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Sri Hiranyakeshi Sahakari Vs. First Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1986)15ITD343(Mad.)
AppellantSri Hiranyakeshi Sahakari
RespondentFirst Income-tax Officer
Excerpt:
1. these appeals are filed by the assessee which is a co-operative sugar mill and they relate to the assessment years 1974-75 to 1980-81.the appeals for 1974-75 to 1979-80 arose out of the common order passed by the commissioner (appeals), belgaum, dated 6-12-1983. the appeal for the assessment year 1980-81 arose out of the order of the commissioner (appeals) dated 8-5-1984. as common questions are involved in these appeals they can be conveniently taken up together and disposed of by this common order.2. the facts leading to these present appeals are as follows. the assessee is a co-operative society running a sugar mill and distillery unit at sankeshwar. the assessment years involved are 1974-75 to 1980-81 for which the previous years are fasli years ending with 30-6-1973 to 30-6-1979,.....
Judgment:
1. These appeals are filed by the assessee which is a co-operative sugar mill and they relate to the assessment years 1974-75 to 1980-81.

The appeals for 1974-75 to 1979-80 arose out of the common order passed by the Commissioner (Appeals), Belgaum, dated 6-12-1983. The appeal for the assessment year 1980-81 arose out of the order of the Commissioner (Appeals) dated 8-5-1984. As common questions are involved in these appeals they can be conveniently taken up together and disposed of by this common order.

2. The facts leading to these present appeals are as follows. The assessee is a co-operative society running a sugar mill and distillery unit at Sankeshwar. The assessment years involved are 1974-75 to 1980-81 for which the previous years are Fasli years ending with 30-6-1973 to 30-6-1979, respectively. The assessments for all these years were completed under Section 143, read with Section 144B, of the Income-tax Act, 1961 ('the Act') as in the opinion of the ITO, the variance between the returned income and the income at which the ITO sought to assess is more than Rs. 1 lakh; 3. The first common ground which arises for consideration in all these appeals is about the 'sugar sales suspense account'. The following amounts were found credited into this account for each of the assessment years under consideration: In the assessee's reply, it was stated that these amounts represent difference between the price paid by the buyers and the price allowed under the Sugar (Price Determination) Orders relevant for each of these accounting years. The Central Government passed Sugar (Price Determination) Orders fixing the price of sugar produced by sugar mills situated in several zones. For instance, one such order is passed in 1972 to cover the price of levy sugar for 1971-72 crop season. The sugar price was fixed differently for each variety of sugar produced by different mills falling under different zones. The assesee sugar mill questioned the Sugar (Price Determination) Order, 1972, which is the earliest which fall for our consideration. A true copy of the said Order is provided at p. 2 to 4 of the paper book furnished to us by the assessee-mill. The said Order was questioned on several grounds, inter alia, by the assessee-mill, before the Mysore High Court in Writ Petition No. 1536 of 1972. During the pendency of said writ petition, the Hon'ble High Court passed an interim Order suspending the operation of the Sugar (Price Determination) Order, 1972 and permitting the assessee-mill to sell levy sugar (e.g., 60 per cent of the total sugar produced) at Rs. 150 per quintal during the pendency of the said petition subject to the condition that the assessee-mill should refund the amount received in excess of the price fixed, in the event, the writ petition is dismissed. Similarly, two Price Determination Orders were passed covering sugarcane crop season of 1977. The first being the Order dated 22-12-1977. The said Order was amended by the amendment dated 1-3-1978 by Sugar (Price Determination for 1977-78 Production) Amendment Order, 1978, and it is the second of the orders passed for 1977-78 crop. The said Orders are hearafter mentioned as Sugar Price Fixation Orders for the sake of brevity. Again the assessee challenged the said Order in Writ Petition Nos. 2730 and 3483 of 1978 before the Karnataka High Court. Interim orders similar to the one extracted above were passed. Copies of the interim orders, thus, passed were furnished at p. 15 and 16 of the paper book furnished to us. As the type of the Orders passed were similar to the one already extracted above, except in some details with which we are not concerned at present it is unnecessary to quote them in exfenso. It is enough for our purposes to note that the Hon'ble Karnataka High Court by those interim orders suspended the operation of the Sugar Price Fixation Orders and allowed the assessee-mill liberty to charge more price for the levy sugar than the price fixed under the Sugar Price Fixation Order passed by the Government. In pursuance of the interim orders, thus, passed in the writ petitions filed by the assessee-mill, it had realised extra price than over the price fixed for levy sugar under the Sugar Price Fixation Order referred to above and the difference between the price fixed under the Sugar Price Fixation Orders and the price actually realised by the assessee-mill, under the interim orders of the High Court, was not considered as part of the turnover of the assessee-mill but was credited into a separate account called 'sugar sales suspense account'.

The particulars of those amounts were already furnished above. The question is whether the amounts deposited in the 'sugar sales suspense account' should be taken to be part of the turnover of the assessee-mill or whether it should not be so considered for purposes of determination of levy of income-tax. Before considering the above point in controversy, we have to bear in mind another important factor, i.e., the Government passed the Levy Sugar Price Equalisation Fund Act, 1976 ('the Fund Act') and it was published in the Gazette of India on 16-2-1976. It is intended to channelise the excess price collected by the sugar mills over the levy price fixed under the Sugar Price Fixation Orders passed by the Government from time to time. Copy of the Fund Act was furnished at p. 19 to 23 of the paper book filed before us. Under Section 3(3) of the Fund Act such excess collections made by the sugar mills should be deposited in levy sugar price equilisation fund created under the Fund Act within 30 days from the commencement of the Act. However, where such collections were made by virtue of the interim orders passed by any Court either before or after the commencement of the said Act, the excess collections need not be credited to the equalisation fund so long as the Court which passed the interim order does not so direct. Under Sub-section (5) of Section 3, such producer who had realised the excess, has to remit it to the equilisation fund only on the final disposal of the proceedings of the Court to the extent it represents any excess realisation as determined by the Court or on any appeal or on revision against the order of the Court. The assessee is called upon to explain why the excess collections were not shown as part of the turnover of the assessee. The assessee came forthwith the explanation that since their claim is more towards price of levy sugar than is allowed the excess amount was not shown as part of the sale price but was credited to a 'suspense account'. It was further submitted that the assessee was challenging the Fund Act in the Hon'ble Supreme Court and so, in any event, this amount represents the disputed liability and the same should not be included in the income of the factory applying the ratio of decision in J.K. Synthetics Ltd. v. O.S. Bajpai ITO [1976] 105 ITR 864 (All.).

4. The lower authorities held that higher price was collected towards sale price of levy sugar and, thus, it forms part of the sale proceeds or turnover of the assessee. If the effect of the subsequent pronouncements of competent Courts necessitates any alteration in the treatment of the excess price collected, then such changes can be affected through suitable modificatory Orders. Till such time, there is no need to deduct any contributions to this fund from profit and loss account. The action of the assessee to credit the disputed amounts in the suspense account is correct but at the same time, the ITO is right to include the same so credited in the income of the assessee for the relevant assessment years.

5. In these second appeals, it is contended that the matter is no longer res integra but, was concluded by the decisions of the Andhra Pradesh High Court and one of such decisions has got the seal of approval from the Hon'ble Supreme Court. It is also contended that the issue was covered by several Tribunal decisions (both Special Bench and Division Benches) of this and other Benches of the Tribunal. In all of them it was held that such credits made to the 'suspense accounts' cannot be taken to have formed part of turnover of the assessee and the amounts representing excess collections cannot be included in the income of the assessee.

6. Under circumstances similiar to this case for the accounting year relevant to the assessment year 1972-73 Nizam Sugar Factory collected and kept in 'suspense account' Rs. 15,36,110. The ITO regarded it as part of turnover and included it in the total income of that assessee for the assessment year 1972-73. Before the AAC, it was contended that the assessee had lost the writ petition filed in the High Court and it had to return the amount of the excess collections. The AAC and the Tribunal deleted the addition. The Tribunal refused to refer the case to the High Court on this point. On a petition filed under Section 256(2) of the Act, the Andhra Pradesh High Court held that the decision of the Tribunal on this point is a decision on a question of fact and denied to call for a statement of the case from the Tribunal. The said order of the Andhra Pradesh High Court was confirmed by the Hon'ble Supreme Court in Special Leave Petition Civil No. 8499 (SC) of 1980 filed before the Hon'ble Supreme Court under article 136 of the Constitution. Copy of the order dated 9-4-1980 passed by the Andhra Pradesh High Court refusing to call for statement of the case and copy of the order of the Supreme Court dated 25-11-1983, dismissing Special Leave Petition Civil No. 8499 of 1980 were filed in a paper compilation before us.

7. Further, references made earlier, on the same point to the Andhra Pradesh High Court, in the case of the same assessee, for the assessment years 1966-67, 1967-68 and 1971-72, were dismissed in Case Referred No. 91 of 1978 by the Hon'ble Andhra Pradesh High Court by its order dated 16-1-1984 following the earlier order of the same High Court dated 25-11-1983, referred to supra and on information that Special Leave Petition referred to supra filed in the Supreme Court, w as dismissed. Copy of the order in Case Referred No. 91 of 1978 was also furnished in the paper compilation filed before us. It is not in dispute that the writ petitions filed by the assessee questioning Sugar Price Fixation Orders, 1972 as well as 1975 and 1977 were all dismissed. The position obtaining now is that the assessee is under an obligation to remit all excess collections noted above within 30 days from disposal of the writ petitions into the equalisation fund.

However, the assessee filed a writ petition before the Hon'ble Supreme Court challenging the validity of the Fund Act.

8. The Special Bench of the Pune Tribunal considered similar question in the case of Shri Someshwar Sahakari Sakhar Karkhana Ltd. v. ITO [1985] 11 ITD 335. In that case, the Special Bench was considering the taxability of excess collections made in pursuance of interim orders passed by the Bombay High Court after admitting the writ petition and staying the operation of the Sugar Price Fixation Order, 1974, pending the writ petition. In the interim orders the Bombay High Court allowed the assessee to charge Rs. 156.99 per quintal as price of levy sugar.

The Special Bench held in their orders as follows: The price of sugar is fixed at Rs. 140.31, which the Government order stipulates. Any excess permitted by the High Court to be drawn under the consent order would be a mere deposit with the assessee.

Lest the assessee should fritter away this money or cause loss to the Government purchaser, the High Court stipulated the production of the bank guarantee. Because the amount is not the price, the High Court also stipulated the payment of interest. We have, therefore, no hesitation in coming to the conclusion that the excess of Rs. 25,27,126 is only a deposit with the assessee to strengthen its financial position against an alleged increase in the cost of sugar production. It cannot be treated as the price of the sugar at all. A mere deposit, not constituting the price of a commodity sold, cannot become the income of the assessee. (p. 348) Adding his own reasons before concurring with the conclusions reached by the learned Vice President, Shri Meenakshi Sundaram, the learned Judicial Member felt that the nature of excess collections in the case before them is akin to an inchoate right to enhanced or additional compensation under the Land Acquisition Act, 1894 and hence, the ratio of the Gujarat High Court in Topandas Kundanmalv. CIT [1978] 114 ITR 237 is clearly applicable. On the said basis, the learned Judicial Member held as follows in the Special Bench decision in Shri Someshwar Sahakari Sakhar Karkhana Ltd.'s case (supra): ". . . Their Lordships further held that if an assessee has got an inchoate right and has not acquired any vested right to enhanced or additional compensation over and above what has been offered to him by the Land Acquisition Officer, it cannot be said that he has a vested and complete right as to the interest on such amount. This case illustrates the true nature of the additional amounts paid under orders of the Court in terms of the consent order and received by the present appellants before us. It shows that this extra amount is paid as a provisional or interim payment pending the final decision of the Court on the price payable to the assessees. It does not have or get the element of a revenue or income or trading receipt till the final decision of the Court." (p. 352) 9. Apart from the above Special Bench decision rendered on this subject, this Tribunal itself decided that such excess realisations should not be taken as part of the turnover in the case of Mysore Sugar Co. Ltd. [IT Appeal No. 640 (Bang.) of 1978-79, dated 12-12-1980].

While doing so, this Tribunal followed the order of the Bombay Bench passed in Salar Jung Sugar Mills Ltd. v. ITO [IT Appeal No. 445 (Bom.) of 1973-74, dated 28-5-1975]. In the latter case, under the Sugar Price Fixation Order passed by the Central Government, the assessee-mill was listed under zone No. 1. In such a case the assessee-mill had to charge only Rs. 145 per quintal for ex-factory levy sugar. For purpose of getting interim directions in the writ petitions filed in the High Court, the assessee-mill prayed that at least it may be considered as a mill falling under zone No. 2 in which case it may be permitted to charge Rs. 161 per quintal of levy sugar. The Karnataka High Court permitted the assessee-mill to charge Rs. 161 per quintal as per its interim Orders which are more or less in similar terms when compared to the Orders with which we are concerned. There also the difference between the levy price fixed under Sugar Price Fixation Order and the price at which the sugar was permitted to be sold under the interim directions of the High Court, namely, Rs. 161 per quintal, was kept in suspense account. The amount, thus, kept in suspense account, namely, Rs. 3,15,280, in the first instance, was not included in the assessee's income by the ITO. The Additional Commissioner revised the ITO's order under Section 263 of the Act and directed the ITO to include the excess collections in the gross income of the asscssee. The assessee filed appeal against the orders of the Additional Commissioner. The matter was transferred to the Bombay Bench which by its orders in Salar Jung Sugar Mills Ltd.'s case (supra) held that the order of the Additional Commissioner cannot be sustained and the amount was not taxable in the hands of the assessee during the assessment year in question. The Tribunal held in Mysore Sugar Co. Ltd.'s case (supra) as follows: " This apart, while there may be some force in the department's contention that the extra amount was actually received by the assessee from its customers during the accounting year in question.

The fact remains that the same was saddled with a liability both in terms of the High Court order and the ultimate notification of the Central Government." Then this Bench noted the ratios of the following decisions--Pope the King Match Factory v. CIT [1963] 50 ITR 495 (Mad.), Kedarnath Jute Mfg.

Co. Ltd. v. CIT [1971] 82 ITR 363 (SC), CIT v. Punjab Oil Mills [1976] 102 ITR 332 (Punj. & Har.), AMI. CIT v. T. Nagireddy & Co. [1976] 105 ITR 669 (AP) and Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC).

This Tribunal having been satisfied that the earlier order of the Bombay Tribunal dated 20-8-1975 referred to supra was decided in accordance with the ratio of all the above decisions, ultimately held by their orders in Mysore Sugar Co. Ltd.'s case (supra) that the earlier decision of the Bombay Tribunal does not call for any reconsideration. The orders passed in Mysore Sugar Co. Ltd.'s case (supra) were furnished at pages 26 to 29 of the paper book and the orders of the Bombay Bench in Salar Jung Sugar Mills Ltd.'s case (supra) is provided at 34A of the paper compilation filed before us.

10. Thus, having had a conspectus view of the matter and having regard to all the above, we hold that the excess collections do not represent part of the turnover of the assessee and there is no justification for inclusion of those amounts in the gross total income of the assessee for each of the assessment years under consideration. The assessee succeeds on this common ground.

11. The next common question which falls for our consideration is whether the amounts credited into molasses storage fund and spirit storage fund can be included in the income of the assessee. The above funds were statutory funds which were created under the statutes passed by the Government. The Government passed Molasses Control Order, 1962.

It was amended, inter alia, by Molasses Control (Amendment) Order, 1972, dated 5-2-1972. This amended order was provided at page 36 of the paper book. Under this amendment, the schedule of the original order was amended and the amended schedule was provided at pages 37 and 3 8 of the paper book which reads as follows: "From the price fixed under the above schedule 33 per cent thereof shall be accounted for and funded separately by the producers, and shall be utilised for erection of adequate storage facilities in accordance with the orders that may be issued by the Central Government for the regulation of such funds." (7) For the schedule, the following schedule shall be substituted, namely:--Below Grade III 1.20 for every 40 kgs. reducing sugar content therein.

Note: For quality of molasses below grade III, the price will be 60 paise for every 40 kgs. reducing sugar content therein.

(2) From the price fixed under the above Schedule for different grades of molasses, the below mentioned amounts shall be accounted for and funded separately and shall be utilised for erection of adequate storage facilities in accordance with the orders that may be issued by the Central Government for the regulation of such funds: From the above, it appears that half the price collected for each grade of molasses should be separately funded by the producers and shall be utilised for erection of adequate storage facilities in accordance with the orders that may be issued by the Central Government for regulation of such fund.

12. Another amendment was brought to the Molasses Control Order, 1961 on 31-10-1975 and the amended order is called Molasses Control (Amendment) Order, 1975. Again the erstwhile schedule was substituted by a new or fresh schedule which is as follows:Below Grade III 3.60 for every 40 kgs. reducing sugar content therein.

Under the same schedule, the following amounts were stated to be constituting amounts collected towards molasses storage fund:Below Grade III 20 paise for every 40 kgs. reducing sugar content therein.

The text of the amended order is furnished at pages 39 to 41 of the paper book filed before us. If we compare the earlier orders with the latter ones the striking feature which may be seen is that though initially the share of storage fund in the sale price used to be more, in the subsequent amendment orders, the share of the fund gradually decreased. The Government might have thought that by 1975 each of the sugar mills might have held considerable amounts towards 'molasses storage fund' and there was no need to order further accumulations at the same pace.

Molasses Control (Amendment) Order, 1972 was furnished at pages 36 to 38 of the paper book.

13. Now let us come to consider ethyl alcohol which we referred as spirit also in this order. The Government passed Ethyl Alcohol (Price Control) Order, 1971. An amendment to the said order was brought out on 5-2-1972 by Ethyl Alcohol (Price Control) Amendment order, 1972. Under the said amended order, Clause 2 of the original order was substituted.

Together with the note, it reads as under: 2. Maximum ex-distillery prices of ethyl alcohol.--After the commencement of this order, no person shall sell ex-distillery any of the grades of ethyl alcohol (industrial alcohol) specified in column (1) of the Table below at a price exceeding the price specified in the corresponding entry in column (2) thereof.(1) (2)I. Absolute alcohol conforming to Rupees two hundred fifty andISI Standard No. 321--1952, naked paise fifty only (Rs. 250.50) perfor equivalent volume at 100 per kilo-litre.cent u/v strength.2. Rectified spirit conforming to ISI Rupees two hundred and fortyStandard No. 323--1959, naked for two and paise thirty-sevenequivalent volume at 100 per cent only (Rs. 242.37) per kilo-litre.v/v strength Note: Those prices include six rupees (Rs. 6.00) per kilo-litre for putting up adequate facilities. This amount shall be separately funded and shall be utilised in accordance with the orders that may be issued for the regulation of such fund.

Copy of the amended order is furnished at page 35 of the paper book. A further amendment was brought in 1975. Copy of the original order containing the amendment of 1975 was provided at pages 42 to 44 of the paper book compilation furnished to us. It would appear that the Table as well as Note 1 thereunder were inserted by Ethyl Alcohol (Price Control) Amendment Order, 1975, whereas Note 2 was inserted by S.O.479(E), dated 11-9-1973, Gazette of India, Extraordinary, Pt. II, Section 3(ii), dated 11-9-1973, p. 1667. The table as well as Note Nos.

1 and 2 which forms part of Ethyl Alcohol (Price Control) Order, 1971, provided at page 42 read as under: 2. Maximum ex-distillery prices of ethyl alcohol.--After the commencement of this order, no person shall sell ex-distillery any of the grades of ethyl alcohol (industrial alcohol) specified in column (1) of the Table below at a price exceeding the price specified in the corresponding entry in column (2) thereof.1. Absolute alcohol conforming to ISI Rupees six hundred andStandard No. 321--1952, naked for sixty-eight and -paise forty-equivalent volume at 100 per cent one only (Rs. 668.41) , perv/v strength.

kilo-litre.2. Rectified spirit conforming to ISI Rupees six hundred andStandard No. 323--1959, naked for twenty-two and paise twentyequivalent volume at 100 per cent v/v strength.

only (Rs. 622.20) per kilo-litre.3. Rectified spirit conforming to SI Rupees five hundred andStandard No. 323--1959, naked for eighty and paise ten onlyequivalent volume at 94.68 per cent (Rs. 580.10) per kilo-litre.v/v strength.

Note 1: These prices include six rupees (Rs. 6.00) per kilo-litre for putting up adequate storage facilities. This amount shall be separately funded and shall be utilised in accordance with the orders that may be issued for the regulation of such funds.

Note 2: The separate fund referred to in Note 1 shall not be utilised except in accordance with the permission of the Excise Commissioner and shall not be alienated or encumbered.

The question which falls for consideration is whether either or both the amounts remitted into molasses storage fund or ethyl alcohol storage fund, for each of the accounting years relevant to the assessment years, now under consideration before us, can be included as part of the gross total income of the assessee. The amounts so remitted to each of these funds in each of the relevant accounting years are as follows:Accounting year Amount remitted into Amount remitted into molasses storage fund ethyl alcohol storage fund Rs. Rs.1974-75 61,253 17,0091975-76 30,604 32,5861976-77 53,906 24,1941977-78 2,90,737 36,3641978-79 3,99,294 20,5961979-80 3,03,453 27,7021980-81 4,58,998 34,241 For the assessment year 1974-75, the ITO at the time of framing draft assessment order found that the assessee had shown Rs. 1,85,616 as the figure of purchases of molasses in the trading account of the distillery unit. However, in the trading account of the sugar factory the value of the molasses supplied to the distillery unit was noted at Rs. 1,24,363. When the assessee was asked to explain the discrepancy, it came forthwith the explanation that the difference represents the amount credited to the 'molasses storage fund'. The ITO did not accept the explanation but merely dismissed it saying that the appropriation is unwarranted on any principle and added Rs. 61,253 to the returned income.

14. While assailing the addition before the IAC, the assessee produced Molasses Control (Amendment) Order, dated 31-10-1975 on the basis of which he tried to justify the appropriation. The IAC while giving directions under Section 144B(4) held that the order produced was dated 31-10-1975, whereas the accounting year ended on 30-6-1973. Therefore, he concluded that the order produced before him does not apply to the assessment year in question. Another reason given in support of the addition was that it is only a creation of fund and it is not an expenditure at all. Ultimately, he dismissed the plea of the assessee even on merits.

15. As regards spirit storage fund at the time of the draft assessment for the assessment year 1974-75, the ITO found an amount of Rs. 17,009 has been credited directly to this fund from the sale proceeds of the spirit. The ITO found it without basis and added it to the returned income. When the matter figured before the IAC the assessee brought to his notice the Ethyl Alcohol Price Control (Amendment) Order, dated 5-2-1972, especially, the Note under the table given in column 2 of the said order which is already extracted above. On the basis of the said Note, it was argued that the fund was created for meeting the requirements of the Government order. This argument did not appeal to the IAC. He observed while confirming the addition proposed as follows: But then it would be observed that this is only a fund, a provision and not a regular expenditure as such. Even though it is a mandatory order issued by the Government of India, this is not an expenditure at all which can be allowed as a revenue deduction in the assessment order." 16. When the matter came up in appeal before the Commissioner (Appeals), it is argued with regard to the difference of Rs. 61,523 relevant for the assessment year 1974-75 that this amount was transferred to the molasses storage fund created under the Government order dated 5-2-1972, whereby an amount of 33 paise for 100 kgs. of molasses sold should be transferred to the said fund. It is further contended that this being a statutory obligation, the amount in question cannot be treated as the income of the assessee. Relying upon the ratio of the Bombay High Court's decision in CIT v. Bombay State Road Transport Corpn. [1977] 106 ITR 303 it was requested that the addition may be deleted.

17. The Commissioner (Appeals) held that the ITO's finding that the appropriation cannot be justified is at once wrong. He felt that the appropriation towards molasses storage fund is correct. But, according to him, the real question is whether the said fund cannot be taken into consideration while computing the total income of the assessee. He accepted that it is a statutory liability but, at the same time it had not reduced the total income of the assessee. All funds created under statutory obligations cast, need not always necessarily constitute deductions from total income. The discharge of an obligation of a salaried employee to provide a minimum percentage of his salary towards GPF is not being allowed as a deduction. After citing this comparison the Commissioner (Appeals) sustained the addition.

18. Almost similar arguments were advanced and the learned Commissioner (Appeals) for the same reasons which he had given with regard to molasses storage fund, declined to interfere with the ITO's addition, with regard to the amounts credited to the 'spirit storage fund' also.

19. The ITO, the IAC and the learned Commissioner (Appeals) all followed the same reasons followed by them for the assessment year 1974-75 for disallowing the amounts credited both to the molasses storage fund as well as spirit storage fund for the assessment years 1975-76 to 1980-81. Except change of figures, the position emerged even for those assessment years remain the same. Hence, it is quite unnecessary, except to the above extent, to deal with the disallowances for the assessment years 1975-76 to 1980-81, under the two heads.

20. When the disallowances under these two heads came up for consideration before this Tribunal, it was submitted for the assessee-mill that the amounts credited in each of the relevant accounting years to the molasses storage fund and spirit storage fund cannot be considered as income of the assessee. Both of them are funds created under different statutes and to provide funds under the statutes should be considered as liability of the assessee-society. The assessee had no power to spend out of the funds thus created.

Therefore, the funds have no income character in them. On the other hand, the learned departmental representative argued that though they are statutory funds, still the amounts credited into those funds do not cease to be the income of the assessee inasmuch as, when storage facilities were provided by spending the amounts lying in those funds, the assets thus created, instantly became the capital assets of the assessee. The amounts thus spent from out of the funds do not represent any outgoing at the hands of the assessee and, therefore, the amounts lying in the funds should be considered only as part of the income of the assessee. The learned departmental representative tried to distinguish the decision of the Bombay High Court relied upon by the assessee, namely Bombay State Road Transport Corpn.'s case (supra). In that case the Bombay State Road Transport Corporation was obliged to contribute to the insurance fund in accordance with Rule 11 of the Bombay State Road Transport Corporation Rules, 1952 in order to cover the third party risks. The said fund is created with a view to meet any liability arising out of the use of any vehicle of the corporation when either the corporation or any person in the employment of the corporation may incur towards third party. The learned departmental representative argued that in the Bombay High Court case the amount lying in the insurance fund goes out of the hands of the assessee and at no time it would convert itself into an asset of the corporation, whereas, in the present case, soon after the storage facility is provided, it would become an asset of the assessee-society. The Bombay High Court followed an earlier decision of the same High Court Amalgamated Electricity Co. Ltd. v. CIT [1914] 97 ITR 334. In that case, the assessee-company was obliged to keep a reserve called 'tariff and dividends control reserve'. There also, it was a statutory reserve and after going through the nature of the reserve considered by the Bombay High Court, we feel that the nature of the reserve is more or less the same, as that of the amounts credited into the two types of funds, now before us. However, the Bombay High Court considered the nature of the reserve and held the following, while answering that the amounts credited into the said reserve should be allowed as a deduction to the assessee-company decision: ...But normally the tariffs are so required to be fixed by the licensee that 'clear profit' in any year of account does not exceed the amount of 'reasonable return'. Therefore, the contingency of making transfers to this reserve under sub-paragraph (2) of paragraph II would be a marginal, if not remote, possibility and even when such contingency arises and, transfers are made to this reserve, as stated earlier, the real purpose served by such reserve is to see that the tariffs charged to consumers are not high and are maintained at reasonable level. Having regard to these aspects of the reserve to which transfers or appropriations have been made by the assessees concerned in the relevant years, we feel that the amounts so credited to this reserve also will have to be deducted while computing or determining the real profits of the assessees.

Therefore, the question so far as it relates to the amounts that have been credited to the tariffs and dividends control reserve is accordingly answered in favour of the assessee. Having regard to the above discussion, we answer question No. 4 in the negative and in favour of the assessee. (p. 349) In reply, the learned counsel for the assessee submitted that as and when the amounts were drawn for purposes of providing storage facility either for storing molasses or for storing ethyl alcohol in the factory premises of the assessee-society, then to the extent of the drawal from these two funds, it may be considered as the income of the assessee-society in those years. Thus, we have considered the arguments on both sides.

21. The term 'income' is elusive and escapes any precise definition and for that reason nobody attempted to define it. However, in our considered opinion one of the characteristics of the word 'income' is the power or complete control over its disposal. If some fetters were placed over legitimate or legal spending of the income as one likes, it cannot be said that the amount suffering the fetters can be called 'income'. If shackles or restrictions were placed over legitimate spending of income, then in our opinion, it loses the character of income. Income locked up or which is not available for instant use takes away some essential characteristic of income and the constraint placed prevents us to call it income. Income should have possessed the characteristic of being available either for revenue expenditure or to acquire a capital asset. Any amount which is not available to spend either way cannot be called 'income' properly called. It becomes income only in the year in which and to the extent to which the restrictions were removed and the permission to spend the amount was granted and by spending certain income if the assessee acquires a capital asset then it can be legitimately called as income in the year in which such capital asset comes into existence.

22. This matter was already dealt with and decided by the Tribunal in Chamundeswari Sugars Ltd. v. ITO [IT Appeals Nos. 258 and 259 (Bang.) of 1983]. In that case, the following was held by the Tribunal in paragraph 7: "We have considered the rival submissions. An identical question was considered by the Madras Bench 'B' of the Tribunal in its orders dated 31-8-1977 in IT Appeal No. 1675 (Mad.) of 1976-77. It was held therein that the transfer to separate fund under the Molasses Control (Amendment) Order, 1972 dated 5-2-1972 cannot be treated as assessee's income. In the instant case also, the amount transferred to molasses storage fund is only under Molasses Control (Amendment) Order, 1972 dated 5-2-1972 considered in the order of the Madras Bench 'B' of the Tribunal (sic). Thus, the above decision squarely applies to the facts of the instant case. In the above order, the Tribunal followed the decision of the Supreme Court in CIT v. Tollygunj Club Ltd. [1977] 107 ITR 776. In our view, the decisions relied on behalf of the revenue in Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66 (SC) (sic) have no application to the facts of the instant case. Following with respect the order dated 31-8-1977 of the Madras Bench of the Tribunal, we hold that the amount transferred to the molasses storage fund cannot be treated as assessee's income. Thus, we allow the assessee's claim in both these years." What was held both by the Madras Tribunal as well as by this Tribunal about molasses storage fund equally applies or holds good even with regard to 'spirit storage fund'. The amounts credited to these two funds came not from the clear profits but from the sale proceeds realised by the sale of molasses and ethyl alcohol, respectively.

Therefore, in our opinion, there was no scope to argue that the funds represent merely appropriation of profits and application of income.

Therefore, we hold that the amount which was credited to this molasses storage fund and spirit storage fund as part of the statutory obligation cast on the assessee came from out of the sale proceeds of molasses and ethyl alcohol effected in each of the accounting years under consideration and they should not be taken as income of the assessee in the relevant assessment years.

23. However, the amount or amounts directed or permitted to be spent from out of those two funds by the orders of the Government for providing storage facilities either to stock molasses or ethyl alcohol should be considered as income of the assessee in the year or years in which such direction or permission Was granted by the Government. In fact this position is conceded by the assessee's counsel before us. It is not the case of the department that any portion from out of the two types of funds were ordered or allowed to be utilised in any of the previous years relevant to any of the assessment years under consideration. We, therefore, delete the amounts mentioned in the above table from being considered as income of the assessee for the assessment years 1974-75 to 1980-81.

24 to 38. [These paras are not reproduced here as they involve minor issues.]


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