2001 (9) TMI 62 - HC - Income Tax

Summary

Issues Involved:

1. Deduction of amounts utilized for the creation of the molasses storage fund.
2. Deduction of interest credited to the molasses storage fund account.
3. Exclusion of contributions to the molasses storage fund from the assessable income of the assessee.

Issue-Wise Detailed Analysis:

1. Deduction of Amounts Utilized for the Creation of the Molasses Storage Fund:

The primary issue was whether the amounts credited to the molasses storage fund account should be included in the total income of the assessee. The court referred to the Molasses Control Order, 1961, amended by the Molasses Control Order, 1972, which mandated that 1/3rd of the sale price of molasses be funded separately for the erection of storage facilities. The Tribunal had previously ruled that these amounts represented a diversion of income at the source, thus not part of the assessee's income. The Revenue argued that the assessee retained control over these funds, which should be included in the total income. However, the court found that the amounts were diverted at the source and credited to a separate account, controlled by the Central Government, thus not forming part of the assessee's income.

2. Deduction of Interest Credited to the Molasses Storage Fund Account:

The second issue was whether interest credited to the molasses storage fund account should be allowed as a deduction. The Tribunal allowed the deduction, reasoning that the interest was also part of the statutory obligation under the Molasses Control Order. The Revenue contended that since the assessee had control over the fund, the interest should be included in the income. The court upheld the Tribunal's decision, emphasizing that the interest credited to the fund was also part of the statutory diversion and thus not part of the assessee's income.

3. Exclusion of Contributions to the Molasses Storage Fund from the Assessable Income of the Assessee:

The third issue was whether contributions made to the molasses storage fund for specific assessment years should be excluded from the assessable income. The Tribunal had ruled in favor of exclusion, citing that the contributions were a statutory obligation and thus diverted at the source. The Revenue argued that the assessee retained control over the funds and thus should be included in the income. The court reiterated that the contributions were diverted at the source and controlled by the Central Government, thus not forming part of the assessee's income.

Common Judgment:

The court referred to various precedents, including decisions from the Bombay, Karnataka, and Madras High Courts, which supported the view that statutory obligations leading to the creation of specific funds (like the molasses storage fund) result in a diversion of income at the source. The court distinguished these cases from others cited by the Revenue, where funds were not statutorily mandated or where the assessee retained control over the funds.

Conclusion:

The court concluded that the amounts credited to the molasses storage fund account, including interest, and the contributions made for specific assessment years, were not part of the assessee's income due to statutory diversion at the source. The questions referred were answered in the affirmative, in favor of the assessee, and against the Revenue.