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TMI Blog2002 (5) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... sment years. - - - - - Dated:- 28-5-2002 - Judge(s) : RAJESH BALIA., F. C. BANSAL. JUDGMENT The judgment of the court was delivered by R. BALIA J.-These two income-tax references arise out of a common order passed by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, in I.T.A. No. 708/709 (JP) of 1984 for successive assessment years 1979-80 and 1980-81 and common questions arise in these two reference applications except difference in the amount in question in each assessment year. The facts in the context of which these questions have been raised remain the same, therefore, they are being heard and decided together. The assessee-company was manufacturing and selling soft drinks under a licence issued by Coca-Cola Export Corporation, USA. For the manufacture of the soft drinks, the concentrate was provided by the Coco-Cola Export Corporation. The arrangement of providing concentrate by the company was disrupted for reasons, which are not germane. As a result of which the bottles with marking of "Coca-Cola" and "Fanta" the two products, in which soft drink was marketed earlier remained with the assessee. As a result of disruption of this arrangement, a letter was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot acceptable to you. In token of your acceptance please sign the duplicate copy of this letter enclosed herewith and return the same by registered post or hand delivery so as to reach this office before 5 p.m. on February 15, 1978. Yours faithfully, (Sd.) Bipin Mathur, Resident Manager." In pursuance of this letter stocks of Coca-Cola and Fanta bottles which had remained with the assessee-company were destroyed. As a result of this, the assessee-company received Rs. 2,75,000 in the previous year relating to the assessment year 1979-80 and Rs. 38,500 was received in the previous year relating to the assessment year 1980-81. Income-tax Reference No. 24 of 1989 relates to the assessment year 1979-80 and Income-tax Reference No. 23 of 1989 relates to the assessment year 1980-81. In the two assessment years, the assessee has claimed that the aforesaid amount received from Coca-Cola Export Corporation was an ex gratia payment and was in the nature of capital receipt, which was not includible in the taxable income of the assessee. However, the Assessing Officer considered the amount received by the assessee on destruction of the bottles as revenue receipts chargeable to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pay any amount in respect of these bottles to the assessee. It was only by way of rendering some assistance to its dealers in India, who were facing financial difficulties because of the non-availability of Coca-Cola concentrate for the bottling of which the plants were settled in India that an ex gratia offer of compensation was made to the bottlers in India. The measure of ex gratia assistance extended to its dealers in India by the Corporation was related to the stocks of bottles of Coca-Cola and Fanta remaining with the bottlers subject to a maximum ceiling of Rs. 2,75,000. Except for rendering financial assistance no other consideration prevailed for paying the ex gratia sum to the bottlers by the Corporation. The principle of measuring such compensation cannot be raised to the height of treating it to be payment for the bottles remaining with the bottlers or compensation for its destruction so as to invite operation of section 41(2) of the Income-tax Act, 1961, to bring balancing charge to tax. An analogy was sought to be drawn by learned counsel with the principle on which subsidy extended by the Government in the interest of economic growth to different industries, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the letter discloses the real intent and object of the transaction offered. It termed that the Corporation was not prepared to purchase the bottles remaining in possession with the assessee, however it also accepted that bottlers were facing financial constraints because of the non-availability of Coca-Cola concentrate. It cannot be doubted that the special type of bottles with the print of brand name was acquired by the assessee solely for the purpose of the business of bottling and selling Coca-Cola and Fanta. According to learned counsel himself the agreement required that on closure of the transaction the bottles would not be purchased by the Corporation. Apparently, when investment was made by the assessee for building the plant and for carrying on business became part of his business asset, on closure of the business he could have sold the bottles in the market. The mechanism devised for dealing with such bottles, which may ensure the security of the Corporation's business interest and the assessee's interest by not placing the burden of carrying assets without its authority to market that the assessee destroyed all those bottles and for such destruction the Corporati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due." From the facts found by the Tribunal it is clear that the bottles in question were plant owned by the assessee and where used by him for his business. During the two relevant years the said bottles were destroyed and in respect of destroying of such bottles the moneys became payable to the assessee from Coca-Cola Export Corporation and the same were received by the assessee. The assessee has claimed deduction on account of depreciation in respect of such plant. The assessee was entitled to retain cullet of the destroyed bottle and encash the same by selling it. All the ingredients inviting applicability of section 41(2) are present in the case. Therefore, moneys receivable by the assessee along with scrap value of cullet, if any, was chargeable to income-tax as income of the assessee for the previous year relevant to the assessment years 1979-80 and 1980-81, respectively, during which the amount has became due. The decisions relied on by learned counsel are of little help to hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has been disrupted on account of non-supply of concentrate by the Corporation. In these circumstances, where Corporation was not willing to accept the bottles by purchase, but at the same time, in the agreement the bottles could not be sold in the open market by the assessee also, therefore, the destruction of capital assets was brought about at the instance of the Corporation on a compensation payable by it. It is very akin to the compensation recovered from the insurance company on destruction of depreciable assets. Another decision on which reliance was placed by learned counsel in CIT v. Bombay Burmah Trading Corporation [1986] 161 ITR 386 (SC) also does not assist the cause of the assessee. It was a case in which on account of premature determination of the forest lease granted by the Government of Burmah because of the situation arisen as a result of the Second World War and the timber logs, which were received by the assessee thereafter, was considered to have been received in lieu of loss of its business running machine and was considered that in exchange of the loss of lease which was a capital asset for the assessee, the timber received also would partake of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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