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TMI Blog1958 (11) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... nment devised in 1940 a scheme called the buy-back scheme. The scheme in substance was that a distiller on a sale of liquor became entitled to charge a wholesaler a price for the bottles in which the liquor was supplied at rates fixed by the Government which he was bound to repay to the wholesaler on the latter returning the bottles. The same arrangement, but with prices calculated at different rates, was made for the liquor sold in bottles by a wholesaler to a retailer and by a retailer to the consumers. Apparently it was conceived that the price fixed under the scheme would be found to be higher than the price which the bottles would fetch in the open market and the arrangement for the refund of the price would therefore encourage the return of the bottles from the consumers through the intermediaries ultimately to the distiller. The price refundable was later increased perhaps because the previous price did not fully achieve the desired result of the bottles finding their way back to the distillers. Sometime, in 1944, the Amritsar Distillery Co. Ltd. which then was in existence, insisted on the wholesalers paying to it, in addition to the price of the bottles fixed under the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three varieties of taxes for which the appellant had been made liable. We are concerned in this appeal only with the additional sums demanded and received by the appellant and described as security deposit and not with the price of bottles which also it took under Government sanction. The question is whether these amounts called security deposits were trading receipts. Now, as already stated, the appellant's trade consisted in selling in bottles liquor produced in its distillery to wholesalers. The sale was made on these terms : In each transaction of sale the appellant took from the wholesaler the price of the liquor, a certain sum fixed by the Government, as price of the bottles in which the liquor was supplied and a further sum described as security deposit for the return of the bottles. The moneys taken as price of the bottles were returned as and when the bottles were returned. The moneys described as security deposit were also returned as and when the bottles were returned with only this difference that in this case the entire sum taken in one transaction was refunded when 90 per cent. of the bottles covered by it had been returned, though the remaining 10 per cent. had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method providing for their refund cannot by itself prevent these additional sums from being price. Now, if these additional sums were not part of the price, what were they ? Mr. Sastri said that they were deposits securing the return of the bottles. According to him if they were such security deposits, they were not trading receipts. Again we are unable to agree. There could be no security given for the return of the bottles unless there was a right to their return for if there was no such right, there would be nothing to secure. Now we find no trace of such a right in the statement of the case. The wholesalers were clearly under no obligation to return the bottles. The only thing that Mr. Sastri could point out for establishing such an obligation was the use of the words " security deposit." We are unable to hold that these words alone are sufficient to create an obligation in the wholesalers to return the bottles which they had bought. If it had been intended to impose an obligation on the wholesalers to return the bottles, these would not have been sold to them at all and a bargain would have been expressly made for the return of the bottles and the security deposit would then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io decidendi of Landes Bros. v. Simpson and Imperial Tobacco Co. v. Kelly. But that is not the character of the deposits here in question. The intention manifested by the terms of the agreement is that the deposit should be retained by the company, carrying interest for the benefit of the depositor throughout the terms of the agency. It is to be available during the period of the agency for making good the agent's defaults in the event of any default by him ; but otherwise it remains, as I see it, simply as a loan owing by the company to the agent and repayable on the termination of the agency." It would therefore appear that the deposits in that case were held not to be trading receipts because they had not been made as part of a trading transaction. It was held that they had been received anterior to the commencement of the trading transactions and really formed the trading structure of the company. The character of the amounts with which we are concerned is entirely different. They were parts of the trading transactions themselves and very essential parts : the appellant would not sell liquor unless these amounts were paid and the trade of the appellant was to make profit out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts with which this case is concerned, were paid and were refundable as an integral part of a commercial transaction, namely, the sale of liquor in bottles by the appellant to a wholesaler. The case nearest to the present one is, in our view, that decided by this court in K. M. S. Lakshmanier & Sons v. Commissioner of Income-tax and Excess Profits Tax, Madras. There the appellants, who were the assessees, were merchants carrying on business as the sole selling agents for yarn manufactured by the Madura Mills Co. Ltd. They sold the yarn to their constituents and in the relevant accounting period the sales were made under three successive arrangements each of which covered a part of it. Under each arrangement, the assessees were paid a certain initial sum by their customers. The question was as to the nature of these initial payments. Under the first arrangement " the appellants had two accounts for each constituent, namely, ' a contract deposit account ' and ' a current yarn account ', crediting the moneys received from the customers in the former account and transferring them to the yarn account in adjustment of the price of the bales supplied then and there, that is, as and when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice 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 the authority of Lakshmanier & Sons case, hold the amounts in the present case to have been trading receipts. It was Mr. Sastri's effort to bring the case within the arrangement that prevailed in the third part of the accounting period in Lakshmanier & Sons case, the initial payments made during which were held to be loans. But we think that he has not succeeded in this. The payments during the third period were made under the following arrangements : " Instead of calling for amounts from you towards ' Security Deposit ' due to bales for which we are entering into forward contracts with you and returning the same to you from the said deposit then and there, as we are doing now, and in order to make it feasible, we have decided to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the purpose for which the deposit is made is to provide a security for the due performance of a collateral contract invest the deposit with a different character. It remains a loan of which the repayment in full is conditioned by the due fulfilment of the obligations under the collateral contract." In coming to the view that he did with regard to the arrangement prevailing in the third period, the learned Chief Justice referred with approval to the case of Davies v. Shell Company of China, which we have earlier mentioned. Now it seems to us that the reasons on which the learned Chief Justice based his conclusion that the deposits during the third period were loans do not apply to the present case. In the present case, unlike in Lakshmanier & Sons case, the amount paid has a relation to the price of the goods sold ; it is part of that price as we have earlier said. It was a condition of each transaction of sale by the appellant. It was refundable to the wholesaler as soon as he returned the bottles in which the liquor had been supplied to him in the transaction in respect of which the deposit had been made. The deposit in the present case was really not a security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the moment of receipt, they had at that moment the potentiality of becoming trading receipts. That proposition involves a view of income-tax law in which I can discover no merit except that of novelty." Then again he said : " It seems to me that the quality and nature of a receipt for income-tax purposes is fixed once and for all when it is received. What the partners did in this case, as I have said, was to decide among themselves that what they had previously regarded as a liability of the firm they would not, for practical reasons, regard as a liability ; but that does not mean that at that moment they received something, nor does it mean that at that moment they imprinted upon some existing asset a quality different from what it had possessed before. There was no existing asset at all at that time." All that this case decided was that moneys which were not when received, income---and as to this there was no question---could never later become income. With such a case we are not concerned. The case turned on the fact that the moneys received by Tattersall were never its moneys ; they had been received on behalf of others and that receipt only created a liability towards th ..... 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