1958 (11) TMI 4 - SC - Income Tax

Whether on the facts and circumstances of the case the collections by the assessee company described in its accounts as empty bottle return security deposits were income assessable under section 10 of the Income-tax Act ? Held that - Having given the matter our anxious consideration which the difficulties involved in it require, we think that the correct view to take is that the amounts paid to the appellant and described as Empty Bottles Return Security Deposit were trading receipts, and therefore income of the appellant assessable to tax. We agree with the High Court that the question framed for decision in this case, should be answered in the affirmative. Appeal dismissed.

Issues Involved:
1. Whether the collections by the assessee company described as "empty bottle return security deposits" were income assessable under section 10 of the Income-tax Act.
2. Whether these amounts were trading receipts.
3. The nature of the amounts received as security deposits for the return of bottles.
4. Comparison with precedents like Davies v. Shell Company of China Ltd. and K. M. S. Lakshmanier & Sons v. Commissioner of Income-tax and Excess Profits Tax, Madras.
5. The impact of the method of refund on the nature of the deposits.

Issue-wise Detailed Analysis:

1. Whether the collections by the assessee company described as "empty bottle return security deposits" were income assessable under section 10 of the Income-tax Act:
The High Court answered in the affirmative, and the Supreme Court upheld this decision. The court determined that the amounts described as "empty bottle return security deposits" were indeed income assessable under section 10 of the Income-tax Act. The court considered these amounts as part of the trading receipts of the appellant, concluding that they were part of the consideration for the sale of bottled liquor.

2. Whether these amounts were trading receipts:
The court held that the additional sums described as security deposits were trading receipts. The appellant's trade involved selling bottled liquor, and the consideration for each sale included the price of the liquor, the price of the bottles, and the security deposit. The court stated, "the amount which was called security deposit was actually a part of the consideration for the sale and therefore part of the price of what was sold."

3. The nature of the amounts received as security deposits for the return of bottles:
The court found that these amounts were not security deposits in the true sense, as there was no obligation on the wholesalers to return the bottles. The court noted, "There could be no security given for the return of the bottles unless there was a right to their return." The court emphasized that the wholesalers were under no obligation to return the bottles, making the so-called security deposits part of the trading receipts.

4. Comparison with precedents like Davies v. Shell Company of China Ltd. and K. M. S. Lakshmanier & Sons v. Commissioner of Income-tax and Excess Profits Tax, Madras:
The court distinguished the present case from Davies v. Shell Company of China Ltd., where the deposits were not considered trading receipts because they were part of the company's trading structure and not part of trading transactions. In contrast, the amounts in the present case were integral to the trading transactions. The court found the present case more similar to the second period arrangement in K. M. S. Lakshmanier & Sons v. Commissioner of Income-tax and Excess Profits Tax, Madras, where the initial payments were considered trading receipts. The court stated, "The amounts involved in the present case were exactly of the nature of the deposits made in the second period in Lakshmanier & Sons case."

5. The impact of the method of refund on the nature of the deposits:
The court held that the method of refund did not alter the nature of the deposits as trading receipts. The court stated, "The fact that in certain circumstances these amounts had to be repaid did not alter their nature as trading receipts." The court emphasized that the amounts were part of the consideration for the sale of liquor, and their refundability did not change their character as trading receipts.

Conclusion:
The Supreme Court concluded that the amounts described as "empty bottle return security deposits" were trading receipts and therefore assessable as income under section 10 of the Income-tax Act. The appeal was dismissed, and the appellant was ordered to pay the costs.

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