2004 (10) TMI 578 - HC - Income Tax

Molasses storage fund collected out of sale proceeds of molasses as per law cannot be included in Income of Assessee - Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that the sum of 10, 69, 542 credited to molasses storage fund out of the sale proceeds of molasses was to be included in the income of the appellant

Summary

Issues:
1. Inclusion of sum credited to molasses storage fund in the income of the appellant.

Analysis:
1. The assessed, a public limited company engaged in manufacturing, was required to maintain a molasses storage fund under specific orders. The assessed had no control over the fund once deposited, as per the order's requirements.

2. The Court referred to various decisions, including CIT v. Salem Co-operative Sugar Mills Ltd., to support the assessed's position. These decisions emphasized the diversion of title at the source of income collected for the molasses storage fund, indicating that the fund did not belong to the assessed and could not be utilized for other purposes.

3. The Court highlighted that the assessed was directed to collect a specific amount for the molasses storage fund, which did not belong to the assessed but was meant for constructing a storage tank as per government specifications. The fund's ownership and control lay outside the assessed's domain, leading to a diversion of title at the source itself.

4. The Court noted the dismissal of special leave petitions and civil appeals related to similar cases, reinforcing the consistent legal stance on the issue. The judgment in favor of the assessed was supported by the Madras High Court's decision and other High Court rulings, indicating a clear legal precedent.

5. Quoting relevant portions from the Salem Co-operative Sugar Mills Ltd. case, the Court reiterated that the assessed's lack of control over the molasses storage fund distinguished it from a contingency reserve. The fund's specific purpose and the assessed's limited authority over it supported the conclusion of diversion by overriding title at the fund's source.

6. Ultimately, the Court ruled in favor of the assessed in all appeals, holding that the sum credited to the molasses storage fund should not be included in the appellant's income, thereby deciding against the Revenue in this matter.