TMI Blog1961 (2) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... ders. The practice of selling scrap iron adopted by the assessee was to obtain from the permit holder the approximate quantity of scrap iron required by him and, after knowing the weight, to calculate the price of the quantity in round figures and the constituent used to be asked to deposit the amount so calculated by the assessee. The scrap iron which the assessee actually supplied to the constituent was sometimes more or sometimes less than the quantity for which the price was calculated and for which the deposit was obtained from the constituent. After the delivery of the scrap iron it many times happened that there remained a short surplus of the deposit over the actual purchase price. In cases where the purchase price was slightly more than the amount deposited the necessary recovery was made by the assessee but in cases where the deposit was slightly more than the purchase price of the total goods supplied, the constituents did not take away the amount from the assessee and the amount used to remain to the credit of the constituent in the assessee's books. On November 23, 1953, the board. of directors of the assessee company passed the followin- resolution (a) The man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for the year 1956-57 was made the Income-tax Officer treated the unclaimed balance of ₹ 1,993 as something which was realised by the company on account of its trading activity. In his opinion, the amount represented the revenue receipt of the assessee. He accordingly rejected the assessee's claim for a deduction of ₹ 1,993 in the profit and loss account and added back this amount. The assessment order for the year 1956-57 is part of the case and is annexure D . 5. The assessments for the years 1954-55 and 1955-56 were revised by the Commissioner of Income-tax under section 33B of the Indian Income-tax Act. The Commissioner of Income-tax after issuing the notices and hearing the parties as required by law held that the unclaimed balances of ₹ 2,080 la the assessment year 1954-55 and ₹ 10,692 in the assessment year 1955-56 represented the revenue income of the assessee. He accordingly enhanced the assessments for the two years by including these two amounts in the total income of the assessee for the said two years. The Commissioner of Income- tax passed one consolidated order for both the assessment years on January 25, 1957. A copy of that order i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unclaimed balances did represent the surplus income of the assessee. In his order he observed: Since the commodities were scarce and the exact price had to be calculated afterwards, payments were made in advance by the customers on an ad hoc basis taking into account a margin for certain sundry overhead charges and in the calculation of the exact price subsequently. But the initial character of the payment was towards price as such rather than towards a bailment or deposit. Since there was difference of opinion, the case was referred to the President under section 5A(7) of the Indian Income-tax Act on the point of difference between the Members. The point of difference set out by the two Members was as under: Whether the unclaimed residual balances appropriated by the assessee are taxable either under section 10(1) as profits or gains read with section 6(v) or as income from other sources under section I2(1) read with section 6(v)? The case was then heard by the President under section 5A(7) of the Indian Income-tax Act. The President in the order which he passed on December 24, 1958, observed as under: But I thin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, in fact, be supplied to the constitutent would be sometimes more or sometimes less than that for which the price had been calculated and for which the deposit had been obtained from the constituent. After the delivery of the scrap iron, it often happened that there remained a small surplus out of the money deposited. In cases where the deposits were slightly more than the amount deposited, the necessary recovery was made by the assessee but in the cases where the deposits were slightly more than the purchase price of the total goods supplied, the constituents did not sometimes take away the amount from the assessee and that amount used to remain to the credit of the constituent in the assessee's books. The board of directors of the assessee company passed the following resolution on November 23, 1953: (a) The manager be and is hereby authorised to transfer unclaimed credit balances as became over three years old to the sundry creditors balances written back account. (b) Claims for refund, if any, out of the above said written back amounts may be referred to the managing committee, who may, if satisfied that the claimant is a rightful claimant, give instructions to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has not shown the amount as a liability in his own balance-sheet. (3) Any excess payment or short recovery is always liable to be adjusted in every business when a mistake has to be rectified. (4) According to the method of accounting employed by the assessee, the amounts in question were never the liability of the business but were revenue receipts. The learned counsel for the assessee has mainly relied on a decision of the Court of Appeal in Morley v. Tattersall [1939] 7I. T. R. 316 (C. A.) The Accountant Member of the Tribunal, Shri A. L. Seghal, who decided in favour of the assessee, also based his decision largely on that case. As will be presently seen, Morley's case is clearly distinguishable and has no applicability whatsoever to the facts of the present case. There are two decisions of our own Supreme Court, however, which are more in point and which almost conclude the matter. They are Lakshmanier and Sons v. Commissioner of Income-tax [1953] 23 I.T.R. 202 (S.C.) and Punjab Distilling Industrial Ltd. v. Commmissioner of Income-tax [1959] 35 I.T.R. 519 (S.C.). In Lakshmanier Sons' case* the appellants, who were the assessees, were carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the contract. If any shortfall existed, the constituent was bound to make the deficiency good and if any excess amount was left, the assessee was under an obligation to refund it but that would not change the real nature of the transaction and could not give the character of a loan to the amounts which had been deposited by the constituents initially as has been contended by the learned counsel for the assessee. An attempt was also made to bring it within the arrangement that prevailed in the third part of the accounting period in Lakshmanier Sons' case*, the initial payments made during which had been held to be loans. As pointed out in the subsequent case of Punjab Distilling Industries [1959] 35 I.T.R. 519 (S.C.) by the Supreme Court, under this arrangement a certain sum was kept in deposit once and for all and thereafter Lakshmanier and Sons started entering into trading transactions, namely, forward contracts for sale of yarn with the constituents who had deposited the money. In the words of Sarkar J., the sum so deposited was to be refunded with interest at 3 per cent. per annum the end of the business connection between the parties, if necessary, after retainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot change the nature of the payment. In Lakshmanier Sons' case** the payment initially made was refundable after the price had been paid; in the present case the contract is to refund the amount on the return of the bottles already sold. In each case therefore the payment was made as part of a trading transaction and in each case it was refundable on certain events happening. In each case again the payment was described as a deposit. As in that case, so in the present case, the payment cannot be taken to have been made by way of security deposit. We must therefore on theauthority of Lakshmanier Sons' case [1953] 23 I.T.R. 202 (S.C.) hold the amounts in the present case to have been trading receipts. It was further observed that the deposit was part of each trading transaction and was refundable under the terms the contract relating to that trading transaction. It has not been made under any independent contract not was it a refund conditioned by a collateral contract. The case of Morley v. Tattersall*** was distinguished on the ground that Tattersall was a firm that sold horses of its constituents on their behalf and received the price which it was liable to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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