9911796707
TMI Blog1985 (9) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 143, 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 &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo Price Determination Orders were passed covering sugarcane crop season of 1977. The first being the Order dated 22-12-1977. The said Order was amended by the amendment dated 1-3-1978 by Sugar (Price Determination for 1977-78 Production) Amendment Order, 1978, and it is the second of the orders passed for 1977-78 crop. The said Orders are hereafter mentioned as Sugar Price Fixation Orders for the sake of brevity. Again the assessee challenged the said Order in Writ Petition Nos. 2730 and 3483 or 1978 before the Karnataka High Court. Interim orders similar to the one extracted above were passed. Copies of the interim orders, thus, passed were furnished at p. 15 and 16 of the paper book furnished to us. As the type or the Orders passed were similar to the one already extracted above, except in some details with which we are not concerned at present it is unnecessary to quote them in extenso. It is enough for our purposes to note that the Hon'ble Karnataka High Court by those interim orders suspended the operation of the Sugar Price Fixation Orders and allowed the assessee-mill liberty to charge more price for the levy sugar than the price fixed under the Sugar Price Fixation Order p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since their claim is more towards price of levy sugar than is allowed the excess amount was not shown as part of the sale price but was credited to a 'suspense account'. It was further submitted that the assessee was challenging the Fund Act in the Hon'ble Supreme Court and so, in any event, this amount represents the disputed liability and the same should not be included in the income of the factory applying the ratio of decision in J.K. Synthetics Ltd. v. O.S. Bajpai, ITO [1976] 105 ITR 864 (All.). 4. The lower authorities held that higher price was collected towards sale price of levy sugar and, thus, it forms part of the sale proceeds or turnover of the assessee. If the effect of the subsequent pronouncements of competent Courts necessitates any alteration in the treatment of the excess price collected, then such changes can be affected through suitable modificatory Orders. Till such time, there is no need to deduct any contributions to this fund from profit and loss account. The action of the assessee to credit the disputed amounts in the suspense account is correct but at the same time, the ITO is right to include the same so credited in the income of the assessee for the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that Special Leave Petition referred to supra filed in the Supreme Court, was dismissed. Copy of the order in Case Referred No. 91 of 1978 was also furnished in the paper compilation filed before us. It is not in dispute that the writ petitions filed by the assessee questioning Sugar Price Fixation Orders, 1972 as well as 1975 and 1977 were all dismissed. The position obtaining now is that the assessee is under an obligation to remit all excess collections noted above within 30 days from disposal of the writ petitions into the equalisation fund. However, the assessee filed a writ petition before the Hon'ble Supreme Court challenging the validity of the Fund Act. 8. The Special Bench of the Pune Tribunal considered similar question in the case of Shri Someshwar Sahakari Sakhar Karkhana Ltd. v. ITO [1985] 11 ITD 335. In that case, the Special Bench was considering the taxability of excess collections made in pursuance of interim orders passed by the Bombay High Court after admitting the writ petition and staying the operation of the Sugar Price Fixation Order, 1974, pending the writ petition. In the interim orders the Bombay High Court allowed the assessee to charge Rs. 156.99 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such excess realisations should not be taken as part of the turnover in the case of Mysore Sugar Co. Ltd. [IT Appeal No. 640 (Bang.) of 1978-79, dated 12-12-1980]. While doing so, this Tribunal followed the order of the Bombay Bench passed in Salar Jung Sugar Mills Ltd. v. ITO [IT Appeal No. 445 (Bom.) of 1973-74, dated 28-5-1975]. In the latter case, under the Sugar Price Fixation Order passed by the Central Government, the assessee-mill was listed under zone No. 1. In such a case the assessee-mill had to charge only Rs. 145 per quintal for ex-factory levy sugar. For purpose of getting interim directions in the writ petitions filed in the High Court, the assessee-mill prayed that at least it may be considered as a mill falling under zone No. 2 in which case it may be permitted to charge Rs. 161 per quintal of levy sugar. The Karnataka High Court permitted the assessee-mill to charge Rs. 161 per quintal as per its interim Orders which are more or less in similar terms when compared to the Orders with which we are concerned. There also the difference between the levy price fixed under Sugar Price Fixation Order and the price at which the sugar was permitted to be sold under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee for each of the assessment years under consideration. The assessee succeeds on this common ground. 11. The next common question which falls for our consideration is whether the amounts credited into molasses storage fund and spirit storage fund can be included in the income of the assessee. The above funds were statutory funds which were created under the statutes passed by the Government. The Government passed Molasses Control Order, 1962. It was amended, inter alia, by Molasses Control (Amendment) Order, 1972, dated 5-2-1972. This amended order was provided at page 36 of the paper book. Under this amendment, the schedule of the original order was amended and the amended schedule was provided at pages 37 and 38 of the paper book which reads as follows : "From the price fixed under the above schedule 33 per cent thereof shall be accounted for and funded separately 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 the regulation of such funds." (1) For the schedule, the following schedule shall be substituted, namely :--- THE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Molasses Control (Amendment) Order, 1975. Again the erstwhile schedule was substituted by a new or fresh schedule which is as follows : "Grade of molasses Price (Rs.) Grade I 6.00 per 100 kgs. Grade II 4.80 per 100 kgs. Grade III 3.60 per 100 kgs. Below Grade III 3.60 for every 40 kgs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istillery prices of ethyl alcohol.---After the commencement of this order, no person shall sell ex-distillery any of the grades of ethyl alcohol (industrial 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; 2 1. Absolute alcohol conforming to ISI Rupees six hundred and Standard No. 321-1952, naked for sixty-eight and paise forty- equivalent volume at 100 per cent one only (Rs. 668,41) per v/v strength. kilo-litre. 2. Rectified spirit conforming to ISI Rupees six hundred and Standard No. 323-1959, naked for twenty-two and paise twenty equivalent volume at 100 per cent & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1974-75 61,253 17,009 1975-76 30,604 32,586 1976-77 53,906 24,194 1977-78 2,90,737 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for the assessment year 1974-75, the ITO found an amount of Rs. 17,009 has been credited directly to this fund from the sale proceeds of the spirit. The ITO found it without basis and added it to the returned income. When the matter figured before the IAC the assessee brought to his notice the Ethyl Alcohol Price Control (Amendment) Order, dated 5-2-1972, especially, the Note under the table given in column 2 of the said order which is already extracted above. On the basis of the said Note, it was argued that the fund was created for meeting the requirements of the Government order. This argument did not appeal to the IAC. He observed while confirming the addition proposed as follows : "But then it would be observed that this is only a fund, a provision and not a regular expenditure as such. Even though it is a mandatory order issued by the Government of India, this is not an expenditure at all which can be allowed as a revenue deduction in the assessment order." 16. When the matter came up in appeal before the Commissioner (Appeals), it is argued with regard to the difference of Rs. 61,523 relevant for the assessment year 1974-75 that this amount was transferred to the molas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. Both of them are funds created under different statutes and to provide funds under the statutes should be considered as liability of the assessee-society. The assessee had no power to spend out of the funds thus created. Therefore, the funds have no income character in them. On the other hand, the learned departmental representative argued that though they are statutory funds, still the amounts credited into those funds do not cease to be the income of the assessee inasmuch as, when storage facilities were provided by spending the amounts lying in those funds, the assets thus created, instantly became the capital assets of the assessee. The amounts thus spent from out of the funds do not represent any outgoing at the hands of the assessee and, therefore, the amounts lying in the funds should be considered only as part of the income of the assessee. The learned departmental representative tried to distinguish the decision of the Bombay High Court relied upon by the assessee, namely Bombay State Road Transport Corpn.'s case. In that case the Bombay State Road Transport Corporation was obliged to contribute to the insurance fund in accordance with rule 11 of the Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly answered in favour of the assessee. Having regard to the above discussion, we answer question No. 4 in the negative and in favour of the assessee." In reply, the learned counsel for the assessee submitted that as and when the amounts were drawn for purposes of providing storage facility either for storing molasses or for storing ethyl alcohol in the factory premises of the assessee-society, then to the extent of the drawal from these two funds, it may be considered as the income of the assessee-society in those years. Thus, we have considered the arguments on both sides. 21. The term 'income' is elusive and escapes any precise definition and for that reason nobody attempted to define it. However, in our considered opinion one of the characteristics of the word 'income' is the power or complete control over its disposal. If some fetters were placed over legitimate or legal spending of the income as one likes, it cannot be said that the amount suffering the fetters can be called 'income'. If shackles or restrictions were placed over legitimate spending of income, then in our opinion, it loses the character of income. Income locked up or which is not available for instant use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l alcohol, respectively. Therefore, in our opinion, there was no scope to argue that the funds represent merely appropriation of profits and application of income. Therefore, we hold that the amount which was credited to this molasses storage fund and spirit storage fund as part of the statutory obligation cast on the assessee came from out of the sale proceeds of molasses and ethyl alcohol effected in each of the accounting years under consideration and they should not be taken as income of the assessee in the relevant assessment years. 23. However, the amount or amounts directed or permitted to be spent from out of those two funds by the orders of the Government for providing storage facilities either to stock molasses or ethyl alcohol should be considered as income of the assessee in the year or years in which such direction or permission was granted by the Government. In fact this position is conceded by the assessee's counsel before us. It is not the case of the department that any portion from out of the two types of funds were ordered or allowed to be utilised in any of the previous years relevant to any of the assessment years under consideration. We, therefore, delete the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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