1. Being aggrieved by the judgment and order of the Tribunal dated October 28,1999, the Department has filed the present appeal under Section 260A of the Income Tax Act, 1961. On July 2, 2001, the following order was passed by us.

"Appeal stands allowed partly for reasons to follow subsequently. No costs."

2. Reasons :

3. Since several questions have been referred to us vide this appeal, for the sake of convenience, the judgment is given in the form of answers to the questions referred to us in this appeal under Section 260A of the Income Tax Act. Suffice it to state that the respondent is a co-operative society. It is a sugar Karkhana. The appeal concerns the assessment year 1987-88. Answers to the questions :

Question No. 1 : Disallowance of Shubhechha greetings.

Answer : The department disallowed the aforestated expense on the ground that it cannot be said to have been incurred towards advertisement expense. In view of our judgment in Income Tax Appeal No. 677 of 2000, dated June 18, 2001--CIT v. Shree Panchaganga Sahakari Sakhar Karkhana ltd. [2000] 250 ITR 772, the issue is answered in favour of the assessee and against the Department.

Question No. 2 : Disallowance of interest amounting to Rs. 1,01,981 for the assessment year 1987-88 on the ground that interest-free advance was payable only to the members of the society and since the advance was made in favour of Karmachari Pat Sanstha (workers credit society), the Department disallowed interest on such advances.

Answer : It is not in dispute that the Karmachari Pat Sanstha is a credit society consisting of workers of Sugar Karkhana. It was urged on behalf of the department, by placing reliance on Section 80P of the Income Tax Act, that the advance could have been made only to the members of the society. It was contended that in the present case the interest-free advance is issued to Karmachari Pat Sanstha which is a separate legal entity and which is not a member of the Sugar Karkhana. We do not find merit in the said contention. The members of the Sakhar Karkhana floated a credit society. The advance is given to the credit society. The workers are the beneficiaries. Section 80P has no application. The Karkhana has not applied for deduction under Section 80P. hi the circumstances, question No. 2 is also answered in favour of the assessee and against the Department.

Question No. 3 : Disallowance of interest on cash balances.

Answer: The Department has disallowed the interest as the assessee was maintaining a cash balance on an average of Rs. 50 lakhs whereas the bye laws of the Karkhana lay down that the cash balance on a given day should not exceed Rs. 5,000. The Department found that the Karkhana made heavy borrowings from the financial institutions at the rate of 16 per cent, per annum (interest) and kept the cash idle, without deploying the same in the business. Hence, the Department disallowed the interest on cash balance. We do not find any merit in the contention of the Department. Firstly, the Tribunal has given a finding of fact. It has recorded that the money has been deployed in the business. We do not see any reason to interfere with the finding of fact. Secondly, the Department has not considered the annual turnover of the Sakhar Karkhana. The turnover is around Rs. 200 crores. That, selective dates are taken for arriving at the cash balance. In the circumstances, the Department erred in disallowing the interest on cash balance. Accordingly, question No. 3 is answered in favour of the assessee and against the Department.

Question No. 4 : Whether the Department was right in disallowing vehicle expenses of Rs. 92,617 when such expenses were incurred for Samajik Vanikaran and Area Project

Answer : It is a well known fact that Sakhar Karkhanas pollute the areas surrounding the factory. Tree plantation, therefore, is very important. In the circumstances, the expenses incurred is for business. Accordingly, question No. 4 is answered in favour of the assessee and against the Department.

Question No. 5 : Whether labour charges paid to the labourers of the members by the Karkhana could be disallowed on the ground that such charges were paid to non-members amounting to gratuitous payment

Answer : The Sakhar Karkhana has incurred khodaki charges. They are paid to the labourers. These labourers help the members of the society who are the farmers. It cannot be said that such khodaki charges are not for business purposes. Hence, the Department erred in disallowing khodaki charges. Accordingly, question No. 5 is also answered in favour of the assessee and against the Department.

Question No. 6 ; Whether the Department erred in adding Rs. 5,20,280 and Rs. 59,28,565 to the income of the Karkhana on account of non-refundable deposits and also interest on non-refundable deposits as trading receipts

Answer : In view of our judgment reported in CIT v. Chhatrapati Sahakari Sakhar Karkhana Ltd. : [2000]245ITR498(Bom) , the aforestated two amounts represent trading receipts. Hence, the Department was right in adding the aforestated two amounts as trading receipts to the income of the Karkhana. However, the Department has also added an amount of Rs. 29,91,000 as trading receipt to the income of the Karkhana. This amount was deposited by the Karkhana in the Area Development Fund which was required to be maintained by every Karkhana in the State of Maharashtra and which fund, statutorily, belongs to the State Government. In view of our judgment in CIT v. Chhatrapati Sahakari Sakhar Karkhana ltd. : [2000]245ITR498(Bom) , we hold that the Department erred in treating Rs. 29,91,000 as a trading receipt and to that extent, we hold in favour of the assessee and against the Department, whereas on the point of non-refundable deposits and interest thereon we hold in favour of the Department and against the assessee.

Question No. 7.: Whether the Department was right in treating contributions to Molasses Storage Fund and Spirit Storage Fund as trading receipt

Answer : In view of our decision reported in CIT v. Chhatrapati Sahakari Sakhar Karkhana Ltd. : [2000]245ITR498(Bom) , the aforestated contribution cannot be treated as a trading receipt. The aforestated funds have been created under the statute. They are created under the bye laws framed by the Government. The contributions are made under the directions of the Government. Hence, question No. 7 is answered in favour of the assessee and against the Department.

Question No. 8 : Whether the Department erred in disallowing interest on interest-free loan given by the Karkhana to Shahaji Law College

Answer : In this appeal we are concerned with the assessment year 1987-88. The loan amount is only Rs. 48,000. Hence, we do not wish to decide this point on the merits as the amount involved is very small. Therefore, we do not wish to interfere with the judgment of the Tribunal which is in favour of the assessee.

Question No. 9 : Whether the Department was right in disallowing bonus amount paid in excess of the limit prescribed under the Payment of Bonus Act

Answer : The Tribunal has found that there are two categories of employees working in the Karkhana. One set of employees are covered by the Payment of Bonus Act. The other set of employees fall outside the purview of the Payment of Bonus Act. That, no particulars have been furnished by the Karkhana in that regard. Hence, the Tribunal has remitted the matter back to the Department. Hence, we do not wish to interfere with the order of remission. We are satisfied that relevant particulars have not been furnished by the Karkhana. Hence, no interference is called for on this question.

4. Accordingly, the appeal is partly allowed. No order as to costs.