THE K.C.P. LTD.versusCOMMISSIONER OF INCOME TAX, BANGALORE

A                           THE K.C.P. LTD.
                                  v.
                COMMISSIONER OF INCOME TAX, BANGALORE

                                   AUGUST 9, 2000

B       [S.P. BHARUCHA, R.C. LAHOTI AND N. SANTOSH HEGDE, JJ.]

          Income Tax Act, 1961-Ss.2(24), IO and 37-Trading Receipts-Price
    of sugar realised in excess o.flevy price-In the ordinary manner of assessee 's
    business activities-Plea that the excess amount was retained in a separate
c   account and liable to be paid to the purchaser, hence cannot be treated as
    trading receipt-Held, merely maintaining a separate account under a head-
    ing given by the assessee would not alter the nature o.f the receipt if it actually
    be a trading receipt-Transfer of the amount to Sugar Equalisation Fund of
    Govemmellt in 1997 does not have any bearing on the taxability o.f the amount
    which was a trading receipt in the assessment year 1972-73.
D
           For the assessment year 1972-73, vide a notification order appoint-
    ing ceiling on levy price of sugar was passed. The appellant-assessi:e manu-
    facturer of sugar, challenged the order by filing a writ petition in the High
    Court. By the interim order of the writ petition, the appellant was permit-
    ted to sell the sugar at the rate prior to the notification, till further orders.
E
          Protected by the interim order appellant continued to sell at the old
    price and thus during that assessment year collected an amount of Rs.
    14,96,130 in excess of levy price of sugar fixed. Income tax officer treated
    that amount as part of the trading receipts of the company for that year.
F         Appellant preferred appeal before the Commissioner of Income Tax,
    who held that the amount could not be brought to tax. The appeal to
    appellate tribunal was dismissed, but the tribunal referred the question of
    law to High Court under Section 256(1) of Income Tax Act, at the instance
    of the Revenue. High Court answered the question in the negative against
G   the appellant-assessee.

          The writ petition filed by the appellant was subsequently dismissed.
    No liability was cast on the appellant to refund the excess amount to the
    purchasers either in the interim order or in the final order.

H          Thereafter, The Levy Sugar Price Equalisation Fund Act, 1976 came
                                       302
                              K.C.P. LTD. v. C.l.T.                         303
into force which provided that the amounts representing all excess realisa-         A
tions which were made before or after the commencement of the Act,
shall be credited to a fund known as Sugar Price Equalisation Fund. Appel-
lant filed writ petition before High Court challenging the vires of the
Act, which was dismissed. The appeal against the same filed before this
Court is pending.
                                                                                    B
       In appeal to this Court, against the order of the High Court in Refer-
ence under Article 256(1) oflncome Tax Act, 1961, appellant contended that
it had collected the excess amount under interim orders of the Court;
that the amount though received by the appellant, could not have been
appropriate by it as its own; that the excess realisation did not accrue to the
assessee and the same was liable to be refunded to the purchasers of the
                                                                                    c
sugar in the event of the writ petition filed by the appellant company being
dismissed by the High Court and thus it was a liability of the appellant
company; and that the excess amount has been erroneously treated as trad-
ing receipt of the company. The appellant also contended that the appellant
has transferred the amount to Sugar Equalisation Fund in 1974. Revenue              D
contended that since the excess amount was realised by the appellant as
price of the sugar sold by it during the course of its trading activities, there-
fore it has been rightly held to be a trading receipt of the appellant.

      Dismissing the appeal, this Court
                                                                                    E
       HELD : 1. The excess amount of Rs. 14,96,130 was realised by the
appellant-assessee in the ordinary manner of its business activities and as
the price of sugar sold by it. The amount was retained by the assessee as
price of the sugar sold by it though its right to realise the amount was subject
of dispute. The interim order of the High Court, looking to the phraseology
employed therein would not make any difference in the nature of receipts by         F
the assessee. Though the excess amount was retained in a separate account,
that would also not make any difference. Firstly, merely maintaining a sepa-
rate account under a heading given by the assessee would not alter the na-
ture of the receipt if it actually be a trading receipt. Secondly, nothing is
available on record to find out how and in what manner the separate ac-             G
count was maintained by the assessee. [308-C-DJ

      Chowringhee Sales Bureau P. Ltd. v Commissioner of Income-Tax, West
                     I
Bengal, (1973) 87 ITR 542; Sinclair Murray and Co. P. Ltd. v. Commissioner
of Income Tax, Calcutta, (1974) 97 ITR 615; Commissioner of Income-Tax,
U.P. - II v. Bmpur Co-operative Sugar Factory Ltd., (1988) 172 ITR 321;             H
    304                  SUPREME COURT REPORTS               [2000] SUPP. 2 S.C.R.
A   Punjab Distilling lrulustries Ltd. v. Commissioner of Income-Tax, Simla, (1959)
    35 ITR 519; Jonna/la Narashimharao arul Co. and Ors. v. Commissioner of
    Income Tctx, (1993) 200 ITR 588, referred to.

           Commissioner of Income-Tax v. Mysore Sugar Co. Ltd., (1990) 183 ITR
    113 (Kant); Commissioner of Income-Tax v. Seksaria Biswan Sugar Factory
B   Pvt Ltd., (1992) 195 ITR 778 (Born.) and Commissioner of Income-Tax, A.P.-
    1 v. Chodavaram Co-operative Sugar Ltd., (1987) 163 ITR 420 (A.P.), distin-
    guished.

         Commissioner of Income-Tax, West Bengal-II v. Hindustan Housing and
    Land Development Trust Ltd., (1986) 161 ITR 524, relied on.
c
          2. The transfer of the amount to the Sugar Equalisation Fund in the
    year 1997 does not have any bearing on the taxability of the amount, which
    was a trading receipt in the assessment year 1972-1973. [308-E]

          CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7652 of 1996.
D
         From the Judgment and Order dated 29.12.94 of the Andhra Pradesh
    High Court in R.C. No. 12 of 1987.

        R.F. Nariman, T.A. Ramachandran, Ms. Janaki Ramachandran, K. Ram
    Kumar and Ms. L. Roopa for the Appellant.
E         Dr. Gauri Shankar, Ranbir Chandra, S. Rajappa and Ms. Sushma Suri for
    the Respondent.

          The Judgment of the Court was delivered by

          R.C. LAHOTI, J, By the impugned order of the High Court the follow-
F   ing question of law referred by the Income-taJC Appellate Tribunal to the High
    Court under Section 256(1) of the Income-taJC Act, 1961 has been answered in
    the negative, i.e., in favour of the Revenue and against the assessee:-

               "Whether on the facts and in the circumstances of the case, the
               Appellate Tribunal is right in law in upholding the order of the Com-
G              missioner of Income Tax deleting Rs.14,96,130 being the excess re-
               alisation over and above the authorised price on sale of sugar?"

           The aggrieved assessee has come up in appeal.

         The appellant company manufactures sugar and other items. It follows
H   mercantile system of accounting. In the assessment year 1972-1973 levy price
                       K.C.P. LTD. v. C.i.T. [R.C. LAHOTI, J.]                        305
of sugar was fixed at Rs.120.30 paise per quintal. The appellant challenged the               A
order appointing ceiling on the price of the sugar by filing a writ petition in
the High Court. On 31.3. I 970 the High Court of Andhra Pradesh passed an
interim order which inter alia read as under:-

         " ......................... the operation of notification issued by the respondent
         herein namely the Union of India, Ministry of Food and Agriculture,                  B
         Community Development and Co-operation, New Delhi d/20.2.70 and
         1.3.70 in so far as it relates to Zone No.2 BE AND HEREBY is
         suspended pending further orders on this petition and IT IS FURTHER
         ORDERED that the petitioners BE AND HEREBY are permitted to
         sell sugar at the rate prevailing prior to the SAID NOTIFICATION, i.e.               c
         at Rs.131.01 plus excise duty pending further orders on this petition."

       Protected by the interim order the appellant continued to sell sugar at the
rate of Rs.131 per quintaL During the assessment year 1972-1973 the appellant
company collected an amount of Rs.14,96,130 in excess of levy price of sugar
fixed by the Government for that year. The Income-tax Officer treated the                     D
amount of Rs.14,96, 130 as part of the trading receipts of the company for that
year. In an appeal preferred by the company the Commissioner of Income-tax
held that the said amount could not be brought to tax. The Revenue preferred
an appeal before the Appellate Tribunal which was dismissed. However, the
abovesaid question of law was referred by the Tribunal for the opinion of the                 E
High Court at the instance of the Revenue. The High Court answered the
question in the negative as already stated.

       The writ petition preferred by the appellant before the High Court of
Andhra Pradesh came to be dismissed on 18.2.1971. With the dismissal of the
writ petition the interim order passed by the High Court came to be vacated                   F
automatically. It is pertinent to note that neither the interim order of the High
Court had specifically cast a liability on. the appellant company to refund the
amount to the purchasers of the sugar from whom the excess amount was
realised in the event of the petition being dismissed nor did the final order of
the High Court direct the appellant to refund the amount. All that the interim
                                                                                              G
order meant was that upon the dismissal of the writ petition, the appellant could
no longer charge the price of Rs.131 plus excise duty. The fact remains, as was
admitted at the Bar that the amount continued to remain with the appellant
company and was not refunded to the purchasers.

      Then came into force, with effect from 1.4.1976, The Levy Sugar Price                   H
    306                  SUPREME COURT REPORTS                 [2000) SUPP. 2 S.C.R.
A   Equalisation Fund Act, 1976. It provided inter alia that the amounts represent-
    ing all excess realisations made by producers irrespective of whether such
    excess realisations were made before or after the commencement of this Act
    shall be credited to a fund known as Levy Sugar Price Equalisation Fund
    established under Section 3 of the Act. It is not disputed that the amount of
    Rs.14,96,310 was liable to be transferred by the appellant company to the said
B
    fund. However, the vires of this Act were also subjected to a challenge by the
    appellant filing a writ petition which was ultimately dismissed. The matter was
    brought in appeal before the Supreme Court and that appeal is still pending.

           According to Shri R.F. Nariman, the learned senior counsel for the
c   appellant company, the excess amount was collected by the appellant under
    interim orders of the Court. The amount though received by the appellant,
    could not have been appropriated by it as its own. The excess realisation did
    not accrue to the assessee. It was liable to be refunded to the purchasers of the
    sugar in the event of the writ petition filed by the appellant company being
    dismissed by the High Court and therefore it was a liability of the appellant
D   company. The Income-tax Officer and the High Court have erred in treating
    the excess amount as trading receipt of the company. Dr. Gauri Shankar, the
    learned senior counsel for the Revenue has on the other hand submitted that
    the excess amount was realised by the appellant company as price of the sugar
    sold by it during the course of its trading activities and therefore i\has been
E   rightly held by the High Court to be a trading receipt of the appellant company.

           We will refer to the law laid down in a few cases by this Court. In
    Chowringlzee Sales Bureau P. Ltd. v. Commissioner of Income-Tax, West Ben-
    gal, (1973) 87 ITR 542, the appellant as an auctioneer effected sales of fur-
    niture and realised from the buyers in addition to the commission Rs.32,986
F   as sales tax. The appellant neither paid this amount to the actual owner of the
    goods on whose behalf the goods were auctioned nor deposited the same in the
    State exchequer upon the plea that the statutory provision creating that liability
    upon it was not valid. The amount was also not refunded to the persons from
    whom it had been collected. This Court held the amount of Rs.32,986 to be the
G   trading or business receipts of the auctioneer (appellant).

           To the same effect are the decisions of this Court in Sinclair Murray and
    Co. P. Ltd. v. Co111missio11er of lncnme-Tax, Calcutta, (1974) 97 ITR 615 and
    Commissioner of lncnme-Tax, U.P-ll v. Bazpur Co-operative Sugar Factory
    Ltd., (l988) 172 !TR 321. In 1hcsc cases it has been the consistent view of this
H   Court that if a receipt ts a tradrng receipt the fact that it is not so shown in the
                     K.C.P. LTD. v. C.I.T. [R.C. LAHOTJ, J]                  307
a,ccount books of the assessee would not prevent the assessing authority from        A
treating it as a trading receipt. It is the true nature and quality of the receipt
and not the head under which it is entered in the account books which is
decisive. This Court has further observed that eventually if the amount so
collected is passed on to the State Government or refunded to the purchasers
the assessee would be entitled to claim deduction of the sµm when so paid or
                                                                                     B
refunded.

       In Punjab Distilling Industries Ltd. v. Commissioner of Income-Tax,
Simla, ( 1959) 35 ITR 519 the assessee carried on business as a distiller of
country liquor and sold the produce to licensed wholesaler. The Government
devised a scheme entitling the distillers to charge the wholesalers a price for      c
the bottles in which the liquor was supplied, at the rates fixed by the Govern-
ment which price was bour:d to be repaid on return of the bottles. The distiller
collected from the wholesalers certain amount as security deposits though not
 authorised by the Government scheme. This security deposit was also returned
 as and when the bottles were returned. This additional sum was entered by the
                                                                                     D
 assessee under the heading "empty bottles return deposit account". A question
arose whether the assessee could be assessed to tax on the balance of the
amounts of these additional sums left with the assessee after the refunds were
made. This Court held that in realising the additional amount described as
security deposit the assessee was really charging an extra price for the bottles.
The additional amounts taken were an integral part of the commercial                 E
transaction of the sale of liquor and bottles and when they were realised they
were the moneys of the assessee and remained thereafter the moneys of the
assessee. They were the assessee's trading receipts and therefore the balance
of these additional sums left in the hands of the assessee after the refunds were
assessable to tax. This Court further held that it did not make any difference       F
that the additional amount was entered in a separate ledger under the head
"empty bottles return deposit account" as the assessee's style of writing up the
account books in a particular manner could not alter the real nature of the
receipts.

       In Jonnalla Narashimharao and Co. and Ors. v. Commissioner of In-             G
come Tax, (1993) 200 ITR 588 the appellant a commission agent collected in
the assessment year 1968-1969 certain amounts by way of sales-tax under the
name "Rusum" inasmuch as it disputed its liability to pay sales tax by filing
various legal proceedings. The accounts were maintained on the mercantile
system. In 1970, there was a retrospective amendment in the relevant sales tax       H
    308                 SUPREME COURT REPORTS                 (2000] SUPP. 2 S.C.R.

A   law as a result of which the appellant's liability was upheld by the courts. The
    tax (i.e. the amount of "rusum") was remitted to the State later on and consec
    quent upon the said amendment. This Court held that insofar as the assessment
    year 1968-1969 was concerned the amounts collected in the name of "Rusum"
    constituted business receipts of the appellant.

B          In the case at hand the excess amount of Rs.14,96,130 was realised by
    the appellant company in the ordinary manner of its business activities and as
    the price of sugar sold by it. The amount was retained by the assessee as price
    of the sugar sold by it though the right of the appellate company to realise the
    amount was subject of dispute. The interim order of the High Court, looking
c   to the phraseology employed therein, would not make any difference in the
    nature of receipts by the assessee. Though the learned senior counsel for the
    appellant submitted that the excess amount was retained in a separate account,
    that would also not make any difference in our opinion. Firstly, the consistent
    view of this Court, as noticed hereinabove, is that merely maintaining a sepa-
    rate account under a heading given by the assessee would not alter the nature
D   of the receipt if it actually be a trading receipt. Secondly, nothing is available
    on record to find out how and in what manner the separate account was
    maintained by the assessee.

           It was lastly submitted by the learned senior counsel for the appellant that
E   in the year 1997 the appellant has transferred the amount to Sugar Equalisation
    Fund of the Government. Suffice it to say that such transfer in the year 1997
    does not have any bearing on the tax.ability of the amount which was a trading
    receipt in the assessment year 1972-1973.

           The learned senior counsel for the assessee-appellant relied on three
F   decisions by different High Courts and submitted that in identical facts and
    circumstances the price of sugar realised in excess of the levy price was held
    not to be 1a trading receipt of the assessee and hence not liable to tax. The
    decisions so relied on are :- Commissioner of Income-Tax v. Mysore Sugar Co.
    Ltd. (1990) 183 !TR 113 (Kant), Commissioner of Income-Tax v. Seksaria
    Biswan Sugar Factory Pvt. Ltd., (1992) 195 !TR 778 (Born) and Commissioner
G   of Income-Tax, A.P.-I v. Chodavaram Co- operative Sugar Ltd., (1987) 163 !TR
    420 (A.P.). We have carefully perused the decisions. It is clear from the facts
    stated by the High Courts that in each of the cases the assessee's right to realise
    the excess price was subject matter of dispute pending in the High Court and
    the High Courts had passed different interim orders pursuant to which the
H   respective assessees were collecting the excess price. Though the interim
                     K.C.P. LTD. v. C.l.T. [R.C. LAHOTI, J.]                 309
orders of the High Courts are differently worded in the three cases, one             A
common feature of all the orders is that the realisation of the excess price by
the respective assessees was hedged by several conditions one of which was
that the assessee shall refund the amount received in excess of the price fixed
in the event of the pending dispute being decided adversely to the assessee by
the court. Thus the receipt of the amount by the assessee was clearly associated
                                                                                     B
with a liability to refund the amount, which liability was ascertainable and
quantified. Such is not the case at hand. The High Court of Karnataka and
Bombay have in their decisions referred to and applied the decision of this
court in Commissioner of Income-Tax, West Bengal-II v. Hindustan Housing
and Land Development Trust Ltd., (1986) 161 ITR 524. The facts of the case
before the Supreme Court were that certain lands belonging to the assessee           C
company were first requisitioned and then compulsorily acquired by the State
Government. On an appeal preferred by the respondent company, the arbitrator
made an award directing compensation to be paid for requisition and acquisi-
tion. The arbitrator's award was promptly challenged by the State Government
before the High Court. Pending the appeal the State Government deposited the         D
amount in the court which the assessee company was permitted to withdraw
on furnishing a security bond for refunding the amount in the event of the
appeal preferred by the State Government being decided in its favour. This
court found that the entire amount was in dispute in the appeal filed by the State
Government; that the dispute was 'real and substantial'; and that the amount
deposited by the State Government was permitted to be withdrawn by the               E
assessee subject to security bond for refunding the amount in the event of the
appeal being allowed. On these facts, this court held that there was no absolute
right to receive the enhanced amount at that stage and if the appeal was allowed
and in its entirety the right to payment of enhanced amount would have fallen
altogether. The principle of law laid down by this court in the case of Hindustan    F
Housing & Land Development Trust Limited is to be read in the light of the
facts of that case. Thus none of the decisions relied on by the learned senior
counsel for the appellant is of any assistance to him.

       For the foregoing reasons, we find ourselves in agreement with the view
taken by the High Court. The appeal is devoid of any merit. It is dismissed with     G
costs.

K.K.T.                                                         Appeal dismissed.