhibit P 2 brings about a hostile discrimination against the appellant because for similarly situated and circumstanced High Tension Consumers there was no such revision of the tariff
Dismissing the Appeal  HELD1i The Board s power to enter into an agreement fixing a special tariff for a specified period  is relatable to Section 493
938H iiOne of the tests whether an agreement is entered into in exercise of the power under Section 493 is that such agreement has the effect of excluding the other statutory power under Section 491
939A 928 iii The main consideration for protection from unilateral increase under Section 491 is the period factor  in an agreement
939A B iv A contract which does not provide for an obligation to supply electricity at a specific rate for a specific period and does not therefore have the effect of excluding Section 491 cannot be said to fall under Section 493
939G v If by an unilateral volitional act on the part of the Board the assurance of a fixed rate to the consumer could be denuded that circumstances in itself would be such as to detract from the agreement being considered as one entered into in exercise of power under Section 493
939G H In the instant case the agreement was precarious in regard to the period of its operation and was susceptible to termination at the volition of the Board
It cannot therefore be construed as one which was intended to give a statutory protection for the tariff by means of a special agreement by the exercise of the statutory power of the Board under Section 493
940D Indian Aluminium Co vs Kerala Electricity Board  and Delhi Cloth  General Mills Co Ltd vs Rajasthan State Electricity Board  referred to
vi In a long term contract of indefinite duration it is not unusual to find provisions for cancellation with reasonable notice and for payment of compensation in the event of termination
It is also not unusual to infer under certain circumstances terminability by notice even in the absence of an express provision in that behalf upon a construction of the contract
A contract which contains no express provision for its termination may well be terminated by reasonable notice by one or the other party depending upon the implication of a term or upon a true construction of the agreement
This principle has no application in the instant case
941C D Staffordshire Area Health Authority vs South Staffordshire Water Works Co 1978 3 AII ER p 769 referred to
vii The agreement dated October 21 1948 Exhibit P I therefore does not qualify to be recognised and protected under Section 493 of the Act
941E 929 2i The Board while denying that there was any hostile discrimination averred that no similarly situate consumer had been left out of the tariff revision and only cases that had been left out were those where the Board owing to the subsistence of the agreements protected under Section 493 was under the legal inhibition from making an unilateral enhancement
943E F 2ii The charge of discrimination against the respondent Board could not be said to have been established
Indeed the appellant had not laid a proper foundation for examination of a case of discrimination under Article 14
944C iii The allegations of discrimination ought to be specific
Action of Governmental authorities must be presumed to be reasonable and in public interest
It is for the person assailing that presumption to plead and prove the contrary
But in the instant case the allegations are in general terms
944D State of Maharashtra and Anr
vs Basantilal Mohanlal Khetan and Ors  para 12 and Kasturi Lal Lakshmi Reddy vs State of J  K  at 1357 referred to
In the instant case the respondent Board while denying that there was any hostile discrimination averred that no similarly situate consumer had been left out of the tariff revision and only cases where the consumer had the protection of an agreement under Section 493 which prevented the unilateral increase had been left out
944D E Bisra Stone Lime Co vs Orissa State Electricity Board   referred to