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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.