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TMI Blog1985 (9) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... 43, read with section 144B, of the Income-tax Act, 1961 ('the Act') as in the opinion of the ITO, the variance between the returned income and the income at which the ITO sought to assess is more than Rs. 1 lakh. 3. The first common ground which arises for consideration in all these appeals is about the 'sugar sales suspense account'. The following amounts were found credited into this account for each of the assessment years under consideration : Assessment year Amount credited into sugar sales suspense account 1974-75 26,13,016 1975-76 169 1977-78 15,32,846 1979-80 51,78,748 1980-81 10,000 In the assessee's reply, it was stated that these amounts represent difference between the price paid by the buyers and the price allowed under the Sugar (Price Determination) Orders relevant for each of these accounting years. The Central Government passed Sugar (Price Determination) Orders fixing the price or sugar produced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interim orders, thus, passed in the writ petitions filed by the assessee-mill, it had realised extra price than over the price fixed for levy sugar under the Sugar Price Fixation Order referred to above and the difference between the price fixed under the Sugar Price Fixation Orders and the price actually realised by the assessee-mill, under the interim orders of the High Court, was not considered as part of the turnover of the assessee-mill but was credited into a separate account called 'sugar sales suspense account'. The particulars of those amounts were already furnished above. The question is whether the amounts deposited in the 'sugar sales suspense account' should be taken to be part of the turnover of the assessee-mill or whether it should not be so considered for purposes of determination of levy of income-tax. Before considering the above point in controversy, we have to bear in mind another important factor, i.e., the Government passed the Levy Sugar Price Equalisation Fund Act, 1976 ('the Fund Act') and it was published in the Gazette of India on 16-2-1976. It is intended to channelise the excess price collected by the sugar mills over the levy price fixed under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econd appeals, it is contended that the matter is no longer res integra but, was concluded by the decisions of the Andhra Pradesh High Court and one of such decisions has got the seal of approval from the Hon'ble Supreme Court. It is also contended that the issue was covered by several Tribunal decisions (both Special Bench and Division Benches) of this and other Benches of the Tribunal. In all of them it was held that such credits made to the 'suspense accounts' cannot be taken to have formed part of turnover of the assessee and the amounts representing excess collections cannot be included in the income of the assessee. 6. Under circumstances similar to this case for the accounting year relevant to the assessment year 1972-73 Nizam Sugar Factory collected and kept in 'suspense account' Rs. 15,36,110. The ITO regarded it as part of turnover and included it in the total income of that assessee for the assessment year 1972-73. Before the AAC, it was contended that the assessee had lost the writ petition filed in the High Court and it had to return the amount of the excess collections. The AAC and the Tribunal deleted the addition. The Tribunal refused to refer the case to the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special Bench held in their orders as follows : "The price of sugar is fixed at Rs. 140.31, which the Government order stipulates. Any excess permitted by the High Court to be drawn under the consent order would be a mere deposit with the assessee. Lest the assessee should fritter away this money or cause loss to the Government purchaser, the High Court stipulated the production of the bank guarantee. Because the amount is not the price, the High Court also stipulated the payment of interest. We have, therefore, no hesitation in coming to the conclusion that the excess of Rs. 25,27,126 is only a deposit with the assessee to strengthen its financial position against an alleged increase in the cost of sugar production. It cannot be treated as the price of the sugar at all. A mere deposit, not constituting the price of a commodity sold, cannot become the income of the assessee." Adding his own reasons before concurring with the conclusions reached by the learned Vice President, Shri Meenakshi Sundaram, the learned Judicial Member felt that the nature of excess collections in the case before them is akin to an inchoate right to enhanced or additional compensation under the Land Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, namely, Rs. 161 per quintal, was kept in suspense account. The amount, thus, kept in suspense account, namely, Rs. 3,15,280, in the first instance, was not included in the assessee's income by the ITO. The Additional Commissioner revised the ITO's order under section 263 of the Act and directed the ITO to include the excess collections in the gross income or the assessee. The assessee filed appeal against the orders of the Additional Commissioner. The matter was transferred to the Bombay Bench which by its orders in Salar Jung Sugar Mills Ltd.'s case held that the order of the Additional Commissioner cannot be sustained and the amount was not taxable in the hands of the assessee during the assessment year in question. The Tribunal held in Mysore Sugar Co. Ltd.'s case as follows : "This apart, while there may be some force in the department's contention that the extra amount was actually received by the assessee from its customers during the accounting year in question. The fact remains that the same was saddled with a liability both in terms of the High Court order and the ultimate notification of the Central Government." Then this Bench noted the ratios of the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.) Grade I 2.00 per 100 kgs. Grade II 1.60 per 100 kgs. Grade III 1.20 per 100 kgs. Below Grade III 1.20 for every 40 kgs. reducing sugar content therein. Note : For quality of molasses below grade III, the price will be 60 paise for every 40 kgs. reducing sugar content therein. (2) From the price fixed under the above Schedule for different grades of molasses, the below mentioned amounts shall be accounted for and funded separately and shall be utilised for erection of adequate storage facilities in accordance with the orders that may be issued by the Central Government for the regulation of such funds : Grade I Re. 1.00 per 100 kgs. Grade II 80 paise per 100 kgs. Grade III 60 paise per 100 kgs. From the above, it appears that half the price collected for each grade of molasses should be separately funded by the producers and shall be utilised for erection of adequate storage facilities in accordance with the orders that may be issued by the Central Government for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial alcohol) specified in column (1) of the Table below at a price exceeding the price specified in the corresponding entry in column (2) thereof. TABLE (1) (2) 1. Absolute alcohol conforming to Rupees two hundred fifty and ISI Standard No. 321-1952, naked paise fifty only (Rs. 250.50) per for equivalent volume at 100 per kilo-litre. cent u/v strength. 2. Rectified spirit conforming to ISI Rupees two hundred and forty Standard No. 323-1959, naked for two and paise thirty-seven equivalent volume at 100 per cent only (Rs. 242.37) per kilo-litre. v/v strength Note : Those prices include six rupees (Rs. 6.00) per kilo-litre for putting up adequate facilities. This amount shall be separately funded and shall be utilised in accordance with the orders that may be issued for the regulation of such fund." Copy of the amended order is furnished at page 35 of the paper book. A further amendment was brought in 1975. Copy of the original order containing the amendment of 1975 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years, now under consideration before us, can be included as part of the gross total income of the assessee. The amounts so remitted to each of these funds in each of the relevant accounting years are as follows : Accounting year Amount remitted into Amount remitted into molasses storage fund ethyl alcohol storage fund Rs. Rs. 1974-75 61,253 17,009 1975-76 30,604 32,586 1976-77 53,906 24,194 1977-78 2,90,737 36,364 1978-79 3,99,294 20,596 1979-80 3,03,453 27,702 1980-81 4,58,998 34,241 For the assessment year 1974-75, the ITO at the time of framing draft assessment order found that the assessee had shown Rs. 1,85,616 as the figure of purchases of molasses in the trading account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the molasses storage fund created under the Government order dated 5-2-1972, whereby an amount of 33 paise for 100 kgs. of molasses sold should be transferred to the said fund. It is further contended that this being a statutory obligation, the amount in question cannot be treated as the income of the assessee. Relying upon the ratio of the Bombay High Court's decision in CIT v. Bombay State Road Transport Corpn. [1977] 106 ITR 303 it was requested that the addition may be deleted. 17. The Commissioner (Appeals) held that the ITO's finding that the appropriation cannot be justified is at once wrong. He felt that the appropriation towards molasses storage fund is correct. But, according to him, the real question is whether the said fund cannot be taken into consideration while computing the total income of the assessee. He accepted that it is a statutory liability but, at the same time it had not reduced the total income of the assessee. All funds created under statutory obligations cast, need not always necessarily constitute deductions from total income. The discharge of an obligation of a salaried employee to provide a minimum percentage of his salary towards GPF is not being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 of the Bombay State Road Transport Corporation Rules, 1952 in order to cover the third party risks. The said fund is created with a view to meet any liability arising out of the use of any vehicle of the corporation when either the corporation or any person in the employment of the corporation may incur towards third party. The learned departmental representative argued that in the Bombay High Court case the amount lying in the insurance fund goes out of the hands of the assessee and at no time it would convert itself into an asset of the corporation, whereas, in the present case, soon after the storage facility is provided, it would become an asset of the assessee-society. The Bombay High Court followed an earlier decision of the same High Court Amalgamated Electricity Co. Ltd. v. CIT [1974] 97 ITR 334. In that case, the assessee-company was obliged to keep a reserve called 'tariff and dividends control reserve'. There also, it was a statutory reserve and after going through the nature of the reserve considered by the Bombay High Court, we feel that the nature of the reserve is more or less the same, as that of the amounts credited into the two types of funds, now before us. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for instant use, takes away some essential characteristic of income and the constraint placed prevents us to call it income. Income should have possessed the characteristic of being available either for revenue expenditure or to acquire a capital asset. Any amount which is not available to spend either way cannot be called 'income' properly called. It becomes income only in the year in which and to the extent to which the restrictions were removed and the permission to spend the amount was granted and by spending certain income if the assessee acquires a capital asset then it can be legitimately called as income in the year in which such capital asset comes into existence. 22. This matter was already dealt with and decided by the Tribunal in Chamundeswari Sugars Ltd. v. ITO [IT Appeals Nos. 258 and 259 (Bang.) of 1983]. In that case, the following was held by the Tribunal in paragraph 7 : "We have considered the rival submissions. An identical question was considered by the Madras Bench 'B' of the Tribunal in its orders dated 31-8-1977 in IT Appeal No. 1675 (Mad.) of 1976-77. It was held therein that the transfer to separate fund under the Molasses Control (Amendment) Order, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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