Full Judgment Text
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PETITIONER:
THE K.C.P. LIMITED
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, BANGALORE
DATE OF JUDGMENT: 09/08/2000
BENCH:
R.C.Lahoti, S.P.Bharucha, N.S.Hegde
JUDGMENT:
R.C. Lahoti, J.
By the impugned order of the High Court the following
question of law referred by the Income-tax Appellate
Tribunal to the High Court under Section 256(1) of the
Income-tax Act, 1961 has been answered in the negative,
i.e., in favour of the Revenue and against the assessee:-
Whether on the facts and in the circumstances of the
case, the Appellate Tribunal is right in law in upholding
the order of the Commissioner of Income Tax deleting
Rs.14,96,130/- being the excess realisation over and above
the authorised price on sale of sugar?
The aggrieved assessee has come up in appeal.
The appellant company manufactures sugar and other
items. It follows mercantile system of accounting. In the
assessment year 1972-1973 levy price of sugar was fixed at
Rs.120.30 paise per quintal. The appellant challenged the
order appointing ceiling on the price of the sugar by filing
a writ petition in the High Court. On 31.3.1970 the High
Court of Andhra Pradesh passed an interim order which inter
alia read as under:-
.the operation of notification issued by the
respondent herein namely the Union of India, Ministry of
Food and Agriculture, Community Development and Co-
operation, New Delhi d/20.2.70 and 1.3.70 in so far as it
relates to Zone No.2 BE AND HEREBY is suspended pending
further orders on this petition and IT IS FURTHER ORDERED
that the petitioners BE AND HEREBY are permitted to sell
sugar at the rate prevailing prior to the SAID NOTIFICATION,
i.e. at Rs.131.01 plus excise duty pending further orders
on this petition.
Protected by the interim order the appellant continued
to sell sugar at the rate of Rs.131/- per quintal. During
the assessment year 1972-1973 the appellant company
collected an amount of Rs.14,96,130/- in excess of levy
price of sugar fixed by the Government for that year. The
Income-tax Officer treated the amount of Rs.14,96,130/- as
part of the trading receipts of the company for that year.
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In an appeal preferred by the company the Commissioner of
Income-tax held that the said amount could not be brought to
tax. The Revenue preferred an appeal before the Appellate
Tribunal which was dismissed. However, the abovesaid
question of law was referred by the Tribunal for the opinion
of the High Court at the instance of the Revenue. The High
Court answered the question in the negative as already
stated.
The writ petition preferred by the appellant before
the High Court of Andhra Pradesh came to be dismissed on
18.2.1971. With the dismissal of the writ petition the
interim order passed by the High Court came to be vacated
automatically. It is pertinent to note that neither the
interim order of the High Court had specifically cast a
liability on the appellant company to refund the amount to
the purchasers of the sugar from whom the excess amount was
realised in the event of the petition being dismissed nor
did the final order of the High Court direct the appellant
to refund the amount. All that the interim order meant was
that upon the dismissal of the writ petition, the appellant
could no longer charge the price of Rs.131/- plus excise
duty. The fact remains, as was admitted at the Bar that the
amount continued to remain with the appellant company and
was not refunded to the purchasers.
Then came into force, with effect from 1.4.1976, The
Levy Sugar Price Equalisation Fund Act, 1976. It provided
inter alia that the amounts representing all excess
realisations made by producers irrespective of whether such
excess realisations were made before or after the
commencement of this Act shall be credited to a fund known
as Levy Sugar Price Equalisation Fund established under
Section 3 of the Act. It is not disputed that the amount of
Rs.14,96,310/- was liable to be transferred by the appellant
company to the said fund. However, the vires of this Act
were also subjected to a challenge by the appellant filing a
writ petition which was ultimately dismissed. The matter
was brought in appeal before the Supreme Court and that
appeal is still pending.
According to Shri R.F. Nariman, the learned senior
counsel for the appellant company, the excess amount was
collected by the appellant under interim orders of the
Court. The amount though received by the appellant, could
not have been appropriated by it as its own. The excess
realisation did not accrue to the assessee. It was liable
to be refunded to the purchasers of the sugar in the event
of the writ petition filed by the appellant company being
dismissed by the High Court and therefore it was a liability
of the appellant company. The Income-tax Officer and the
High Court have erred in treating the excess amount as
trading receipt of the company. Dr. Gauri Shankar, the
learned senior counsel for the Revenue has on the other hand
submitted that the excess amount was realised by the
appellant company as price of the sugar sold by it during
the course of its trading activities and therefore it has
been rightly held by the High Court to be a trading receipt
of the appellant company.
We will refer to the law laid down in a few cases by
this Court. In Chowringhee Sales Bureau P.Ltd. Vs.
Commissioner of Income-Tax, West Bengal - (1973) 87 ITR 542,
the appellant as an auctioneer effected sales of furniture
and realised from the buyers in addition to the commission
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Rs.32,986/- as sales tax. The appellant neither paid this
amount to the actual owner of the goods on whose behalf the
goods were auctioned nor deposited the same in the State
exchequer upon the plea that the statutory provision
creating that liability upon it was not valid. The amount
was also not refunded to the persons from whom it had been
collected. This Court held the amount of Rs.32,986/- to be
the trading or business receipts of the auctioneer
(appellant).
To the same effect are the decisions of this Court in
Sinclair Murray and Co.P.Ltd. Vs. Commissioner of
Income-Tax, Calcutta - (1974) 97 ITR 615 and Commissioner of
Income-Tax, U.P.-II Vs. Bazpur Co-operative Sugar Factory
Ltd. - (1988) 172 ITR 321. In these cases it has been the
consistent view of this Court that 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. It is the
true nature and quality of the receipt and not the head
under which it is entered in the account books which is
decisive. This Court has further observed that eventually
if the amount so collected is passed on to the State
Government or refunded to the purchasers the assessee would
be entitled to claim deduction of the sum when so paid or
refunded.
In Punjab Distilling Industries Ltd. Vs.
Commissioner of Income-Tax, Simla - (1959) 35 ITR 519 the
assessee carried on business as a distiller of country
liquor and sold the produce to licensed wholesaler. The
Government devised a scheme entitling the distillers to
charge the wholesalers a price for the bottles in which the
liquor was supplied, at the rates fixed by the Government
which price was bound to be repaid on return of the bottles.
The distiller collected from the wholesalers certain amount
as security deposits though not authorised by the Government
scheme. This security deposit was also returned as and when
the bottles were returned. This additional sum was entered
by the assessee under the heading empty bottles return
deposit account. A question arose whether the assessee
could be assessed to tax on the balance of the amounts of
these additional sums left with the assessee after the
refunds were made. This Court held that in realising the
additional amount described as security deposit the assessee
was really charging an extra price for the bottles. The
additional amounts taken were an integral part of the
commercial transaction of the sale of liquor and bottles and
when they were realised they were the moneys of the assessee
and remained thereafter the moneys of the assessee. They
were the assessees trading receipts and therefore the
balance of these additional sums left in the hands of the
assessee after the refunds were assessable to tax. This
Court further held that it did not make any difference that
the additional amount was entered in a separate ledger under
the head empty bottles return deposit account as the
assessees style of writing up the account books in a
particular manner could not alter the real nature of the
receipts.
In Jonnalla Narashimharao and Co. and Ors. Vs.
Commissioner of Income Tax - (1993) 200 ITR 588 the
appellant a commission agent collected in the assessment
year 1968-1969 certain amounts by way of sales-tax under the
name Rusum inasmuch as it disputed its liability to pay
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sales tax by filing various legal proceedings. The accounts
were maintained on the mercantile system. In 1970, there
was a retrospective amendment in the relevant sales tax law
as a result of which the appellants liability was upheld by
the courts. The tax (i.e. the amount of rusum) was
remitted to the State later on and consequent upon the said
amendment. This Court held that insofar as the assessment
year 1968-1969 was concerned the amounts collected in the
name of Rusum constituted business receipts of the
appellant.
In the case at hand the excess amount of
Rs.14,96,130/- was realised by the appellant company in the
ordinary manner of its business activities and as the price
of sugar sold by it. The amount was retained by the
assessee as price of the sugar sold by it though the right
of the appellate company to realise the amount was subject
of dispute. The interim order of the High Court, looking to
the phraseology employed therein, would not make any
difference in the nature of receipts by the asseesse.
Though the learned senior counsel for the appellant
submitted that the excess amount was retained in a separate
account, that would also not make any difference in our
opinion. Firstly, the consistent view of this Court, as
noticed hereinabove, is that merely maintaining a separate
account under a heading given by the assessee would not
alter the nature of the receipt if it actually be a trading
receipt. Secondly, nothing is available on record to find
out how and in what manner the separate account was
maintained by the assessee.
It was lastly submitted by the learned senior counsel
for the appellant that in the year 1997 the appellant has
transferred the amount to Sugar Equalisation Fund of the
Government. Suffice it to say that such transfer in the
year 1997 does not have any bearing on the taxability of the
amount which was a trading receipt in the assessment year
1972-1973.
The learned senior counsel for the assessee-appellant
relied on three decisions by different High Courts and
submitted that in identical facts and circumstances the
price of sugar realised in excess of the levy price was held
not to be a trading receipt of the assessee and hence not
liable to tax. The decisions so relied on are :-
Commissioner of Income-Tax Vs. Mysore Sugar Co. Ltd.
(1990) 183 ITR 113 (Kant), Commissioner of Income-Tax Vs.
Seksaria Biswan Sugar Factory Pvt. Ltd. (1992) 195 ITR 778
(Bom) and Commissioner of Income-Tax, A.P.-I Vs. Chodavaram
Co- operative Sugars Ltd. (1987) 163 ITR 420 (A.P.). We
have carefully perused the decisions. It is clear from the
facts stated by the High Courts that in each of the cases
the assessees right to realise the excess price was subject
matter of dispute pending in the High Court and the High
Courts had passed different interim orders pursuant to which
the respective assessees were collecting the excess price.
Though the interim orders of the High Courts are differently
worded in the three cases, one common feature of all the
orders is that the realisation of the excess price by the
respective assessees was hedged by several conditions one of
which was that the assessee shall refund the amount received
in excess of the price fixed in the event of the pending
dispute being decided adversely to the assessee by the
court. Thus the receipt of the amount by the assessee was
clearly associated with a liability to refund the amount,
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which liability was ascertainable and quantified. Such is
not the case at hand. The High Court of Karnataka and
Bombay have in their decisions referred to and applied the
decision of this court in Commissioner of Income-Tax, West
Bengal-II Vs. Hindustan Housing and Land Development Trust
Ltd. (1986) 161 ITR 524. The facts of the case before the
Supreme Court were that certain lands belonging to the
assessee company were first requisitioned and then
compulsorily acquired by the State Government. On an appeal
preferred by the respondent company, the arbitrator made an
award directing compensation to be paid for requisition and
acquisition. The arbitrators award was promptly challenged
by the State Government before the High Court. Pending the
appeal the State Government deposited the amount in the
court which the assessee company was permitted to withdraw
on furnishing a security bond for refunding the amount in
the event of the appeal preferred by the State Government
being decided in its favour. This court found that the
entire amount was in dispute in the appeal filed by the
State Government; that the dispute was real and
substantial; and that the amount deposited by the State
Government was permitted to be withdrawn by the assessee
subject to security bond for refunding the amount in the
event of the appeal being allowed. On these facts, this
court held that there was no absolute right to receive the
enhanced amount at that stage and if the appeal was allowed
and in its entirety the right to payment of enhanced amount
would have fallen altogether. The principle of law laid
down by this court in the case of Hindustan Housing & Land
Development Trust Limited is to be read in the light of the
facts of that case. Thus none of the decisions relied on by
the learned senior counsel for the appellant is of any
assistance to him.
For the foregoing reasons, we find ourselves in
agreement with the view taken by the High Court. The appeal
is devoid of any merit. It is dismissed with costs.