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TMI Blog1982 (10) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment and price paid. The assessee-company has not taken any credit in the profit and loss a/c. The assessee-company should have offered the same for taxation as the amount is received by the company though bank guarantees have been given to Bombay High Court. As the assessee is following the mercantile system of accounting, I consider the same as income of the assessee and add back to total income of the assessee-company." 3. When the assessee carried on the matter in appeal, the Commissioner (Appeals) held that what the ITO had tried to tax was not a mere claim to a profit but the actual profit earned on the sale proceeds, that as per the account books of the assessee, the levy sugar had been sold at the price allowed by the Court and not at the price fixed by the Government and, hence, the ITO had rightly taxed the profits realised on the sales effected as per the account books maintained. He further held that the decision in the case of CIT v. Associated Commercial Corpn. [1963] 48 ITR 1 (Bom.), relied on by the assessee, would not apply to the facts of the present case. The Commissioner (Appeals) further held that the provision of a bank guarantee was only in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. He further submitted that this amount of Rs. 16,86,799 was received by the assessee under an order passed by the Court on 26-2-1976, by furnishing a bank guarantee in terms of the said order pending the final decision of the Court in the writ petition and that, therefore, the assessee had no right, title or interest in the said amount which it had transferred to the suspense account, as directed by the Court in its first interim order dated 19-9-1975. The learned counsel further argued that the title of the appellant to this amount was in further jeopardy on account of the passing of the Levy Sugar Price Equalisation Fund Act, 1976, which was brought into force with effect from 1-4-1976 by a notification of the Government of India dated 25-3-1976. The learned counsel referred us to section 2(b) defining excess realisation, section 3(3)(a) and 3(3)(b) of the said Act and contended that in view of the above provisions, which had come into force during the previous year, the assessee had no title in the amount of Rs. 16,86,799 and that, therefore, it could not be considered as its income in the year of account. The learned counsel submitted that the fact that the assessee had credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a and two others as respondents. In paragraph 23(f) of its writ petition, the appellant has prayed for an order, pending the hearing and final disposal of its writ petition, to the Union of India, Respondent No. 1, "to order purchase of levy sugar by itself or its nominees from the appellant only on the payment of price of Rs. 219 per quintal or such other price and on such other condition or conditions as this Court may deem fit". There is no dispute that this writ petition filed by the appellant is still pending decision before the Bombay High Court. 8. Pending the final disposal of the writ petition, the High Court has passed interim orders on three dates, viz., 19-9-1975, 16-12-1975 and again on 26-2-1976. In the first order dated 19-9-1975, their Lordships of the Bombay High Court permitted the appellant to sell levy sugar at the rates prevailing prior to the second amendment order dated 11-7-1975 and further directed the appellant to maintain a separate account of the sale of levy sugar pending the disposal of the petition. By their order dated 16-12-1975, their Lordships stayed the operation of the Sugar (Price Determination for 1974-75 Production) Order, dated 28-11-1974, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------------------------------- 10. From the above facts, it would be noticed that the entire amount has been paid under the orders of the Court on the appellant furnishing security in the form of a bank guarantee to the Registrar of the High Court, pending the final disposal of its writ petition. It is no doubt true that the money has come into the hands of the appellant. But at the same time, it had come into the appellant's hands under the orders of the Court. Whether the appellant would be entitled to retain the entire amount or any part of it, is still a matter of decision by the High Court in the writ petition. Till such final decision is pronounced by the High Court, it cannot be stated that the appellant has any title to the above amount of Rs. 16,86,799. To our mind, the case of the appellant is similar to that of a trustee who holds certain property or funds in a fiduciary capacity. 11. In fact, this position would be further clear from the provisions of the Levy Sugar Price Equalisation Fund Act, a copy of which is available at pages 82 to 86 of the appellant's paper book. According to section 2(b)(ii) of this Act, 'excess realisation', in relation to ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case also, the enhanced compensation amount awarded by the arbitrator with further recurring compensation was the subject-matter of an appeal preferred by the State Government to the High Court. During the pendency of the appeal, the State Government deposited a sum of Rs. 7,36,691 which the assessee withdrew after furnishing a security bond on 9-5-1956. The revenue sought to charge the above amount as the income of the assessee. Their Lordships of the Calcutta High Court negatived the revenue's claim in the following words of the report : ". . . With regard to the enhanced amount which was subsequently fixed by the order of the arbitrator, the said amount cannot be said to be a determinate amount as the said amount is now pending appeal in the High Court. The enhanced amount may be affirmed by the High Court, may be reduced by the High Court or the entire enhanced amount may be disallowed. In the instant case the claim for the said further amount is in jeopardy and the right of the assessee to receive any further amount is also clearly unsettled. Unless the question of payment of any enhanced compensation is decided and the amount of enhanced compensation becomes determinate and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnishing a bank guarantee would not, in our opinion, affect the position and make the amount received by the assessee either determinate or payable. It is in reality a receipt of a particular sum pursuant to the order of the Court dated 26-2-1976, on furnishing a bank guarantee in terms of the said order. 15. To the same effect is the decision of the Bombay High Court in CIT v. Nadiad Electric Supply Co. Ltd. [1971] 80 ITR 650, wherein it was held that sending the bills amounted merely to making a claim for the amounts mentioned in the bill ; the mere sending of bills did not create a legal enforceable right in the assessee-company, nor a corresponding legal enforceable obligation on the municipality. Their Lordships finally held that the assessee-company was under no obligation to credit in its books of account, even though they were maintained on the mercantile system, any amount for the electricity supplied by it to the municipality calculated at any rate other than the rate of 19 paise per unit and the only amount which could be brought to tax in this connection was the amount calculated at the rate of 19 paise per unit. A perusal of the facts of this decision shows that tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that this decision does not lay down that a claim necessarily accrues on the basis of a mercantile system of accounting, even though the claim is not determined and payable. We, therefore, respectfully follow the three decisions of the Supreme Court, and the Bombay and Calcutta High Courts, referred to above, and hold that the amount of Rs. 16,86,799 cannot be regarded as income which accrued or arose to the assessee during the previous year relevant to the assessment year 1977-78, and that it cannot be brought to charge in this year. Accordingly, we delete the said amount of Rs. 16,86,799 from the income of the assessee. 19. The next addition is of Rs. 64,534 under the head 'Sales tax set off account'. The ITO added this amount for the following reasons discussed in paragraph 13 of his order : "It is seen from the records that the assessee-company is entitled to get set off of sales tax paid in excess at Rs. 64,534 as on date of year ending of books of account and claim is made with the sales tax authorities but assessment is pending with sales tax authorities. As the assessee-company is following mercantile system of accountancy, the set off (i.e., refund) receivable from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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