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Interpretation of taxable income regarding excess price charged on sales of tractors by the assessee during assessment years 1972-73 and 1973-74. Detailed Analysis: The case involved a reference under section 256(1) of the Income Tax Act, 1961, where the Appellate Tribunal referred a question of law to the High Court regarding the treatment of sums received by the assessee from customers during the assessment years 1972-73 and 1973-74. The issue was whether the amounts transferred to a deposit account by the assessee, representing the excess price charged on sales of tractors, should be considered as taxable income (para 1). The assessee, a government company engaged in agro-industries, earned income through commission on sales of tractors purchased from a supplier. The assessee had charged a higher price for the tractors than what was billed by the supplier, leading to an excess amount that was kept in a deposit account. The Income Tax Officer (ITO) initially treated these amounts as income of the assessee. However, the Appellate Assistant Commissioner (AAC) overturned this decision, stating that the excess amounts were to be refunded and did not constitute income (para 2). Upon appeal by the Department, the Tribunal upheld the AAC's decision, ruling that the amounts kept in the deposit account were not the income of the assessee but were meant for refunding to the supplier or farmers. The Tribunal dismissed the Department's appeals, leading to the current reference before the High Court (para 3). In the High Court's analysis, it was emphasized that the true nature and quality of the receipt determine whether it should be considered as income. The Court referred to a Supreme Court decision stating that amounts not initially received as income could not later become income. In this case, since the excess amounts were provisional and subject to refund, they did not qualify as trading receipts or taxable income for the assessee (para 4). The Department argued that the excess amounts were trading receipts and should be taxed. However, the High Court distinguished a previous decision cited by the Department, stating that in the present case, the excess amounts did not represent taxable income. Therefore, the Court held in favor of the assessee, ruling that the sums in question did not constitute taxable income for the relevant assessment years (para 5). In conclusion, the High Court answered the question referred to it in the affirmative, holding that the excess amounts transferred to the deposit account by the assessee were not taxable income. Each party was directed to bear its own costs in the reference proceedings (para 6).
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