TMI Blog1964 (3) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the breach of which, the charges made for the bottles would cease to be refundable. all that the rule does is to authorise the making of a contract concerning the deposit on the terms mentioned in it the object apparently being to avoid any question as to its validity arising later. We may here point out that the trade in liquor is largely controlled by Government regulations. It must, therefore, be held that the deposit was actually taken under a contract; it was none the less so though the contract was authorised by the statutory rules. The third point of distinction on which the High Court relied was, therefore, also without foundation. Appeal allowed. - - - - - Dated:- 24-3-1964 - Judge(s) : A. K. SARKAR., M. HIDAYATULLAH., J. C. SHAH JUDGMENT The judgment of the court was delivered by SARKAR J.----We think that these appeals are covered by the judgment of this court in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax and the High Court was in error in its view that the ratio decidendi of that judgment was not applicable to them. The earlier case had arisen out of the assessment of the same assessee but it was concerned with the years 1947- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case, the collections by the assessee-company described in its accounts as 'empty bottles return security deposits' were income assessable under section 10 of the Income-tax Act ? " It is of interest to note that the earlier case also concerned an identical question and had been answered both by the High Court and this court in the affirmative. If the judgment in the earlier case covered the present appeals, then the question referred would, of course, have to be answered in the affirmative. The High Court, however, took the view that as a result of the amendment of the rule made under the Punjab Excise Act, 1914, which came into effect from April 1, 1948, the charges collected after that date were not covered by that judgment. It held that the amended rule made the ratio decidendi of our judgment inapplicable to the charges collected after that date. The rule referred to is rule 40(14)(f) and the relevant part of it on which the High Court based its view is as follows : " (v) It is compulsory for the licensee to return at least 90 per cent. of the bottles issued to him by the licensed distiller. (vi) The licensed distiller may, at the time of issue, demand security a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry rule amended in 1948 it cannot be said that the deposit 'was part of each trading transaction, and was refundable under the terms of the contract relating to trading transaction under which it had been made'. " It is not in dispute that if the High Court was in error in this reasoning, the present case will be governed by the earlier decision. With respect to the learned judges of the High Court, we think that the earlier judgment of this court has been misunderstood by them. That judgment had not been based on the three points mentioned by the High Court and this we now proceed to show. The first point of distinction between the two cases as based on the observation in the earlier case that the " additional amounts had been taken without Government's sanction and entirely as a condition imposed by the appellant itself for the sale of its liquor. " The High Court apparently thought that by this observation it was suggested that if the amounts had been taken under Government's sanction, then they would not have been taxable. We are wholly unable to agree, that this is a correct reading of that judgment. That observation contained only a recital of fact and was made for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at was one answer that was given to the argument. But this court did not stop there and proceeded to consider the argument as a whole, namely, whether, if the charges were security deposits, they were not trading receipts. Now, the reason why it was said that if the charges were security deposits they were not trading receipts is to be found in two cases on which the argument was based. The first was the case of Davies v. Shell Co. of China Ltd. In that case the company had delivered its product to certain agents for sale and payment of the sale proceeds to it. The company took money from each agent as deposit to secure itself against the risk of default by him to account for the sale proceeds. It was observed by Jenkins L. J. : " Mr. Grant described the agents' deposits as part of the company's trading structure, not trade receipts but anterior to the stage of trade receipts, and I think that is a fair description of them. It seems to me that it would be an abuse of language to describe one of these agents, after he had made a deposit, as a trade creditor of the company; he is a creditor of the company in respect of the deposit, not on account of any goods supplied or servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y arising out of the customer's default ... The transaction had thus all the essential elements of a contract of loan . . . . " None of these cases, therefore, was concerned with the question whether a security deposit was by its very nature such that it could not be a trading receipt. The first case dealt with an actual security deposit but it was held that that deposit was not a trading receipt not for the reason that it was a security deposit but for the reason that it formed the structure under which trading transactions producing trading receipts were conducted and was not itself connected with any trading transaction. In the second case, the receipt was held to be a loan ; that it might be also a security deposit was not even mentioned. It was held not to be a trading receipt because it had no connection with the trading transactions but related to a stage anterior to the trading transaction. It is, therefore, clear that the contention that the charges formed a security deposit had been advanced only for the purpose of showing that they were not a part of the trading transactions. The question was not really whether the charges were security deposits but whether they we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ler to a return of the bottles from the retailer it would be insensible to read that provision as creating an obligation on the wholesaler to return the bottles. He had no means under the rules to perform that obligation. That rule, therefore, must be read as intending only to lay down that if the wholesaler could not return the bottles, his deposit was liable to be confiscated under sub-clause (vi). Again, the rules do not lay down any procedure by which the distiller might enforce the return of the bottles to him, which they would have undoubtedly done if it was intended to give him a right to the return of the bottles. Indeed there is nothing to show that he can obtain such a return. Whether the wholesaler would be liable to punishment under the Act for breach of his obligation to return the bottles or not is to no purpose, for we are now concerned with the right of the distiller to obtain a return of the bottles. It seems to us that the only reason why the rules required a wholesaler to return the bottles to the distiller was to authorise the imposition of a term of the sale upon the breach of which, the charges made for the bottles would cease to be refundable. We now come ..... 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