1984 (9) TMI 156 - AT - Income Tax

Summary

Issues Involved:
1. Assessability of amounts received in connection with the sale of sugar.
2. Whether the excess amount received by the assessee constitutes taxable income.
3. Limitation issue regarding the assessment period.

Detailed Analysis:

1. Assessability of Amounts Received in Connection with the Sale of Sugar:

The main issue involved in these consolidated appeals is the assessability of certain amounts received by the assessees, particularly Shri Someshwar Sahakari Sakhar Karkhana Ltd., in connection with the sale of sugar. The facts of this case are representative of the other cases.

Shri Someshwar Sahakari Sakhar Karkhana Ltd., a co-operative society, runs a sugar factory and sells sugar under government schemes that fix sugar prices. The Government fixes the price of sugar at two levels: levy sugar price for 65% of the production and free sugar price for the remaining 35%.

In the 1974-75 season, the Government fixed the price of 'D-29' grade sugar at Rs. 156.99 per quintal, which was later revised to Rs. 140.31 per quintal for the 1975-76 season. The assessee challenged this price reduction through a writ petition, seeking a minimum price of Rs. 187 per quintal. The High Court issued an interim order allowing the assessee to sell sugar at Rs. 156.99 per quintal, subject to certain conditions, including furnishing a bank guarantee for the difference and paying interest if the final price was lower.

2. Whether the Excess Amount Received by the Assessee Constitutes Taxable Income:

The assessee argued that the excess amount received (Rs. 156.99 per quintal minus Rs. 140.31 per quintal) was not taxable income as it was disputed and subject to refund. The ITO, however, treated the entire amount as trading receipts, relying on the Supreme Court decision in Chowringhee Sales Bureau (P.) Ltd. v. CIT.

The Tribunal considered various arguments and precedents, including the Supreme Court decision in E.D. Sassoon & Co. Ltd. v. CIT, which emphasized that income must accrue or arise to be taxable. The Tribunal noted that the excess amount was received under an interim order and was subject to refund with interest, indicating it was not a trading receipt or income.

The Tribunal also referred to the Levy Sugar Price Equalisation Fund Act, 1976, which required surplus receipts to be deposited in a fund, further supporting the argument that the excess amount was not income.

3. Limitation Issue Regarding the Assessment Period:

The assessee raised a preliminary point that the assessment was time-barred. The Tribunal admitted this additional ground but did not provide a finding as the assessee withdrew the ground, focusing instead on the merits of the case.

Conclusion:

The Tribunal concluded that the excess amount received by the assessee was an ad hoc deposit and not taxable income. This conclusion was based on the interim nature of the receipt, the requirement to provide a bank guarantee, and the obligation to refund the amount with interest if the final price was lower. The Tribunal allowed the appeals, holding that the sum of Rs. 25,27,126 was not to be included in the total income for the year.

Separate Judgment by Judicial Member:

The Judicial Member concurred with the decision but emphasized not expressing any opinion on the limitation issue. He supported the conclusion that the excess amounts received were ad interim payments pending final adjudication and did not constitute income. He cited the Calcutta High Court decision in Hindusthan Housing & Land Development Trust Ltd.'s case, which held that compensation amounts not determined or payable did not accrue as income.

The Judicial Member also referred to the Supreme Court's dismissal of a special leave petition in a similar case, supporting the view that amounts kept in suspense accounts pending dispute resolution did not form part of the assessee's income for the year.