TMI Blog1993 (12) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... e of these products, they have to be stored in special containers of high grade metallic content. Such storage tanks and vats are a part and parcel of the assessee's plant used in the business of manufacturing these chemicals. Under the Ethyl Alcohol (Price Control) Amendment Order, 1971, issued by the Government of India, Ministry of Petroleum and Chemicals and Mines and Metals, dated January 30, 1971, in exercise of the powers conferred by section 18G of the Industries (Development and Regulation) Act, 1951, the Central Government prescribed certain maximum ex-distillery prices of ethyl alcohol as set out therein. Under clause 2 of this order a table is provided which prescribes such maximum ex-distillery prices of ethyl alcohol. Item 2 of this table deals with rectified spirit conforming to ISI Standard No. 323-1959 naked, for equivalent volume at 100 per cent. V/V strength. The maximum price prescribed is Rs. 227.75 per kilolitre. There is a note at the bottom of this table which is relevant. It is as follows : " Note : These prices include six rupees (Rs. 6,00) per kilolitre for putting up adequate storage facilities. This amount shall be separately funded and shall be uti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tanks within the prescribed time schedule, the Commissioner shall have the work executed through the Public Works Department of the Central Government or the State Government or a private agency and the management of the distillery shall place at the disposal of the Commissioner the amount required for executing the work. Clause 9 provides that the amount available in the account shall be maintained as a separate account in the bank of the distillery. In the assessment year 1974-75, the assessees have transferred a sum of Rs. 43,633 from the sale proceeds of rectified spirit to the storage fund for molasses and alcohol account as required under the said order. Accordingly, the sales which were shown by the assessee in the profit and loss account were reduced to that extent. According to the assessee, the said amount of Rs. 43,633 had to be statutorily set aside under the Ethyl Alcohol (Price Control) Amendment Order, dated January 30, 1971, for the creation of storage facilities for molasses and alcohol. It could not be included in its total income. This contention of the assessee has not been accepted by the Income-tax Officer and by the appellate authorities. Hence, the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is, therefore, a clear diversion at the source of this amount. In any event, the assessee has lost domain over this amount of Rs. 6 per kilolitre. It has to be utilised in the manner statutorily laid down. Even the storage facilities have to be constructed as per the directions of the Commissioner and the Commissioner has the power, if the assessee fails to construct storage tanks in the prescribed time schedule, to do the work and obtain the said amount from the assessee. Hence, this amount over which the assessee has lost its domain, cannot be considered as a part of its real income or its profit. It is, therefore, required to be excluded under section 2 8 of the Income-tax Act, 1961, for the purpose of calculation of income. In this connection, a reference may be made to a decision of the Karnataka High Court in the case of CIT v. Pandavapura Sahakara Sakkare Kharkane Ltd. [1992] 198 ITR 690. The Division Bench of the Karnataka High Court considered in that case the Molasses Control Order of the Government of India under which the selling price of molasses was fixed by the Government of India. While determining the price to be charged by the assessee, the Government had s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in CIT v. Pandavapura Sahakara Sakkare Kharkane Ltd. [1992] 198 ITR 690, a special leave petition was also rejected. In its earlier case CIT v. Pandavapura Sahakara Sakkare Karkhane Ltd. [1988] 174 ITR 475, the Karnataka High Court also relied upon a decision of the Madhya Pradesh High Court in the case of Keshkal Co-operative Marketing Society Ltd. v. CIT [1987] 165 ITR 437. The Madhya Pradesh High Court in that case considered the provisions of the Madhya Pradesh Co-operative Societies Act, 1960, under which the assessee which was a co-operative marketing society was statutorily required to divert a part of its income as set out in the said Act for the creation of a statutory deposit (reserve) fund which, after its creation, came within the domain of the Registrar and was to be invested and utilised only in such manner and on such terms and conditions as might be laid down by the Registrar. The Madhya Pradesh High Court said that this was a statutory diversion of income. The creation of the reserve fund and control over it remained with the Registrar. Hence, the amount which was so deposited in the reserve fund by the assessee did not comprise the income of the assessee. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olled and a fixed portion of that price is statutorily earmarked for, the creation of a fund, it has to be kept in a separate account for the utilisation of which the assessee has to abide by the directions which may be given to the assessee by the Registrar. There is, in our view, in such a situation, a clear diversion of a portion of the amount so earmarked at source. It does not at any time form a part of the assessee's real income which it can utilise at will. The question of ownership of the fund in this context is not relevant. In this connection, we would also like to refer to a decision of the Kerala High Court in the case of Cochin State Power and Light Corporation Ltd. v. CIT [1974] 93 ITR 582. The assessee in that case was an electric supply undertaking. Under the statutory obligation imposed on the assessee under the Electricity (Supply) Act, the assessee had, inter alia, created a contingencies reserve. This reserve was created out of revenue and not out of the profits of the assessee. It could be utilised only for certain purposes indicated in Paragraph IV of the Sixth Schedule to the Electricity (Supply) Act, 1948, and was not at the disposal of the assessee in rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of our High Court in the case of CWT v. Bombay Suburban Electric Supply Ltd. [1976] 103 ITR 384. In this case, the court was required to consider whether in the assessment to wealth-tax of the assessee-company which was also an undertaking for the supply of electricity, the amount, inter alia, of contingency reserve was liable to be included in determining the net wealth of the assessee. One of the arguments which was advanced before the Division Bench was that the amount which had been credited to the contingency reserve was treated as a diversion at source of the amount in question and was not a part of the assessee's income. Hence, it should not be considered as a part of the net wealth of the assessee. The court negatived this contention and held that income-tax is a tax on the real income, i.e., profits arrived at on commercial principles subject to the provisions of the Income-tax Act. In contrast, under the Wealth-tax Act, "net wealth" means the amount by which the aggregate value of all the assets belonging to the assessee on the valuation date is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than the items which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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